Document:

Exhibit 4.2

 

Execution Version

 

TRACON PHARMACEUTICALS, INC.

 

 

INVESTORS’ RIGHTS AGREEMENT

 

 

March 28, 2011

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
1.
    	
Registration Rights
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
1.1
    	
Definitions
    	
1
    
	
 
    	
1.2
    	
Request   for Registration
    	
3
    
	
 
    	
1.3
    	
Company   Registration
    	
4
    
	
 
    	
1.4
    	
Form S-3   Registration
    	
4
    
	
 
    	
1.5
    	
Obligations   of the Company
    	
5
    
	
 
    	
1.6
    	
Information   From Holders
    	
6
    
	
 
    	
1.7
    	
Expenses   of Registration
    	
7
    
	
 
    	
1.8
    	
Underwriting   Requirements
    	
7
    
	
 
    	
1.9
    	
Delay   of Registration
    	
8
    
	
 
    	
1.10
    	
Indemnification
    	
8
    
	
 
    	
1.11
    	
Reports   Under the Exchange Act
    	
10
    
	
 
    	
1.12
    	
Assignment   of Registration Rights
    	
10
    
	
 
    	
1.13
    	
Limitations   on Subsequent Registration Rights
    	
11
    
	
 
    	
1.14
    	
Lock-Up   Agreement
    	
11
    
	
 
    	
1.15
    	
Termination   of Registration Rights
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
2.
    	
Covenants   of the Company
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
2.1
    	
Delivery   of Financial Statements
    	
12
    
	
 
    	
2.2
    	
Inspection
    	
13
    
	
 
    	
2.3
    	
Right   of First Offer
    	
13
    
	
 
    	
2.4
    	
Observer   Rights
    	
14
    
	
 
    	
2.5
    	
Board   Matters
    	
15
    
	
 
    	
2.6
    	
Scientific   Advisory Board Matters
    	
15
    
	
 
    	
2.7
    	
Insurance
    	
15
    
	
 
    	
2.8
    	
Employee/Independent   Contractor Agreements
    	
15
    
	
 
    	
2.9
    	
Equity   Incentive Plan; Employee Stock
    	
16
    
	
 
    	
2.10
    	
Successor   Indemnification
    	
16
    
	
 
    	
2.11
    	
Additional   Covenants
    	
16
    
	
 
    	
2.12
    	
Termination   of Covenants
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
3.
    	
Miscellaneous
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
3.1
    	
Termination
    	
17
    
	
 
    	
3.2
    	
Entire   Agreement
    	
17
    
	
 
    	
3.3
    	
Successors   and Assigns
    	
17
    
	
 
    	
3.4
    	
Amendments   and Waivers
    	
17
    
	
 
    	
3.5
    	
Notices
    	
17
    
	
 
    	
3.6
    	
Severability
    	
18
    
	
 
    	
3.7
    	
Governing   Law
    	
18
    
	
 
    	
3.8
    	
Counterparts
    	
18
    
	
 
    	
3.9
    	
Titles   and Subtitles
    	
18
    
	
 
    	
3.10
    	
Aggregation   of Stock
    	
18
    

 

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TRACON PHARMACEUTICALS, INC.

 

INVESTORS’ RIGHTS AGREEMENT

 

This Investors’ Rights Agreement (the “Agreement”) is made as of the 28th day of March, 2011, by and among TRACON Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and the investors listed on Exhibit A hereto, each of which is herein referred to as an “Investor.”

 

RECITALS

 

The Company and the Investors are parties to the Series A Preferred Stock Purchase Agreement of even date herewith (the “Purchase Agreement”).  In order to induce the Investors to purchase Series A Preferred Stock and invest funds in the Company pursuant to the Purchase Agreement, the Company hereby agrees that this Agreement shall govern the rights of the Investors to cause the Company to register shares of Common Stock issued or issuable to them and certain other matters as set forth herein.

 

AGREEMENT

 

The parties hereby agree as follows:

 

1.                                    Registration Rights.  The Company and the Investors covenant and agree as follows:

 

1.1                            Definitions.  For purposes of this Section 1:

 

(a)                               “Affiliated Fund” means, with respect to a Holder that is a limited liability company or a limited liability partnership, a fund or entity managed by the same manager or managing member or general partner or management company or by an entity controlling, controlled by, or under common control with such manager or managing member or general partner or management company;

 

(b)                              “Exchange Act” means the Securities Exchange Act of 1934, as amended (and any successor thereto) and the rules and regulations promulgated thereunder;

 

(c)                               “Excluded Registration” means a registration statement relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Securities Act, or a registration in which the only common stock being registered is common stock issuable upon conversion of debt securities which are also being registered

 

(d)                             “Form S-3” means such form under the Securities Act as in effect on the date hereof or any successor form under the Securities Act that permits significant incorporation by reference of the Company’s subsequent public filings under the Exchange Act;

 

(e)                               “First Tranche Closing” shall have the meaning set forth in the Purchase Agreement;

 

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(f)                                “Holder” means any Investor owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 of this Agreement;

 

(g)                              “Lead Investors” means JAFCO Super V3 Investment Limited Partnership and any Affiliated Fund (collectively, “JAFCO”) and (b) ONC Partners, L.P. and Nextech III Oncology, LPCI and any Affiliated Fund (collectively, “Nextech”);

 

(h)                              “Major Investor” means any Investor that holds at least 600,000 shares of the Series A Preferred Stock or the Common Stock issued upon conversion thereof (subject to adjustment for stock splits, stock dividends, combinations, reclassifications or the like).  A Major Investor includes any general partners, managing members and affiliates of a Major Investor, including Affiliated Funds;

 

(i)                                  “Qualified IPO” means a firm commitment underwritten public offering by the Company of shares of its Common Stock prior to or in connection with which all the then-outstanding shares of Preferred Stock are converted automatically into shares of Common Stock pursuant to the Company’s Restated Certificate of Incorporation as such Restated Certificate of Incorporation may be amended from time to time (the “Restated Certificate”);

 

(j)                                  “Register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document;

 

(k)                              “Registrable Securities” means (i) the shares of Common Stock issuable or issued upon conversion of the Series A Preferred Stock held by the Holders and any assignee thereof in accordance with Section 1.12 of this Agreement, and (ii) any other shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares listed in (i); excluding, however, in all cases any Registrable Securities sold in a transaction in which the rights under this Agreement are not assigned, or any shares for which registration rights have terminated pursuant to Section 1.15 of this Agreement;

 

(l)                                  The number of shares of “Registrable Securities then outstanding” shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities;

 

(m)                          “SEC” means the Securities and Exchange Commission; and

 

(n)                              “Securities Act” means the Securities Act of 1933, as amended (and any successor thereto) and the rules and regulations promulgated thereunder.

 

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1.2                            Request for Registration.

 

(a)                               If the Company shall receive at any time after the earlier of (i) March 28, 2015, or (ii) six months after the effective date of the initial public offering by the Company of shares of its Common Stock, a written request from the Holders of a majority of the Registrable Securities then outstanding (the “Initiating Holders”) that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities with an anticipated aggregate offering price of at least $5,000,000, then the Company shall, within 20 days after receiving such request, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), use all commercially reasonable efforts to cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered within 20 days after the mailing of such notice by the Company.

 

(b)                              If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request and the Company shall include such information in the written notice referred to in subsection 1.2(a).  The underwriter will be selected by the Company which underwriter shall be reasonably acceptable to a majority in interest of the Holders whose Registrable Securities are to be included in the underwriting.  In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein.  The Company and all Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting.  Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all participating Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each participating Holder.  In no event shall any Registrable Securities be excluded from such underwriting unless all other securities are first excluded from such offering.  Any Registrable Securities excluded from or withdrawn from such underwriting shall be withdrawn from registration.

