Document:

Exhibit 10.5  

November 21,
2002 

Mr. David
Perry 

Dear
David: 

        On
behalf of Anamax, Inc. (the "Company"), I am pleased to offer you the full time position of Chief Executive Officer of
the ompany. Speaking for myself, as well as the other members of the Company's Board of Directors, we are all very impressed with your credentials and we look forward to your future success in
this position. 

        The
terms of your new position with the Company are as set forth below: 

        1.     Position.

        a.     You
will become the Chief Executive Officer of the Company, working out of the Company's headquarters office in Palo Alto, California. As Chief Executive Officer, you
will have overall responsibility for the strategy and business affairs of the Company. You will report to the Company's Board of Directors. 

        b.     You
agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from
you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, except for your commitments to Nexprise, Inc.,
which shall not exceed ten percent (10%) of your business time, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be
entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or
organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that
is competitive in any manner with the business of the Company. Notwithstanding the foregoing, you may serve on the board of directors of up to two (2) other companies (including
Nexprise, Inc.) without the written consent of the Company's Board of Directors, so long as such companies are not competitors to the Company. Nothing in this letter agreement will prevent you
from accepting speaking or presentation engagements in exchange for honoraria, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed
on a national stock exchange, other than your ownership of securities of Nexprise, Inc. 

        2.     Start Date.    The effective date of your new position with the Company was September 16, 2002. 

        3.     Proof of Right to Work.    For purposes of federal immigration law, you will be required to provide to the
Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date
of hire, or our employment relationship with you may be terminated. 

        4.     Compensation.

        a.     Base Salary.    You will be paid a monthly salary of $16,666.67, which is equivalent to $200,000 on an
annualized basis. Your salary will be payable in pursuant to the Company's regular payroll policy. Your base salary will be reviewed annually as part of the Company's normal salary
review process. 

        b.     Bonus.    In addition to your base salary, you will be entitled to receive a bonus of up to $80,000 per year,
based on the attainment of milestones to be determined by the compensation committee of the Board of Directors at the beginning of each fiscal quarter. This bonus will be 

 

payable,
if earned, quarterly as determined mutually by you and the Compensation Committee of the Board of Directors. In the event that your employment with Company terminates before all or part of
such bonus has been paid, you will forfeit the right to receive any unpaid bonus. 

        5.     Stock Options.

        a.     Initial Grant.    In connection with the commencement of your full-time employment, the Board of
Directors will grant you an option to purchase 750,627 shares of the Company's Common Stock ("Base Shares") with an exercise price equal to the
fair market value on the date of the grant. These option shares will vest at the rate of 25% of the shares on the twelve (12) month anniversary of your Vesting Commencement Date
(as defined in the your Stock Option Agreement) and the remaining Base Shares will vest monthly thereafter at the rate of 1/48 of the total number of Base Shares per month,
except as set forth in Section 8 below. Vesting will, of course, depend on your continued employment with the Company. This initial grant is in addition to the 54,728 shares you are
entitled to receive in connection with services already rendered to the Company. 

        b.     Milestone Grant.    In addition to the Initial Grant described above, in connection with the commencement of
your full-time employment, the Board of Directors will grant you an option to purchase 500,418 shares of the Company's Common Stock (the "Milestone
Shares") with an exercise price equal to the fair market value on the date of grant. These options shall vest on the five-year anniversary of your Vesting
Commencement Date, but vesting of the Milestone Shares shall accelerate based on the attainment of the milestones set forth on Exhibit A
to this letter or as set forth in Section 8 below. The options for Base Shares and Milestone Shares will be an incentive stock option to the maximum extent allowed by the tax code and
will be subject to the terms of the Company's 2001 Equity Incentive Plan and the Stock Option Agreement between you and the Company. 

        6.     Benefits.

        a.     Insurance Benefits.    The Company will provide you with the opportunity to participate in the standard benefits
plans currently available to other similarly situated employees, subject to any eligibility requirements imposed by such plans. 

        b.     Vacation; Sick Leave.    You will be entitled to vacation and sick leave pursuant to the Company's standard
policies. 