 

(c)                               Notwithstanding the foregoing, if the Company shall furnish to the Initiating Holders a certificate signed by the Chairman of the Board of Directors of the Company (the “Board”) stating that in the good faith judgment of the Board it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed, the Company shall have the right to defer such filing for a period of not more than 90 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right or the similar right set forth in Section 1.4(b)(iii) more than once in any 12-month period, and provided, further, that the Company shall not register any securities for the account of itself or any other stockholder during such 90-day period (other than in a Qualified IPO or an Excluded Registration).

 

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(d)                             In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2:

 

(i)                                  After the Company has effected two registrations pursuant to this Section 1.2 provided, however, that such registrations have been declared or ordered effective and that either (A) the conditions of Section 1.5(a) have been satisfied or (B) the registration statements remain effective and there are no stop orders in effect to such registration statements;

 

(ii)                              During the period starting with the date 90 days prior to the Company’s good faith estimate of the date of filing of, and ending on a date 180 days after the effective date of, a registration subject to Section 1.3 hereof unless such offering is not the initial public offering of the Company’s securities, in which case, ending on a date 90 days after the effective date of such registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all commercially reasonable efforts to cause such registration statement to become effective; or

 

(iii)                          If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below.

 

1.3                            Company Registration.

 

(a)                               If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock under the Securities Act in connection with the public offering of such securities solely for cash (other than an Excluded Registration), the Company shall, at such time, promptly give each Holder written notice of such registration.  Upon the written request of each Holder given within 20 days after mailing of such notice by the Company in accordance with Section 3.4, the Company shall, subject to the provisions of Section 1.8, use all commercially reasonable efforts to cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered if any stock of the Company is registered.

 

(b)                              The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.  The expenses of such registration shall be borne by the Company, in accordance with Section 1.7 hereof.

 

1.4                            Form S-3 Registration.  In case the Company shall receive from any Holder or Holders of not less than 20% of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:

 

(a)                               promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

 

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(b)                              use all commercially reasonable efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $2,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed, the Company shall have the right to defer such filing for a period of not more than 90 days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right or the similar right set forth in Section 1.2(c) more than once in any 12-month period; (iv) in any jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already qualified to do business or subject to service of process in that jurisdiction; or (v) during the period ending 90 days after the effective date of a registration statement subject to Section 1.3.

 

(c)                               Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders.  Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively.

 

1.5                            Obligations of the Company.  Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

 

(a)                               Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 120 days, or until the distribution described in such registration statement is completed, if earlier.

 

(b)                              Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for up to 120 days, or until the distribution described in such registration statement is completed, if earlier.

 

(c)                               Promptly notify the Holders of the effectiveness of such registration statement, and furnish to the Holders such numbers of copies of a prospectus, including any

 

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supplement to the prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

 

(d)                             Following the effective date of such registration statement, notify the Holders of any request by the SEC that the Company amend or supplement such registration statement, or the associated prospectus.

 

(e)                               Use all commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already qualified to do business or subject to service of process in that jurisdiction.

 

(f)                                In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering.  Each Holder and other security holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

 

(g)                              Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, such obligation to continue for 180 days or until the distribution described in such registration statement is completed, if earlier.

 

(h)                              Cause all such Registrable Securities registered pursuant to this Section 1 to be listed on each national securities exchange or trading system on which similar securities issued by the Company are then listed.

 

(i)                                  Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

 

(j)                                  Make generally available to its security holders, and to deliver to each Holder participating in the registration statement, an earnings statement of the Company that will satisfy the provisions of Section 11(a) of the Securities Act covering a period of 12 months beginning after the effective date of such registration statement as soon as reasonably practicable after the termination of such 12-month period.

 

1.6                            Information From Holders.  It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding such Holder, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder’s Registrable Securities.  The Company shall have no obligation with respect to any registration

 

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requested pursuant to Section 1.2 or Section 1.4 of this Agreement if, as a result of the application of the preceding sentence, the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the anticipated aggregate offering price required to originally trigger the Company’s obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.4(b)(2), whichever is applicable.

 

1.7                            Expenses of Registration.  All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4 including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or 1.4 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2 or one right to a Form S-3 registration under Section 1.4, as the case may be; provided further, however, that if at the time of such withdrawal, the Holders (i) have learned of a material adverse change in the condition, business, or prospects of the Company that was not known to the Holders at the time of their request and (ii) have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall not forfeit their rights pursuant to Section 1.2 or Section 1.4, as the case may be.

 

1.8                            Underwriting Requirements.  In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under Section 1.3 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as reasonably agreed upon between the Company and the underwriters selected by the Company (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company.  If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below 35% of the total amount of securities included in such offering, unless such offering is a Qualified IPO, in which case, the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholder’s securities are included or (ii) any securities held by any stockholder (other than a Holder) be included if any securities held by any selling Holder are excluded.  For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a venture capital fund, or a partnership or corporation, the Affiliated Funds, partners, retired

 

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partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling stockholder,” and any pro-rata reduction with respect to such “selling stockholder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “selling stockholder,” as defined in this sentence.

 

1.9                            Delay of Registration.  No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

 

1.10                    Indemnification.  In the event any Registrable Securities are included in a registration statement under this Section 1:

 

(a)                               To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld, conditioned or delayed), nor shall the Company be liable to any Holder, underwriter or controlling person for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person.

 

(b)                              To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such

 

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losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld, conditioned or delayed; provided, further, that in no event shall any indemnity under this subsection 1.10(b) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder.

 

(c)                               Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10.

 

(d)                             If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided, that in no event shall any contribution by a Holder under this Subsection 1.10(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder.  The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and

 

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the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

 

(e)                               Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

(f)                                The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

 

1.11                    Reports Under the Exchange Act.  With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

 

(a)                               make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after 90 days after the effective date of the Qualified IPO so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;

 

(b)                              take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective;

 

(c)                               file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

 

(d)                             furnish to any Holder upon request, so long as the Holder owns any Registrable Securities, (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after 90 days after the effective date of the Qualified IPO), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.

 

1.12                    Assignment of Registration Rights.  The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee (i) of at least 600,000 shares of such securities (subject to adjustment for stock splits, stock dividends, reclassification or the like) (or if the transferring Holder owns less than 600,000 shares of such securities, then all Registrable Securities held by the transferring Holder), (ii) that is a subsidiary, parent, partner, limited

 

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partner, retired partner, member, retired member or stockholder of a Holder, (iii) that is an Affiliated Fund, (iv) who is a Holder’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (such a relation, a Holder’s “Immediate Family Member”, which term shall include adoptive relationships), or (v) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if the transferee agrees in writing to be bound by this Agreement and immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act.  For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of (x) a partnership who are partners or retired partners of such partnership or (y) a limited liability company who are members or retired members of such limited liability company (including Immediate Family Members of such partners or members who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership or limited liability company; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 1.

 

1.13                    Limitations on Subsequent Registration Rights.  From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least sixty percent (60%) of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company that grants any registration rights.

 

1.14                    Lock-Up Agreement.

 

(a)                               Lock-Up Period; Agreement.  In connection with a Qualified IPO and upon request of the Company or the underwriters managing such offering of the Company’s securities, each Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days but subject to such extension or extensions as may be required by the underwriters in order to publish research reports while complying with the Rule 2711 of the National Association of Securities Dealers, Inc.) from the effective date of such registration statement as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company’s Qualified IPO.

 

(b)                              Limitations; Early Release.  The obligations described in Section 1.14(a) shall apply only if all officers and directors of the Company and all greater than 1% stockholders enter into similar agreements, and shall not apply to a registration relating solely to employee benefit plans, or to a registration relating solely to a transaction pursuant to Rule 145 under the Securities Act.  Any discretionary waiver or termination of the restrictions of any or all of such

 

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lock-up agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.

 

(c)                               Stop-Transfer Instructions.  In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the securities of each Holder (and the securities of every other person subject to the restrictions in Section 1.14(a)).

 

(d)                             Transferees Bound.  Each Holder agrees that prior to the Company’s initial public offering it will not transfer securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Section 1.14.

 

(e)                               Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 1.14):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF UP TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE ISSUER’S INITIAL REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE.  SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

1.15                    Termination of Registration Rights.  No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (i) with respect to any Holder, at such time after the Qualified IPO as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder’s shares during a three-month period without registration, or (ii) upon termination of the Agreement, as provided in Section 3.1.

 

2.                                    Covenants of the Company.

 

2.1                            Delivery of Financial Statements.  The Company shall deliver to each Major Investor:

 

(a)                               as soon as practicable, but in any event within 120 days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder’s equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“GAAP”), and audited and certified by an independent public accounting firm of nationally recognized standing approved by the Board;

 

(b)                              as soon as practicable, but in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter;

 

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(c)                               within 30 days of the end of each month, an unaudited income statement and a statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail and showing variances from the budget and business plan called for in subjection (d) of this Section 2.1;

 

(d)                             as soon as practicable, but in any event 30 days prior to the end of each fiscal year, a budget, business and operating plan for the next fiscal year, prepared on a monthly basis, and, as soon as prepared, any other updated or revised budgets for such fiscal year prepared by the Company; and

 

(e)                               with respect to the financial statements called for in subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying on behalf of the Company that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment, provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board or a committee thereof determines that it is in the best interest of the Company to do so.

 

2.2                            Inspection.  The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor.

 

2.3                            Right of First Offer.  Subject to the terms and conditions specified in this Section 2.3, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined).  For purposes of this Section 2.3, Major Investor includes any general partners, managing members and affiliates of a Major Investor, including Affiliated Funds.  A Major Investor who chooses to exercise the right of first offer may designate as purchasers under such right itself or its partners or affiliates, including Affiliated Funds, in such proportions as it deems appropriate.

 

Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock (“Shares”), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions:

 

(a)                               The Company shall deliver a notice (the “RFO Notice”) to the Major Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares.

 

(b)                              Within 20 days after delivery of the RFO Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the RFO Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Major Investor bears to the total number of shares of Common

 

-13-

 

Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held by all Major Investors.  Such purchase shall be completed at the same closing as that of any third party purchasers or at an additional closing.  The Company shall promptly, in writing, inform each Major Investor that purchases all the shares available to it (each, a “Fully-Exercising Investor”) of any other Major Investor’s failure to do likewise.  During the 10-day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by all Fully-Exercising Investors who wish to purchase some of the unsubscribed shares.

 

(c)                               The Company may, during the 45-day period following the expiration of the period provided in subsection 2.3(b) hereof, offer the remaining unsubscribed portion of the Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the RFO Notice.  If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 30 days after the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith.

 

(d)                             The right of first offer in this Section 2.3 shall not be applicable to (i) Exempted Securities (as defined in the Restated Certificate) or (ii) any shares of Series A Preferred Stock issued pursuant to the Purchase Agreement, as the same may be amended from time to time.  In addition to the foregoing, the right of first offer in this Section 2.3 shall not be applicable with respect to any Major Investor and any subsequent securities issuance, if (i) at the time of such subsequent securities issuance, the Major Investor is not an “accredited investor,” as that term is then defined in Rule 501(a) under the Securities Act, and (ii) such subsequent securities issuance is otherwise being offered only to accredited investors.

 

2.4                            Observer Rights.  The Company shall invite one representative of each Lead Investor and each of Arcus Ventures Fund, LP and BHP No. 2 Investment Limited Partnership (each, a “Board Observer”) to attend all meetings of the Board in a nonvoting observer capacity and, in this respect, shall give each such Board Observer copies of all notices, minutes, consents and all other materials that it provides to the directors; provided, however, that the Company reserves the right to withhold any information and to exclude each such Board Observer from any meeting or portion thereof if access to such information or attendance at such meeting would adversely affect the attorney-client privilege between the Company and its counsel or would result in disclosure of trade secrets to such Board Observer.  The Company shall reimburse each such Board Observer for reasonable out-of-pocket travel (for economy class and for domestic U.S. travel only), hotel, transport and other expenses incurred in connection with attending meetings of the Board.  The rights set forth in this Section 2.4 are in addition to the rights of the Lead Investors to designate certain members of the Board in accordance with the Restated Certificate and Voting Agreement of even date herewith among the Company and the Investors (the “Voting Agreement”).

 

-14-

 

2.5                            Board Matters.  Unless otherwise determined by the vote of a majority of the directors then in office, the Board shall meet at least twice each quarter, with one meeting being in-person and the other meeting being telephonic, in accordance with an agreed-upon schedule.  The Company shall reimburse the nonemployee directors for all reasonable out-of-pocket travel (business class), hotel, transport and other expenses incurred in connection with attending meetings of the Board and conducting other Board activities.  The Company shall cause to be established and will maintain an audit committee and a compensation committee, each of which shall (i) consist solely of non-management directors, (ii) shall consist of at least two directors, and (iii) shall include at least one director appointed to Board by the Lead Investors in accordance with the Restated Certificate and Voting Agreement (a “Lead Investor Director”).  A Lead Investor Director shall be the Chair of the compensation committee.  The Board shall at all times have an appointed Chair of the Board, who shall be acceptable to the Lead Investors.  The Company shall not incur any obligation or liability or make any payment in excess of $50,000 without obtaining the prior approval of the audit committee.

 

2.6                            Scientific Advisory Board Matters.  The Company shall maintain a scientific advisory board (the “SAB”), and promptly following the First Tranche Closing shall appoint William G. Kaelin, MD and Charles L. Sawyers, MD as members of the SAB.  Any changes to the composition of the SAB shall be approved by the Lead Investors.  Each member of the SAB shall be entitled to annual compensation in such amounts as shall be approved by the Board and the Lead Investors.  The Company shall reimburse the members of the SAB for all reasonable out-of-pocket travel (economy class), hotel, transport and other expenses incurred in connection with attending meetings of the SAB.

 

2.7                            Insurance.  As of the date hereof, the Company shall have obtained, from financially sound and reputable insurers, Directors and Officers liability insurance, Representations and Warranties liability insurance, commercial liability insurance and other insurance necessary or advisable to provide coverage for the operations conducted by the Company (the “Insurance Policies”), each in an amount and on terms and conditions reasonably satisfactory to the Lead Investors, and will cause such Insurance Policies to be maintained until such time as the Lead Investors determine that one or more of such Insurance Policies should be discontinued.

 

2.8                            Employee/Independent Contractor Agreements.  The Company will cause (i) each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure, nonsolicitation and proprietary rights assignment agreement, substantially in the form approved by the Lead Investors.  In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, such agreements, without the approval of the Board, including at least one of the Lead Investor Directors.

 

2.9                            Employee Compensation.  As soon as reasonably practicable following the First Tranche Closing, the Board shall meet with the Company’s executive management team to discuss and establish appropriate cash and equity compensation for the Company’s employees in amounts that are reasonably acceptable to the Board, including the directors elected solely by the holders of shares of Series A Preferred Stock pursuant to the Restated Certificate.

 

-15-

 

2.10                    Equity Incentive Plan; Employee Stock.  At or within 45 days following the First Tranche Closing, the Company shall (i) adopt an equity incentive plan (the “Equity Incentive Plan”), which shall have been approved by the Board, including at least one of the Lead Investor Directors, and the Company’s stockholders; and (ii) reserve up to 2,558,798 shares of Common Stock for issuance under the Equity Incentive Plan.  Within 45 days following the Second Tranche Closing, the Company shall refresh the Equity Incentive Plan by increasing the number of shares of Common Stock reserved for issuance under the Equity Incentive Plan such that the number of shares reserved for issuance under such plan represents 15% of the fully-diluted capitalization of the Company immediately following the Second Tranche Closing.  Unless otherwise approved by the Board, including at least one of the Lead Investor Directors, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months, and (ii) a market stand-off provision substantially similar to that in Section 1.14.  In addition, unless otherwise approved by the Board, including at least one of the Lead Investor Directors, the Company shall retain a “right of first refusal” on employee transfers until the initial public offering of the Company’s securities and shall have the right to repurchase unvested shares at no greater than cost upon termination of employment or service of a holder of restricted stock.