        7.     Confidential Information and Invention Assignment Agreement.    Your acceptance of this offer and commencement
of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your start date. 

        8.     Terms of Employment.

        a.     At-Will Employment.    Your employment with the Company will be on an "at will" basis, meaning that
either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability, except as set forth below in this Section 8. 

        b.     Voluntary Resignation: Termination for Cause.    If you either voluntarily resign from the Company (other than
as an Involuntary Termination (as defined below)) or the Company terminates your employment for Cause (as defined below), either before or after a Change in Control (as defined
below), then you shall not be entitled to receive any severance or other benefits under this Section 8 or otherwise under this Agreement. Your benefits will be determined in either case
under the Company's then existing benefit plans and policies in accordance with 

2

 

such
plans and policies in effect on the date of termination or as otherwise determined by the Board of Directors of the Company. 

        c.     Severance Benefits.    In the event that you are terminated without Cause or subject to an Involuntary
Termination before a Change in Control (each as defined below) and after the Company's Series B financing, (i) before September 9, 2003, you will entitled to receive your base
salary for six months following the effective date of your termination and vesting of 6/48 of the Base Shares will be accelerated, or (ii) after September 9, 2003, you
will be entitled to receive your base salary for twelve (12) months following the effective date of your termination and vesting of 12/48 of the Base Shares will be accelerated.
The salary payments in the prior sentence will be made according to the Company's regular payroll policy (or in the same manner as other officers of the Company) and subject to applicable
withholding taxes. 

        d.     Change of Control.    Subject to Section 8(g) below, if your employment with the Company is terminated
without Cause or you are subject to an Involuntary Termination in connection with or at any time within twelve (12) months after a Change of control, then in addition to the benefits provided
in Section 8(c) above, you shall become vested in (i) the remaining unvested Base Shares and Milestone Shares if the Change of Control is a Liquidity Event or (ii) fifty percent
(50%) of the remaining unvested Base Shares and Milestone Shares if the Change of Control is not a Liquidity Event. In addition, the Board of Directors may, in its sole discretion, accelerate the
vesting of some or all of the Base Shares or Milestone Shares in connection with a Change of Control. 

        e.     Definitions.    The following terms referred to in this Agreement shall have the following meanings: 

        (i)    Change of Control.    "Change of Control" shall mean a sale of
all or substantially all of the Company's assets, or any merger or consolidation of the Company with or into another corporation other than a merger or consolidation in which the holders of more than
50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted
into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after
such transaction. For purposes of clarification, an equity financing will not be a Change of Control, even if equity securities representing greater than 50% of the total voting power of the Company
are sold. 

        (ii)   Cause.    "Cause" means (A) gross negligence or willful
misconduct in the performance of duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its
subsidiaries; (B) deliberate violation of a Company policy; (C) repeated unexplained or unjustified absence from the Company; (D) a material and willful violation of any federal
or state law; (E) commission of any act of fraud with respect to the Company; (F) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and
reputation of the Company; (G) unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom you owe an obligation of
non-disclosure as a result of your relationship with the Company or (H) your death or Permanent Disability, in each case as determined in good faith by the Board. 

        (iii)  Involuntary Termination.    "Involuntary Termination" means
your voluntary termination of your employment with the Company within thirty (30) days following the occurrence of any of the following without your consent: (A) a material reduction or
change in job duties, responsibilities and requirements inconsistent with your position with the Company and your prior duties, responsibilities and requirements prior to the Change in Control,
provided that 

3

 

neither
a mere change in title alone nor reassignment following a Change of Control to a position that is substantially similar to the position held prior to the Change of Control in terms of job
duties, responsibilities or requirements shall constitute a material reduction in job responsibilities; (B) a reduction in your then-current base salary by at least 20%, provided
that an across-the-board reduction in the salary level of all other senior executives by the same percentage amount as part of a general salary level reduction shall not
constitute such a salary reduction or (C) your refusal to relocate the principal place for performance of Company duties to a location more than fifty (50) miles from the Company's then
current location at the time of the Change in Control. 

        (iv)  Liquidity Event.    "Liquidity Event" means a Change of
Control which results in the holders of the Company's Series A Preferred Stock receiving at least $3.5475 per share if before the Series B financing, and which results in the
holders of the Company's Series B Preferred Stock receiving at least three (3) times the original purchase price for such shares if after the Series B financing. For the purposes
of this Section 8, the consideration received by the holders of the Company's Series A Preferred Stock or Series B Preferred Stock shall be valued in the manner set forth in the
Company's Certificate of Incorporation, as it may be amended from time to time. 

        (v)   Permanent Disability.    "Permanent Disability" shall mean your
inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than six months. 

        f.      Release.    If any events occur which entitle you to any benefits under this Section 8, as a condition to
your receiving such benefits, you shall execute the Company's standard form of release releasing the Company from any claims relating to your employment or termination of your employment. 

        g.     Limitation on Payments.    In the event that the severance benefits provided for in this Section 8
(A) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") and (B) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then your
benefits hereunder shall be payable either: (X) in full, or (Y) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under
Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by you on an after-tax basis, of the greatest amount of benefits hereunder, notwithstanding that all or some portion of such benefits may be taxable under
Section 4999 of the Code. Unless the Company and you otherwise agree in writing, any determination required under this Section 8(g) shall be made in writing by the public accountants
designated by the Company (the "Accountants"), whose determination shall be conclusive and binding upon you and the Company for all purposes. For
purposes of making the calculations required by this Section 8(g), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable,
good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and you shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations
contemplated by this Section 8(g). 

        9.     Successors.    Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree 

4

 

expressly
to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The
terms of this Agreement and all of your rights hereunder shall inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. 

        We
are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the
space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the
Company and by you. 

	
  Very truly yours,	
 	

ACCEPTED AND AGREED:
	
  ANAMAX, INC.	
 	

DAVID PERRY
	
 	

 	
 	

 
	
 By:	

 	
 	

 
	 	/s/  MARK LESCHLY      
	 	/s/  DAVID PERRY      
 Signature
	
 Title:	

 	
 	

 
	 	Chairman of the Board
	 	10/5/02
 Date

5

August 30, 2005 

Mr. David
Perry 

        Amendment of Offer Letter dated November 21, 2002  

Dear David: 

        The
Board of Directors of Anacor Pharmaceuticals, Inc. (the "Company") has agreed to amend certain terms of your employment with the Company. Accordingly, your offer letter
from the Company dated November 21, 2002 (the "Offer Letter") is amended as described below. All other provisions of the Offer Letter that are not modified by this Amendment, including
but not limited to, the provision regarding at-will employment, remain in full force and effect. In addition, as described below, the Company is recommending that the Board of Directors
grant to you an additional option to purchase shares of the common stock of the Company. 

        Section 4a. of
the Offer Letter is hereby amended to provide that effective June 3, 2005, your monthly base salary is increased to $20,833.33, which is
equivalent to $250,000 on an annualized basis. 

        Section 4b. of
the Offer Letter is hereby amended to provide that effective June 3, 2005, you will be entitled to receive a bonus each year of up to 50% of
your base salary based on the attainment of milestones to be determined by the compensation committee of the Board of Directors at the beginning of each year. This bonus will be payable, if earned,
within 30 days following the end of each fiscal year. In the event that your employment with the Company terminates before all of part of such bonus has been paid, you will forfeit the right to
receive any unpaid bonus. For purposes of fiscal year 2005, your total bonus opportunity at 100% achievement of milestones will be $106,000 (calculated as a maximum of $33,000 for the period of Jan 1
through June 2, 2005 and $73,000 for the period of June 3 through December 31, 2005). 