 

2.11                    Successor Indemnification.  If the Company or any of its successors or assignees consolidates with or merges into any other entity and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately before such transaction, whether such obligations are contained in the Company’s Bylaws, its Restated Certificate, or elsewhere, as the case may be.

 

2.12                    Additional Covenants.  Within 90 days following the First Tranche Closing, the Company shall (i) hire an independent finance executive acceptable to the Lead Investors; (ii) hire a business development executive with relevant industry experience acceptable to the Lead Investors; (iii) conduct a scientific review by a Nextech proposed expert to define additional preclinical and clinical biomarker studies; and (iv) provide to the Lead Investors a data package with respect to the biomarker studies satisfactory to the Lead Investors.

 

2.13                    Termination of Covenants.

 

(a)                               The covenants set forth in Sections 2.1 through Section 2.12 shall terminate as to each Holder and be of no further force or effect (i) immediately prior to the consummation of a Qualified IPO, or (ii) upon termination of the Agreement, as provided in Section 3.1.

 

(b)                              The covenants set forth in Sections 2.1 and 2.2 shall terminate as to each Holder and be of no further force or effect when the Company first becomes subject to the

 

-16-

 

periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act, if this occurs earlier than the events described in Section 2.13(a) above.

 

3.                                    Miscellaneous.

 

3.1                            Termination.  This Agreement shall terminate, and have no further force and effect, when the Company shall consummate a transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Company pursuant to the Restated Certificate.

 

3.2                            Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled.

 

3.3                            Successors and Assigns.  Except as otherwise provided in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties (including transferees of any of the Series A Preferred Stock or any Common Stock issued upon conversion thereof).  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

3.4                            Amendments and Waivers.  Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of at least sixty percent (60%) of the Registrable Securities then outstanding; provided, however, that any amendment or waiver of Section 2 (except for Section 2.4) above and this Section 3.4 shall require the written consent of the Lead Investors; provided, further, that any amendment, consent, modification or waiver which disproportionately and adversely affects any holder(s) of Registrable Securities vis-a-vis the other holders shall not be effective and binding unless it has previously been consented to in writing by such affected holder(s).  Section 2.4 of this Agreement shall not be amended or waived without the written consent of Arcus Ventures Fund, LP and BHP No. 2 Investment Limited Partnership.  Notwithstanding the foregoing, this Agreement may be amended with only the written consent of the Company for the sole purpose of including additional purchasers of Series A Preferred Stock as “Investors” and “Holders.” Any amendment or waiver effected in accordance with this paragraph shall be binding upon each party to the Agreement, whether or not such party has signed such amendment or waiver, each future holder of all such Registrable Securities, and the Company.

 

3.5                            Notices.  Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) when sent by confirmed electronic mail, telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) one (1) business day after deposit with an express overnight courier for United States deliveries, or five (5) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv) five (5) business days

 

-17-

 

after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries.  All notices for delivery outside the United States will be sent by facsimile or by express courier.  All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile number specified for such party on the signature page or on Exhibit A hereto, or at such other address, electronic email address or facsimile number as such other party may subsequently modify by written notice.

 

3.6                            Severability.  If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement, and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

3.7                            Governing Law.  This Agreement and all acts and transactions pursuant hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of laws.

 

3.8                            Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

3.9                            Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

3.10                    Aggregation of Stock.  All shares of the Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

 

[Signature Pages Follow]

 

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The parties have executed this Investors’ Rights Agreement as of the date first above written.

 

	
 
    	
COMPANY:
    
	
 
    	
 
    	
 
    
	
 
    	
TRACON PHARMACEUTICALS, INC.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
  /s/ Charles Theuer
    
	
 
    	
 
    	
Charles Theuer, President & CEO
    
	
 
    	
 
    	
 
    
	
 
    	
Address:
    	
8910 University Center Drive
    
	
 
    	
 
    	
Suite 700
    
	
 
    	
 
    	
San Diego, CA 92122
    
	
 
    	
 
    	
 
    
	
 
    	
Fax: (858) 550-0786
    
					

 

[Signature Page to Investors’ Rights Agreement]

 

 

	
 
    	
INVESTORS:
    
	
 
    	
 
    
	
 
    	
JAFCO SUPER V3 INVESTMENT LIMITED PARTNERSHIP
    
	
 
    	
By: JAFCO Co., Ltd.
    
	
 
    	
Its: General Partner
    
	
 
    	
 
    
	
 
    	
By:
    	
  /s/ Shinichi Fuki
    	
 
    
	
 
    	
Name: Shinichi Fuki
    
	
 
    	
Title: President and CEO
    
	
 
    	
 
    
	
 
    	
Address:
    
	
 
    	
Otemachi First Square, West Tower 11F, 1-5-1, Otemachi, Chiyoda-ku,   Tokyo 100-0004 Japan Attention: Dr. Kenji Harada,
    
	
 
    	
Senior Manager,
    
	
 
    	
Life Science Investment Management Department
    

 

[Signature Page to Investors’ Rights Agreement]

 

 

	
 
    	
ONC PARTNERS, L.P.
    
	
 
    	
 
    
	
 
    	
By: ONC General Partner Limited
    
	
 
    	
Its: General Partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Michael Robinson
    
	
 
    	
Name:
    	
Michael Robinson
    
	
 
    	
Title:
    	
Director
    
	
 
    	
 
    
	
 
    	
Address: 26 New Street, St Helier, JE2 3RA, 

Jersey
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Fax:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
NEXTECH III ONCOLOGY, LPCI
    
	
 
    	
 
    
	
 
    	
By: Nextech III GP Ltd
    
	
 
    	
Its: General Partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Alfred Scheidegger
    	
/s/ Roland Ruskstuhl
    
	
 
    	
Name:
    	
Alfred Scheidegger
    	
Roland Ruskstuhl
    
	
 
    	
Title:
    	
BoD member
    	
BoD member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Address: Scheuchzerstrasse 35 - CH - 8006 

Zurich, Switzerland
    
	
 
    	
Fax: +41.44.366.66.10
    

 

[Signature Page to Investors’ Rights Agreement]

 

 

	
 
    	
ARCUS VENTURES FUND L.P.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ James Dougherty
    
	
 
    	
Name:
    	
James Dougherty
    
	
 
    	
Title:
    	
Partner
    
	
 
    	
 
    
	
 
    	
Address:
    
	
 
    	
55 Broad Street Suite 1840
    
	
 
    	
New York NY 10004
    

 

[Signature Page to Investors’ Rights Agreement]

 

 

	
 
    	
BHP NO.2 INVESTMENT LIMITED PARTNERSHIP
    
	
 
    	
 
    
	
 
    	
By:
    	
  /s/ Takeo Matsumoto
    
	
 
    	
Name:
    	
Takeo Matsumoto
    
	
 
    	
Title:
    	
Manager of General Partner
    
	
 
    	
 
    
	
 
    	
Akatsuka Building 2F 1-2-8
    
	
 
    	
Higashikanda Chiyoda-ku Tokyo 101-0031
    
	
 
    	
Japan
    
	
 
    	
 
    
	
 
    	
Fax: +81 3 3862 4167
    

 

[Signature Page to Investors’ Rights Agreement]

 

 

	
 
    	
BROOKLINE TRACON INVESTMENT FUND II, LLC
    
	
 
    	
 
    
	
 
    	
By: Brookline TIFMM LLC, Its Managing Member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
  /s/ Rainer Twiford
    
	
 
    	
Name:
    	
 Rainer Twiford
    
	
 
    	
Title:
    	
  Managing Member Representative
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Address:
    	
2501 20th Pl. S. #275
    
	
 
    	
 
    	
Birmingham AL 35223
    
						

 

[Signature Page to Investors’ Rights Agreement]

 

 

	
 
    	
Paramount BioSciences, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
  /s/ Lindsay Rosenwald, M.D.
    