        Section 5b. of
the Offer Letter is hereby amended such that the vesting schedule of the Milestone Shares described in Section 5b. is as described in this
paragraph and in the Addendum to Stock Option Grant (the "Addendum") attached to this Amendment. The Company acknowledges and agrees that the Milestone Shares subject to accelerated vesting
based on completion of the first milestone described on Exhibit A of the Offer Letter are fully vested and exercisable by you as of the date of this letter agreement based on the Company's
successful achievement of such milestone. The Company further agrees to revise the vesting schedule for the remaining unvested 50% of the Milestone Shares (the "Unvested Milestone Shares") such
that 1/24 of the Unvested Milestone Shares (20,850 shares) will vest and become exercisable by you on a monthly basis beginning on August 1, 2005 and continuing on each
monthly anniversary thereafter, assuming your continued employment with the Company. 

        In
connection with the execution of this Amendment, the Company will recommend that the Board of Directors grant you an option to purchase 1,427,400 shares of the Company's Common
Stock (the "New Option Shares") with an exercise price equal to the fair market value on the date of the grant. The New Option Shares will vest and become exercisable at the rate
of 25% of the shares on the twelve (12) month anniversary of your Vesting Commencement Date (which shall be June 3, 2005) and the remaining New Option Shares will vest monthly
thereafter at the rate of 1/48 of the total number of New Option Shares per month. Vesting will, of course, depend on your continued employment with the Company. 

 

        Please
sign below to acknowledge and accept the terms of this Amendment and to agree that the terms of this Amendment supersede any conflicting terms of the Offer Letter and taken
together with the Offer Letter constitute your entire agreement with respect to your employment with the Company. 

	 	 	Sincerely,
	
 	
 	

 
	 	 	/s/  MARK LESCHLY      
 Mark Leschly

Chairman, Board of Directors
	ACCEPTED AND AGREED:	 	 
	
 	
 	

 
	/s/  DAVID PERRY      
 David Perry	 	 

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Exhibit 10.6  

June 18,
2007 

Christine
Gray-Smith 

Re:
Offer of Employment by Anacor Pharmaceuticals, Inc.

Dear
Christine: 

        I
am very pleased to confirm to you our offer of employment with Anacor Pharmaceuticals, Inc. (the "Company") as Senior Vice President, Chief Financial Officer, a
full-time, exempt level position reporting directly to the CEO of the Company. Your primary office location shall be the Company's corporate headquarters, currently located in Palo Alto,
CA. Subject to fulfillment of all conditions imposed by this offer letter ("Letter Agreement"), we would like your start date to be June 18, 2007 (the "Start Date"), as mutually agreed
to by you and the Company. In this key position you will primarily be responsible for overseeing or participating in financial plans and policies, accounting practices and procedures, and the
organization's relationship with the financial community. You will direct the controller function, accounting, treasury, tax, as well as the human resources, investor relations, facilities, and
information systems functions. You will also serve as part of the management team and will participate in selected tasks as assigned by the Company. 

        The
terms of our offer and the benefits currently provided by the Company are as follows: 

        1.     Your
starting base salary will be $11,875 per semi-monthly pay period, which is equivalent to $285,000 annually, and will be paid per the Company's standard
payroll process and less all applicable taxes and withholdings. In addition, you will be eligible for a performance bonus of up to twenty percent (20%) of your base salary ("Performance Bonus"). Fifty
percent (50%) of the Performance Bonus is contingent on your achievement of individual performance objectives as mutually established by you and the Company ("Individual Component"). The remaining
fifty percent (50%) of the Performance Bonus is contingent on the Company's achievement of its corporate objectives ("Company Component"). The Individual Component of the Performance Bonus will be
assessed on, and if earned, paid on a quarterly basis and prorated for your length of service. The Company Component of the Performance Bonus will be assessed on, and if earned, paid on an annual
basis (prior to March 15th of the year following the year in which it was earned), and prorated for your length of service. The Company will determine in its sole
discretion, the level of achievement of each Performance Bonus component. The Performance Bonus, if earned, will be paid less all applicable taxes and withholdings. 

        2.     In
addition, the Company will provide you with a one-time sign-on bonus in the amount of $30,000 (the "Sign-on Bonus"), to be
paid on the earliest to occur of: 1) the first regular payroll date in January 2008, 2) the effective date of a Change of Control (as defined in the Change of Control
Agreement attached hereto as Exhibit A (the "Change of Control Agreement")), and 3) the date of termination of your employment with the Company, provided however that if the
Sign-on Bonus becomes payable to you as a result of termination of your employment, then if the Company terminates your employment for Cause (as defined in the Change of Control
Agreement) or if you resign for other than Good Reason (as defined below), the Company shall not pay you the full amount of the Sign-on Bonus but instead will pay you the
pro-rated portion of the Sign-on Bonus corresponding to the number of months of your employment since your Start Date. The Sign-on Bonus will be subject to all
applicable payroll taxes and withholdings. If you resign other than for Good Reason or if the Company terminates your employment for Cause after the date of payment of the Sign-on Bonus
and within one year of your Start Date, you agree to repay the Company, without interest, the pro-rated portion of the gross amount of the Sign-on Bonus corresponding to the
remaining months in the one year period following the Start Date. Such repayment will be due to the Company immediately upon termination of employment. In the absence of any other arrangement, you
shall be deemed to have directed the Company to satisfy this obligation by reducing the accrued and unpaid compensation due to you from the Company at that time, and if such compensation is not
sufficient to satisfy such repayment obligation, you will pay the outstanding repayment obligation by cash or check. Your 

 

repayment
obligation under this Section 2 shall terminate upon a Change of Control. The Company will report as taxable income to you the full amount of the Sign-On Bonus when paid,
provided that if you are required to repay any portion of it as set forth above, the Company shall properly adjust the reportable income that is attributable to the bonus. 

        3.     As
a full-time employee you will be eligible to participate in health insurance, and other employee benefit plans established by the Company, subject to any
eligibility requirements imposed by such plans. You will also be eligible for paid time off ("PTO") equal to four (4) weeks or twenty (20) working days accrued per year of service, which
will accrue on a prorated basis each pay period during which you are an active employee. 

        4.     As
a full-time employee of the Company, you agree that you will devote all of your business time and attention to the business of the Company, and that the
Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice. You further agree that during the course of your employment with the Company,
you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Chief Executive
Officer, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company, as determined by the Company. You may serve
on the Board of Directors of an organization that does not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company with the
prior written consent of the Company's Chief Executive Officer. 

        5.     As
an employee of the Company, you will have access to certain confidential information of the Company and you may, during the course of your employment, develop certain
information or inventions, which will be the property of the Company. To protect the interests of the Company, you will be required to sign the Company's standard "Confidential Information and
Invention Assignment Agreement" attached hereto as Exhibit B as a condition of your employment. We wish to impress upon you that we do not want you to bring with you any confidential or
proprietary material of any former employer or to violate any other obligations you may have to any former employer. 

        6.     We
will recommend to the Board of Directors of the Company (the "Board") that you be granted an incentive stock option (to the maximum extent permitted by
applicable tax law) to purchase up to 500,000 shares of Common Stock of the Company (the "Option"), under its 2001 Equity Incentive Plan (the "Plan") at the fair market value of
the Company's Common Stock on the date of grant, as determined by the Board upon their approval of such grant. Twenty-five percent (25%) of the Option shares will vest on the one year
anniversary date of your Start Date, and the remaining Option shares will vest monthly in equal portions over the following three years for a total vesting term of four years. In the event the Company
terminates your employment without Cause prior to the first anniversary of your Start Date, the Company will waive the one-year cliff vesting requirement and you will be credited with
vesting on your termination date equal to 1/48 of the Option shares multiplied by each full month of your employment from your Start Date. The Option will be governed by the terms and
conditions of the Plan and corresponding option agreement. Further details on the Plan and any specific option granted to you will be provided following approval of such grant by the Company's Board. 