	
 
    	
Name:   Lindsay Rosenwald, M.D.
    
	
 
    	
Title:  Sole Member
    
	
 
    	
 
    
	
 
    	
Address:
    	
787 Seventh Avenue, 48th Floor
    
	
 
    	
 
    	
New York, NY 10019
    
				

 

[Signature Page to Investors’ Rights Agreement]

 

 

	
 
    	
 
    
	
 
    	
(Investor)
    
	
 
    	
 
    	
/s/ Kenneth D. Wickwar
    
	
 
    	
By:
    	
/s/ Janet Wickwar
    
	
 
    	
 
    	
Kenneth D. Wickwar
    
	
 
    	
Name:
    	
Janet Wickwar
    
	
 
    	
 
    	
(print)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
  Investor
    
					

 

Signature Page to Investors’ Rights Agreement

 

 

	
 
    	
 
    
	
 
    	
(Investor)
    
	
 
    	
 
    
	
 
    	
By:
    	
  /s/ John Kellenyi
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
  John Kellenyi
    
	
 
    	
 
    	
(print)
    
	
 
    	
 
    
	
 
    	
Title:
    	
 
    
					

 

Signature Page to Investors’ Rights Agreement

 

 

	
 
    	
 Barbara Waits Living Trust
    
	
 
    	
(Investor)
    
	
 
    	
 
    
	
 
    	
By:
    	
  /s/ Bert Waits Trustee
    
	
 
    	
 
    
	
 
    	
Name:
    	
  Bert Waits
    
	
 
    	
 
    	
(print)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
  Trustee
    
					

 

Signature Page to Investors’ Rights Agreement

 

 

	
 
    	
 
    
	
 
    	
(Investor)
    
	
 
    	
 
    
	
 
    	
By:
    	
  /s/ Scott Renfro
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
  Scott Renfro
    
	
 
    	
 
    	
(print)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    
					

 

Signature Page to Investors’ Rights Agreement

 

 

	
 
    	
 Cynergy Healthcare Investors LLC 2009
    
	
 
    	
(Investor)
    
	
 
    	
 
    
	
 
    	
By:
    	
   /s/ Patrick Adams
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
  Patrick Adams
    
	
 
    	
 
    	
(print)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
  Managing Member
    
					

 

Signature Page to Investors’ Rights Agreement

 

 

	
 
    	
  El Coronado Holdings, LLC
    
	
 
    	
(Investor)
    
	
 
    	
 
    
	
 
    	
By:
    	
   /s/ Josiah T. Austin
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
  Josiah T. Austin
    
	
 
    	
 
    	
(print)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
  Trustee
    
					

 

Signature Page to Investors’ Rights Agreement

 

 

	
 
    	
 
    
	
 
    	
(Investor)
    
	
 
    	
 
    
	
 
    	
By:
    	
   /s/ Blaine Spies
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
  Blaine Spies
    
	
 
    	
 
    	
(print)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    
					

 

Signature Page to Investors’ Rights Agreement

 

 

	
 
    	
  QMO, LLC
    
	
 
    	
(Investor)
    
	
 
    	
 
    
	
 
    	
By:
    	
   /s/ Steven C. Kenninger
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
  Steven C. Kenninger
    
	
 
    	
 
    	
(print)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
  Manager
    
					

 

Signature Page to Investors’ Rights Agreement

 

 

EXHIBIT A

 

INVESTORS

 

 

	
Name/Address/Fax No.
    	
 
    	
No. of Shares
    	
 
    
	
JAFCO SUPER V3 INVESTMENT LIMITED PARTNERSHIP

Address: Otemachi First Square, West Tower

11F, 1-5-1, Otemachi,

Chiyoda-ku, Tokyo 100-0004 Japan 

Attention: Kenji Harada, Ph.D.,

Senior Manager,Life Science Investment   Management Department

Facsimile:                                      
    	
 
    	
3,181,818
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
ONC PARTNERS, L.P.

 

Address: 26 New Street, St Helier, JE2 3RA,

New Jersey

 

Facsimile:
    	
 
    	
477,273
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
NEXTECH III ONCOLOGY, LPCI

 

Address: Scheuchzerstrasse 35 - CH - 8006

Zurich, Switzerland

 

Facsimile:
    	
 
    	
 

1,431,818
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
ARCUS VENTURES FUND, LP

 

55 Broad Street Suite 1840

New York NY 10004
    	
 
    	
 

636,364
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
BHP NO.2 INVESTMENT LIMITED PARTNERSHIP

 

Akatsuka Building 2F 1-2-8

Higashikanda Chiyoda-ku Tokyo 101-0031 Japan

 

Fax: +81 3 3862 4167
    	
 
    	
636,364
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
BROOKLINE TRACON INVESTMENT FUND II, LLC

2501 20th Pl. C. #275

Birmingham, AL 35223
    	
 
    	
1,246,514
    	
 
    

 

 

	
El Coronado Holdings, LLC
    	
 
    	
79,800
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
John Kellenyi
    	
 
    	
53,200
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Cynergy Healthcare Investors
    	
 
    	
26,150
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Blaine Spies
    	
 
    	
10,460
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Ken and Jane Wicker
    	
 
    	
13,075
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Scott Renfro
    	
 
    	
10,460
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Barbara Waits Living Trust
    	
 
    	
13,075
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
QMO, LLC
    	
 
    	
27,408
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Paramount BioSciences, LLC

787 7th Avenue

New York, NY 10019
    	
 
    	
 

406,221Exhibit 10.2

 

 

 

TRACON PHARMACEUTICALS, INC.

 

2011 EQUITY INCENTIVE PLAN 

 

EFFECTIVE AS OF AUGUST 10, 2011

 

 

TRACON PHARMACEUTICALS, INC.

2011 EQUITY INCENTIVE PLAN

 

EFFECTIVE AS OF AUGUST 10, 2011

 

SECTION 1.  INTRODUCTION.

 

The Company’s Board of Directors adopted the Tracon Pharmaceuticals, Inc. 2011 Equity Incentive Plan effective as of the Adoption Date subject to obtaining Company stockholder approval as provided in Section 15 below. Awards granted under the Plan prior to the Stockholder Approval Date may not be exercised or Shares released to any Participant until such stockholder approval is obtained.

 

The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by offering Key Employees an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, and to encourage such Key Employees to continue to provide services to the Company and to attract new individuals with outstanding qualifications.

 

The Plan seeks to achieve this purpose by providing for Awards in the form of Options (which may constitute Incentive Stock Options or Nonstatutory Stock Options), Stock Appreciation Rights, Restricted Stock Grants and/or Stock Units.

 

Capitalized terms shall have the meaning provided in Section 2 unless otherwise provided in this Plan or any related Stock Option Agreement, SAR Agreement, Restricted Stock Grant Agreement or Stock Unit Agreement.

 

SECTION 2.  DEFINITIONS.

 

(a)        “Adoption Date” means August 10, 2011.

 

(b)        “Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.

 

(c)        “Award” means any award of an Option, SAR, Restricted Stock Grant or Stock Unit under the Plan.

 

(d)       “Board” means the Board of Directors of the Company, as constituted from time to time.

 

(e)        “California Participant” means a Participant whose Award was issued in reliance on Section 25102(o) of the California Corporations Code.

 

(f)        “Call Equivalent Position” means the term “call equivalent position” as defined under Rule 16a-1(b) of the Exchange Act.

 

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(g)        “Cashless Exercise” means, to the extent that a Stock Option Agreement so provides and as permitted by applicable law and in accordance with any procedures established by the Committee, an arrangement whereby payment of some or all of the aggregate Exercise Price may be made all or in part by delivery of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company. Cashless Exercise may also be utilized to satisfy an Option’s tax withholding obligations as provided in Section 14(b).