        7.     In
case of a Change of Control, the terms described in the Change of Control Agreement will take effect. 

        8.     In
the event your employment with the Company is terminated by the Company without Cause or by you for Good Reason and such termination is not in connection with, or
within twelve (12) months following, a Change of Control (a "Subject Termination"), you will be entitled to receive the termination benefits described in this paragraph. If a Subject
Termination occurs prior to an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration 

2

 

statement
on Form S-1 (or any successor form) under the Securities Act of 1933, as amended (an "IPO"), you will be entitled to receive: (a) payment of six
(6) months of your current annual salary, less all applicable taxes and withholdings, paid in a lump sum payment within thirty (30) days of the effective date of the Release Agreement
(as described below) and (b) either direct payment or reimbursement, at your discretion, of coverage for you and your eligible dependents under the Company's employee health and benefit
plans pursuant to COBRA for six (6) months following the effective date of the Release Agreement if you elect to continue such coverage under COBRA. If a Subject Termination occurs after an
IPO, then instead of the benefits in the foregoing sentence, you will be entitled to receive: (a) payment of nine (9) months of your current annual salary, less all applicable taxes and
withholdings, paid in a lump sum payment within thirty (30) days of the effective date of the Release Agreement and (b) either direct payment or reimbursement, at your discretion, of
coverage for you and your eligible dependents under the Company's employee health and benefit plans pursuant to COBRA for nine (9) months following the effective date of the Release Agreement
if you elect to continue such coverage under COBRA. 

        For
purposes of this Letter Agreement, "Good Reason" means your voluntary resignation of your employment with the Company following the occurrence of any of the following without your
consent: (A) a material reduction or change in your job duties, responsibilities and authorities inconsistent with your prior position with the Company and your prior duties, responsibilities
and authorities; (B) a reduction of your then current base salary by more than 10 percent (10%) or (C) a relocation of the principal place for performance of your duties to the
Company to a location more than twenty-five (25) miles from the Company's then current location; provided that you give written notice to the Company of the event forming the basis
of the Good Reason termination within sixty (60) days of the date the Company gives written notice to you of its affirmative decision to take an action set forth in (A), (B) or
(C) above, the Company fails to cure such basis for the Good Reason termination within thirty (30) days after receipt of your written notice and you terminate your employment within one
hundred twenty (120) days following the date on which you received notice from the Company of the event forming the basis for the Good Reason termination. 

        9.     While
we look forward to a mutually satisfying relationship, should you decide to accept our offer, your employment is for no specific period of time and you will be an
at-will employee of the Company, which means the employment relationship can be terminated by either you or the Company for any or no reason, at any time, with or without notice. Any
statements or representations to the contrary (and, indeed, any statements contradicting any provision in this letter) should be regarded by you as ineffective. This at-will provision may
only be amended in a writing signed by both you and the Company's Chief Executive Officer. Further, your participation in any stock option or benefit programs is not to be regarded as assuring you of
continuing employment for any particular period of time. As always, the Company reserves the right to modify, delete, or otherwise amend its benefits, compensation and incentive programs from time to
time as it deems necessary in its sole discretion. 

        10.   For
purposes of federal immigration law, and as a requirement of employment with the Company, within three (3) business days of starting your new position you
will need to present documentation demonstrating your identity and eligibility to work in the United States. If you have questions about this requirement, which applies to U.S. citizens
and non-U.S. citizens alike, you may contact Human Resources. 

        11.   To
the extent that the termination benefits in this Letter Agreement become subject to Code Section 409A(a)(l), you and the Company agree to cooperate to
make such amendments to the terms as may be necessary to avoid the imposition of penalties and additional taxes under Section 409A of the Code; provided however, that you and the Company agree
that any such amendment shall not (i) materially increase the cost to, or liability of, the Company with respect to any payments under this Letter Agreement, or (ii) materially decrease
the value of benefits provided to you under this Letter Agreement. 

3

 

        12.   As
a condition to your receipt of the termination benefits described in Sections 6 and 8 of this Letter Agreement, you agree that you will execute the
Company's standard form of Release Agreement releasing the Company from any claims relating to your employment and termination of your employment. The Company shall not be obligated to provide any of
such termination benefits to you prior to the effective date of such Release Agreement as defined therein. 

        13.   This
offer is contingent upon the positive background check results. It supersedes and replaces any prior representations or agreements, written, verbal or otherwise,
between you and the Company regarding the terms described in this letter. Please sign this letter below and return one original, along with executed originals of the referenced Exhibits, to Anacor
Pharmaceuticals, Inc., Attention: Human Resources. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this offer letter as well as the
referenced Exhibits. A duplicate letter is enclosed for your files. Should you have anything else that you wish to discuss, please do not hesitate to call us. 

        We
look forward to the opportunity to welcome you to the Company. 

Very
truly yours, 

/s/  DAVID PERRY     

David Perry Chief

Executive Officer 

        I
have read and understood this Letter Agreement and the referenced Exhibits and hereby acknowledge, accept and agree to the terms set forth above. No further commitments were made to me
as a condition of employment. 

	/s/  CHRISTINE GRAY-SMITH      
	 	Date Signed:	6/25/07

	Christine Gray-Smith	 	 	 

4

  

Exhibit A  

 
 

Anacor Pharmaceuticals, Inc.    
    

 
 

Change of Control Agreement    
    

This
Change of Control Agreement is executed as of June 18, 2007 (the "Effective Date") by and between Anacor Pharmaceuticals, Inc. (the "Company") and Christine Gray-Smith
("Employee"). The effectiveness of the Change of Control Agreement as of the Effective Date is contingent upon approval by the Board of Directors of the Company (the "Board"). 

Terms: 

In
the event Employee's employment with the Company or its successor is terminated without Cause (as defined below) or Employee is subject to an Effective Termination (as defined below) in connection
with or at any time within twelve (12) months following a Change of Control (as defined below) (a "Covered Termination"), all restricted stock and stock options granted to Employee and held by
Employee (the "Shares") shall immediately vest upon the effective date of the Release Agreement (as defined below) if the Change of Control is a Liquidity Event, or (ii) 50% of the remaining
unvested Shares shall become vested upon the effective date of the Release Agreement if the Change of Control
is not a Liquidity Event. In addition, the Board may, in its sole discretion, accelerate the vesting of some or all of the Shares in connection with a Change of Control. 

In
addition, in the event of a Covered Termination prior to an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on
Form S-1 (or any successor form) under the Securities Act of 1933, as amended (an "IPO"), Employee will be entitled to: (a) payment of nine (9) months of Employee's
current annual salary, less all applicable taxes and withholdings, paid in a lump sum payment within thirty (30) days of the effective date of the Release Agreement and (b) direct
payment or reimbursement, at Employee's discretion, of coverage for Employee and Employee's eligible dependents under the Company's employee health and benefit plans pursuant to COBRA for nine
(9) months following the effective date of the Release Agreement if Employee elects to continue such coverage under COBRA. In the event of a Covered Termination after an IPO, Employee will be
entitled to: (a) payment of twelve (12) months of Employee's current annual salary, less all applicable taxes and withholdings, paid in a lump sum payment within thirty (30) days
of the effective date of the Release Agreement and (b) direct payment or reimbursement, at Employee's discretion, of coverage for Employee and Employee's eligible dependents under the Company's
employee health and benefit plans pursuant to COBRA for twelve (12) months following the effective date of the Release Agreement if Employee elects to continue such coverage under COBRA. 

Definitions: 

Change of Control. "Change of Control" shall mean a sale of all or substantially all of the Company's assets, or any merger or consolidation of the
Company with or into another corporation other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such
transaction continue to hold (either by voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction. For purposes of clarification, neither an equity financing occurring
prior to an IPO nor an IPO will be a Change of Control, even if equity securities representing greater than 50% of the total voting power of the Company are sold in the transaction. 

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Cause. "Cause", for the purposes of the Change of Control Provisions means, as determined by the Board acting in good faith and based on information
then known to it: (A) gross negligence or willful misconduct in the performance of duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in
substantial and material damage to the Company or its subsidiaries; (B) a material failure to comply with the Company's written policies; (C) repeated
unexplained or unjustified absence from the Company; (D) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company;
(E) unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom Employee owes an obligation of non-disclosure as a
result of Employee's relationship with the Company, which use or disclosure causes material harm to the Company; or (F) Employee's death or Permanent Disability. 