 

(h)        “Cause” means, except as may otherwise be provided in a Participant employment agreement or applicable Award agreement (and in such case the employment agreement or Award agreement shall govern as to the definition of Cause), (i) a conviction of a Participant for a felony crime or the failure of a Participant to contest prosecution for a felony crime, or (ii) a Participant’s misconduct, fraud, disloyalty or dishonesty (as such terms may be defined by the Committee in its sole discretion), or (iii) any unauthorized use or disclosure of confidential information or trade secrets by a Participant, or (iv) a Participant’s negligence, malfeasance, breach of fiduciary duties or neglect of duties, or (v) any material violation by a Participant of a written Company or Subsidiary or Affiliate policy or any material breach by a Participant of a written agreement with the Company or Subsidiary or Affiliate, or (vi) any other act or omission by a Participant that, in the opinion of the Committee, could reasonably be expected to adversely affect the Company’s or a Subsidiary’s or an Affiliate’s business, financial condition, prospects and/or reputation. In each of the foregoing subclauses (i) through (vi), whether or not a “Cause” event has occurred will be determined by the Committee in its sole discretion or, in the case of Participants who are Directors or Officers or Section 16 Persons, the Board, each of whose determination shall be final, conclusive and binding. A Participant’s Service shall be deemed to have terminated for Cause if, after the Participant’s Service has terminated, facts and circumstances are discovered that would have justified a termination for Cause, including, without limitation, violation of material Company policies or breach of noncompetition, confidentiality or other restrictive covenants that may apply to the Participant.

 

(i)         “Change in Control” except as may otherwise be provided in a Participant employment agreement or applicable Award agreement (and in such case the employment agreement or Award agreement shall govern as to the definition of Change in Control), means the occurrence of any of the following:

 

(i)         The consummation of an acquisition, a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if 51% or more of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such acquisition, merger, consolidation or other reorganization is owned by persons who in the aggregate owned less than 20% of the Company’s combined voting power represented by the Company’s outstanding securities immediately prior to such acquisition, merger, consolidation or other reorganization; or

 

(ii)        The sale, exclusive license, transfer or other disposition of all or substantially all of the Company’s assets.

 

2

 

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transactions. In addition, the following transactions shall not constitute a Change in Control: (i) an initial public offering by the Company of the Shares or (ii) the issuance by the Company of shares of its capital stock in an equity financing transaction in which the Company is the surviving corporation, retains substantially all of the proceeds of such transaction for working capital or other operational purposes, including acquisitions, and does not (directly or through a subsidiary) receive any assets other than cash and rights to receive cash. A series of related transactions shall be deemed to constitute a single transaction, and where such transactions involve securities issuances, they shall be deemed “related” if under applicable securities laws they would be treated as integrated. Further, for purposes of clarity, the consummation of the transactions contemplated under the Series A Preferred Stock Purchase Agreement which was entered into by the Company on or about March 28, 2011 (as may be amended or otherwise modified from time to time) and which contemplates the issuance and sale by the Company of up to $22 million in cash in shares of its Series A Convertible Preferred Stock, par value $0.001 per share, shall not constitute a Change in Control.

 

(j)         “Code” means the Internal Revenue Code of 1986, as amended, and the regulations and interpretations promulgated thereunder.

 

(k)        “Committee” means a committee consisting of members of the Board that is appointed by the Board (as described in Section 3) to administer the Plan. If no Committee has been appointed, the full Board shall constitute the Committee.

 

(1)        “Common Stock” means the Company’s common stock, par value $0.001 per Share, and any other securities into which such shares are changed, for which such shares are exchanged or which may be issued in respect thereof.

 

(m)       “Company” means Tracon Pharmaceuticals, Inc., a Delaware corporation.

 

(n)        “Consultant” means an individual (or entity) which performs bona fide services to the Company, a Parent, a Subsidiary or an Affiliate other than as an Employee or Director or Non-Employee Director.

 

(o)        “Director” means a member of the Board who is also an Employee.

 

(p)        “Disability” means, except as may otherwise be provided in a Participant employment agreement or applicable Award agreement (and in such case the employment agreement or Award agreement shall govern as to the definition of Disability), that the Participant is classified as disabled under a long-term disability policy of the Company or, if no such policy applies, the Participant is unable 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 12 months. The Disability of a

 

3

 

Key Employee shall be determined solely by the Committee on the basis of such medical evidence as the Committee deems warranted under the circumstances.

 

(q)        “Employee” means any individual who is a common-law employee of the Company, or of a Parent, or of a Subsidiary or of an Affiliate.

 

(r)        “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(s)        “Exercise Price” means, in the case of an Option, the amount for which a Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. “Exercise Price,” in the case of a SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value in determining the amount payable to a Participant upon exercise of such SAR.

 

(t)        “Fair Market Value” means the market price of a Share, determined by the Committee as follows:

 

(i)         If the Shares were traded on a stock exchange (such as the New York Stock Exchange, NYSE Amex, the NASDAQ Global Market or NASDAQ Capital Market) at the time of determination, then the Fair Market Value shall be equal to the regular session closing price for such stock as reported by such exchange (or the exchange or market with the greatest volume of trading in the Shares) on the date of determination, or if there were no sales on such date, on the last date preceding such date on which a closing price was reported;

 

(ii)        If the Shares were traded on the OTC Bulletin Board at the time of determination, then the Fair Market Value shall be equal to the last-sale price reported by the OTC Bulletin Board for such date, or if there were no sales on such date, on the last date preceding such date on which a sale was reported; and

 

(iii)       If neither of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith using a reasonable application of a reasonable valuation method as the Committee deems appropriate.

 

Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported by the applicable exchange or the OTC Bulletin Board, as applicable, or a nationally recognized publisher of stock prices or quotations (including an electronic on-line publication). Such determination shall be conclusive and binding on all persons.

 

(u)        “Incentive Stock Option” or “ISO” means an incentive stock option described in Code section 422.

 

(v)        “Key Employee” means an Employee, Director, Non-Employee Director or Consultant who has been selected by the Committee to receive an Award under the Plan.

 

4

 

(w)       “Net Exercise” means, to the extent that a Stock Option Agreement so provides and as permitted by applicable law, an arrangement pursuant to which the number of Shares issued to the Optionee in connection with the Optionee’s exercise of the Option will be reduced by the Company’s retention of a portion of such Shares. Upon such a net exercise of an Option, the Optionee will receive a net number of Shares that is equal to (i) the number of Shares as to which the Option is being exercised minus (ii) the quotient (rounded down to the nearest whole number) of the aggregate Exercise Price of the Shares being exercised divided by the Fair Market Value of a Share on the Option exercise date. The number of Shares covered by clause (ii) will be retained by the Company and not delivered to the Optionee. No fractional Shares will be created as a result of a Net Exercise and the Optionee must contemporaneously pay for any portion of the aggregate Exercise Price that is not covered by the Shares retained by the Company under clause (ii).  The number of Shares delivered to the Optionee may be further reduced if Net Exercise is utilized under Section 14(b) to satisfy applicable tax withholding obligations.

 

(x)        “Non-Employee Director” means a member of the Board who is not an Employee.

 

(y)        “Nonstatutory Stock Option” or “NSO” means a stock option that is not an ISO.

 

(z)        “Officer” means an individual who is an officer of the Company within the meaning of Rule 16a-1(f) of the Exchange Act.

 

(aa)      “Option” means an ISO or NSO granted under the Plan entitling the Optionee to purchase Shares under the Plan as provided in Section 6.

 

(bb)      “Optionee” means an individual, estate or other entity that holds an Option.

 

(cc)      “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the Adoption Date shall be considered a Parent commencing as of such date.

 

(dd)     “Participant” means an individual or estate or other entity that holds an Award.

 

(ee)      “Plan” means this Tracon Pharmaceuticals, Inc. 2011 Equity Incentive Plan as it may be amended from time to time.

 

(ff)       “Put Equivalent Position” means the term “put equivalent position” as defined under Rule 16a-1(h) of the Exchange Act.