Effective Termination. "Effective Termination" means Employee's voluntary termination of Employee's employment with the Company following the occurrence
of any of the following without Employee's consent: (A) a material reduction or change in job duties, responsibilities and authorities inconsistent with Employee's position with the Company and
Employee's prior duties, responsibilities and authorities prior to the Change of Control; (B) a reduction of Employee's then current base salary by more than 10 percent (10%) or
(C) a relocation of the principal place for performance of Executive's duties to the Company to a location more than twenty-five (25) miles from the Company's then current
location at the time of the Change of Control; provided that Employee gives written notice to the Company of the event forming the basis of the Effective Termination within sixty (60) days of
the date the Company gives written notice to Employee of its affirmative decision to take an action set forth in (A), (B) or (C) above, the Company fails to cure such basis for the
Effective Termination within thirty (30) days after receipt of Employee's written notice and Employee terminates employment within one hundred twenty (120) days following the date on
which Employee received notice from the Company of the event forming the basis for the Effective Termination. 

Liquidity Event. "Liquidity Event" means a Change of Control which results in the holders of the Company's Series B Preferred Stock receiving at
least three (3) times the original purchase price for such shares after the Series B financing. For purposes of this section, the consideration received by the holders of Series B
Preferred Stock shall be valued in the manner set forth in the Company's Certificate of Incorporation, as it may be amended from time to time. 

Permanent Disability. "Permanent Disability" shall mean Employee's inability to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than six (6) months. 

Release Agreement. If any events occur which entitle Employee to any benefits under the Change of Control Provisions, as a condition to Employee's
receiving such benefits, Employee shall execute the Company's standard form of Release Agreement releasing the Company from any claims relating to Employee's employment and termination of Employee's
employment. The Company shall not be obligated to provide any benefits to Employee under this Change of Control Agreement prior to the effective date of such Release Agreement as defined therein. 

Other Terms:  

Employee
is advised to consult with Employee's own tax or financial advisor to understand the possible financial and tax implications as a result of receiving any benefits under this Change of Control
Agreement. 

In
the event that the acceleration and severance benefits provided for in this Change of Control Agreement (A) constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (B) but for this paragraph, would be subject to 

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the
excise tax imposed by Section 4999 of the Code, then Employee's benefits hereunder shall be payable either: (X) in full, or (Y) as to such lesser amount which would result in
no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local
income taxes and the excise tax imposed by Section 4999, results in the receipt by Employee on an after-tax basis, of the greatest amount of benefits hereunder, notwithstanding that
all or some portion of such benefits may be taxable under Section 4999 of the Code. Unless the Company and Employee otherwise agree in writing, any determination required under this paragraph
shall be made in writing by the public accountants designated by the Company (the "Accountants"), whose determination shall be conclusive and binding upon Employee and the Company for all purposes.
For purposes of making the calculations required by this paragraph, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and Employee shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this paragraph. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations
contemplated by this paragraph. 

To
the extent that the benefits in this Exhibit A become subject to Code Section 409A(a)(1), Employee and the Company agree to cooperate to make such amendments to the terms as may be
necessary to avoid the imposition of penalties and additional taxes under Section 409A of the Code; provided however, that Employee and the Company agree that any such amendment shall not
(i) materially increase the cost to, or liability of, the Company with respect to any payments under this Change of Control Agreement, or (ii) materially decrease the value of benefits
provided to Employee under this Change of Control Agreement. 

AGREED AND ACCEPTED:  

	/s/ Christine Gray-Smith
 Christine Gray-Smith Date	 	6/25/07
 Date
	

Anacor Pharmaceuticals, Inc.	
 	

 
	

By:	

/s/ David Perry
	
 	

6/25/07
 Date
	

Name:	

David Perry
	
 	

 
	

Title:	

Chief Executive Officer
	
 	

 

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Anacor Pharmaceuticals, Inc.

Change of Control Agreement

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