 

(gg)      “Re-Price” means that the Company has lowered or reduced the Exercise Price of outstanding Options and/or outstanding SARs for any Participant(s) in a manner described by SEC Regulation S-K Item 402(d)(2)(viii) (or as described in any successor provision(s) or definition(s)).

 

5

 

(hh)      “Restricted Stock Grant” means Shares awarded under the Plan as provided in Section 9.

 

(ii)        “Restricted Stock Grant Agreement” means the agreement described in Section 9 evidencing each Award of a Restricted Stock Grant.

 

(jj)        “SAR Agreement” means the agreement described in Section 8 evidencing each Award of a Stock Appreciation Right.

 

(kk)      “SEC” means the Securities and Exchange Commission.

 

(11)      “Section 16 Persons” means those Officers or Directors or Non-Employee Directors or other persons who are subject to Section 16 of the Exchange Act.

 

(mm)    “Section 280G Approval” means the separate approval by stockholders owning more than 75% of the voting power of all outstanding stock of the Company entitled to vote immediately before a Change in Control which approval shall be obtained in compliance with the requirements of Code Section 280G(b)(5)(B), as amended, including any successor thereof, and the regulations promulgated thereunder, as determined by the Committee in its sole discretion.

 

(nn)      “Securities Act” means the Securities Act of 1933, as amended.

 

(oo)      “Separation From Service” means a Participant’s separation from service with the Company within the meaning of Code Section 409A.

 

(pp)      “Service” means service as an Employee, Director, Non-Employee Director or Consultant. Service will be deemed terminated as soon as the entity to which Service is being provided is no longer either (i) the Company, (ii) a Parent, (iii) a Subsidiary or (iv) an Affiliate. The Committee determines when Service commences and when Service terminates. The Committee may determine whether any Company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in termination of Service for purposes of any affected Awards, and the Committee’s decision shall be final, conclusive and binding.

 

(qq)      “Share” means one share of Common Stock.

 

(rr)       “Stock Appreciation Right or SAR” means a stock appreciation right awarded under the Plan as provided in Section 8.

 

(ss)       “Stock Option Agreement” means the agreement described in Section 6 evidencing each Award of an Option.

 

(tt)       “Stock Unit” means a bookkeeping entry representing the equivalent of one Share awarded under the Plan as provided in Section 10.

 

(uu)      “Stock Unit Agreement” means the agreement described in Section 10 evidencing each Award of Stock Units.

 

6

 

(vv)      “Stockholder Approval Date” means the date that the Company’s stockholders approve this Plan.

 

(ww)    “Stockholders Agreement” means any applicable agreement between the Company’s stockholders and/or investors that provides certain rights and obligations for stockholders.

 

(xx)      “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the Adoption Date shall be considered a Subsidiary commencing as of such date.

 

(yy)      “Termination Date” means the date on which a Participant’s Service terminates as determined by the Committee.

 

(zz)      “10-Percent Shareholder” means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of section 424(d) of the Code shall be applied.

 

SECTION 3.  ADMINISTRATION.

 

(a)        Committee Composition.  A Committee appointed by the Board shall administer the Plan.  The Board shall designate one of the members of the Committee as chairperson. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee.

 

Effective with the Shares being publicly traded or the Company being subject to the reporting requirements of the Exchange Act, with respect to Awards to Section 16 Persons, the Committee shall consist either (i) solely of two or more individuals who satisfy the requirements of Rule 16b-3 (or its successor) under the Exchange Act or (ii) of the full Board. The Board may also appoint one or more separate committees of the Board, each composed of directors of the Company who need not qualify under Rule 16b-3, who may administer the Plan with respect to Key Employees who are not Section 16 Persons, may grant Awards under the Plan to such Key Employees and may determine all terms of such Awards. To the extent permitted by applicable law, the Board may also appoint a committee, composed of one or more officers of the Company, that may authorize Awards to Employees (who are not Section 16 Persons) within parameters specified by the Board and consistent with any limitations imposed by applicable law.

 

(b)        Authority of the Committee.  Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take any actions it deems necessary

 

7

 

or advisable for the administration of the Plan. Such actions shall include without limitation:

 

(i)         selecting Key Employees who are to receive Awards under the Plan;

 

(ii)        determining the type, number, vesting requirements, performance conditions (if any) and their degree of satisfaction, and other features and conditions of such Awards and amending such Awards;

 

(iii)       correcting any defect, supplying any omission, or reconciling or clarifying any inconsistency in the Plan or any Award agreement;

 

(iv)       accelerating the vesting, or extending the post-termination exercise term, or waiving restrictions, of Awards at any time and under such terms and conditions as it deems appropriate;

 

(v)        Re-Pricing outstanding Options or SARs, without the approval of Company stockholders;

 

(vi)       interpreting the Plan and any Award agreements;

 

(vii)      making all other decisions relating to the operation of the Plan; and

 

(viii)     granting Awards to Key Employees who are foreign nationals on such terms and conditions different from those specified in the Plan, which may be necessary or desirable to foster and promote achievement of the purposes of the Plan, and adopting such modifications, procedures, and/or subplans (with any such subplans attached as appendices to the Plan) and the like as may be necessary or desirable to comply with provisions of the laws or regulations of other countries or jurisdictions to ensure the    viability of the benefits from Awards granted to Participants employed in such countries or jurisdictions, or to meet the requirements that permit the Plan to operate in a qualified or tax efficient manner, and/or comply with applicable foreign laws or regulations.

 

The Committee may adopt such rules or guidelines, as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan shall be final, conclusive and binding on all persons. The Committee’s decisions and determinations need not be uniform and may be made selectively among Participants in the Committee’s sole discretion. The Committee’s decisions and determinations will be afforded the maximum deference provided by applicable law.

 

(c)        Indemnification.  To the maximum extent permitted by applicable law, each member of the Committee, or of the Board, or any persons (including without limitation Employees and Officers) who are delegated by the Board or Committee to perform administrative functions in connection with the Plan, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that

 

8

 

may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Award agreement, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.

 

SECTION 4.  GENERAL.

 

(a)        Eligibility.  Only Employees, Directors, Non-Employee Directors and Consultants shall be eligible for designation as Key Employees by the Committee.

 

(b)        Incentive Stock Options.  Only Key Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Employee who is a 10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(5) of the Code are satisfied. If and to the extent that any Shares are issued under a portion of any Option that exceeds the $100,000 limitation of Section 422 of the Code, such Shares shall not be treated as issued under an ISO notwithstanding any designation otherwise. Certain decisions, amendments, interpretations and actions by the Committee and certain actions by a Participant may cause an Option to cease to qualify as an ISO pursuant to the Code and by accepting an Option the Participant agrees in advance to such disqualifying action taken by either the Participant, the Committee or the Company.

 

(c)        Restrictions on Shares.  Any Shares issued pursuant to an Award shall be subject to such Company policies, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall apply in addition to any restrictions that may apply to holders of Shares generally and shall also comply to the extent necessary with applicable law. In no event shall the Company be required to issue fractional Shares under this Plan. Subject to the following sentence and to the extent applicable, no Option may be exercised by a Participant and no Shares will be issued to a Participant to the extent such exercise or issuance of Shares would cause the termination of the Company’s status as an “S corporation” under the Code. The requirements of the preceding sentence will no longer be applicable on or after the date of a Change in Control.

 

(d)       Beneficiaries.  A Participant may designate one or more beneficiaries with respect to an Award by timely filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Participant’s death. If no beneficiary was designated or if no

 

9

 

designated beneficiary survives the Participant, then after a Participant’s death any vested Award(s) shall be transferred or distributed to the Participant’s estate.

 

(e)        Performance Conditions.  The Committee may, in its discretion, include performance conditions in any Award.

 

(f)        Stockholder Rights.  A Participant, or a transferee of a Participant, shall have no rights as a stockholder (including without limitation voting rights or dividend or distribution rights) with respect to any Common Stock covered by an Award until such person becomes entitled to receive such Common Stock, has satisfied any applicable withholding or tax obligations relating to the Award and the Common Stock has been issued to the Participant. No adjustment shall be made for cash or stock dividends or other rights for which the record date is prior to the date when such Common Stock is issued, except as expressly provided in Section 11. The issuance of an Award may be subject to and conditioned upon the Participant’s agreement to become a party to a Stockholders Agreement and be bound by its terms.

 

(g)        Buyout of Awards.  The Committee may at any time offer to buy out, for a payment in cash or cash equivalents (including without limitation Shares issued at Fair Market Value that may or may not be issued under this Plan), an Award previously granted based upon such terms and conditions as the Committee shall establish.

 

(h)        Termination of Service.  Unless the applicable Award agreement or employment agreement provides otherwise (and in such case, the Award or employment agreement shall govern as to the consequences of a termination of Service for such Awards subject to Section 4(i)), the following rules shall govern the vesting, exercisability and term of outstanding Awards held by a Participant in the event of termination of such Participant’s Service (in all cases subject to the term of the Option or SAR as applicable):

 

(i)   if the Service of a Participant is terminated for Cause, then all Options, SARs, unvested portions of Stock Units and unvested portions of Restricted Stock Grants shall terminate and be forfeited immediately without consideration as of the Termination Date (except for repayment of any amounts the Participant had paid to the Company to acquire unvested Shares underlying the forfeited Awards);

 

(ii)  if the Service of Participant is terminated due to the Participant’s death or Disability, then the vested portion of his/her then-outstanding Options/SARs may be exercised by such Participant or his or her personal representative within six months after the Termination Date and all unvested portions of any outstanding Awards shall be forfeited without consideration as of the Termination Date (except for repayment of any amounts the Participant had paid to the Company to acquire unvested Shares underlying the forfeited Awards); and

 

(iii) if the Service of Participant is terminated for any reason other than for Cause or other than due to death or Disability, then the vested portion of

 

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his/her then-outstanding Options/SARs may be exercised by such Participant within three months after the Termination Date and all unvested portions of any outstanding Awards shall be forfeited without consideration as of the Termination Date (except for repayment of any amounts the Participant had paid to the Company to acquire unvested Shares underlying the forfeited Awards).

 

(i)         California Participants.  Awards to California Participants shall also be subject to the following terms regarding the time period to exercise vested Options or SARs after termination of Service. These additional terms shall apply until such time that the Shares are publicly traded and/or the Company is subject to the reporting requirements of the Exchange Act: In the event of termination of a Participant’s Service, (i) if such termination was for reasons other than death or Disability or Cause, the Participant shall have at least 30 days after the date of such termination to exercise any of his/her vested outstanding Options or SARs (but in no event later than the expiration of the term of such Options or SARs established by the Committee as of the Award date) or (ii) if such termination was due to death or Disability, the Participant shall have at least six months after the date of such termination to exercise any of his/her vested outstanding Options or SARs (but in no event later than the expiration of the term of such Options or SARs established by the Committee as of the Award date).

 

6)         Suspension or Termination of Awards.  If at any time (including after a notice of exercise has been delivered) the Committee (or the Board), reasonably believes that a Participant has committed an act of Cause (which includes a failure to act), the Committee (or Board) may suspend the Participant’s right to exercise any Option or SAR (or vesting of Restricted Stock Grants or Stock Units) pending a determination of whether there was in fact an act of Cause. If the Committee (or the Board) determines a Participant has committed an act of Cause, neither the Participant nor his or her estate shall be entitled to exercise any outstanding Option or SAR whatsoever and all of Participant’s outstanding Awards shall then terminate without consideration. Any determination by the Committee (or the Board) with respect to the foregoing shall be final, conclusive and binding on all interested parties.

 

(k)        Code Section 409A.  Notwithstanding anything in the Plan to the contrary, the Plan and Awards granted hereunder are intended to comply with the requirements of Code Section 409A and shall be interpreted in a manner consistent with such intention. In the event that any provision of the Plan or an Award agreement is determined by the Committee to not comply with the applicable requirements of Code Section 409A or the Treasury Regulations or other guidance issued thereunder, the Committee shall have the authority to take such actions and to make such changes to the Plan or an Award Agreement as the Committee deems necessary to comply with such requirements. Each payment to a Participant made pursuant to this Plan shall be considered a separate payment and not one of a series of payments for purposes of Code Section 409A.  Notwithstanding the foregoing or anything elsewhere in the Plan or an Award Agreement to the contrary, if upon a Participant’s Separation From Service he/she is then a “specified employee” (as defined in Code Section 409A), then solely to the extent necessary to comply with Code Section 409A and avoid the imposition of taxes under

 

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Code Section 409A, the Company shall defer payment of “nonqualified deferred compensation” subject to Code Section 409A payable as a result of and within six (6) months following such Separation From Service under this Plan until the earlier of (i) the first business day of the seventh month following the Participant’s Separation From Service, or (ii) ten (10) days after the Company receives written confirmation of the Participant’s death. Any such delayed payments shall be made without interest. In no event whatsoever shall the Company be liable for any additional tax, interest or penalties that may be imposed on a Participant by Code Section 409A or any damages for failing to comply with Code Section 409A.

 

(1)        Electronic Communications.  Subject to compliance with applicable law and/or regulations, an Award agreement or other documentation or notices relating to the Plan and/or Awards may be communicated to Participants by electronic media.

 

(m)       Unfunded Plan.  Insofar as it provides for Awards, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are granted Awards under this Plan, any such accounts will be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets which may at any time be represented by Awards, nor shall this Plan be construed as providing for such segregation, nor shall the Company or the Committee be deemed to be a trustee of stock or cash to be awarded under the Plan.

 

(n)        Liability of Company Plan.  The Company (or members of the Board or Committee) shall not be liable to a Participant or other persons as to: (i) the non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder; and (ii) any unexpected or adverse tax consequence or any tax consequence expected, but not realized, by any Participant or other person due to the grant, receipt, exercise or settlement of any Award granted under this Plan.

 

(o)        Reformation.  In the event any provision of this Plan shall be held illegal or invalid for any reason, such provisions will be reformed by the Board if possible and to the extent needed in order to be held legal and valid. If it is not possible to reform the illegal or invalid provisions then the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

 

(p)        Successor Provision.  Any reference to a statute, rule or regulation, or to a section of a statute, rule or regulation, is a reference to that statute, rule, regulation, or section as amended from time to time, both before and after the Adoption Date and including any successor provisions.

 

(q)        Governing Law.  This Plan, and (unless otherwise provided in the Award Agreement) all Awards, shall be construed in accordance with and governed by the laws of the State of Delaware, but without regard to its conflict of law provisions.  The Committee may provide that any dispute as to any Award shall be presented and

 

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determined in such forum as the Committee may specify, including through binding arbitration. Unless otherwise provided in the Award Agreement, recipients of an Award under the Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of Delaware to resolve any and all issues that may arise out of or relate to the Plan or any related Award Agreement.

 

SECTION 5.  SHARES SUBJECT TO PLAN AND SHARE LIMITS.

 

(a)        Basic Limitations.  The Common Stock issuable under the Plan shall be authorized but unissued Shares or treasury Shares. Subject to adjustment as provided in Section 11, the maximum aggregate number of Shares that may be issued:

 

(i)   under the Plan shall not exceed 3,264,681 Shares (the “Share Limit”); and

 

(ii)  pursuant to the exercise of ISOs granted under this Plan shall not exceed 3,264,681 Shares (the “ISO Limit”).

 

(b)        Share Utilization.  If Awards are forfeited or are terminated for any reason (including the repurchase of unvested Shares from either an Option that was early exercised or from a Restricted Stock Grant), then the forfeited/terminated/repurchased Shares underlying such Awards shall not be counted against the Share Limit.  If exercised SARs or Stock Units are settled in Shares, then only the number of Shares (if any) actually issued in settlement of such SARs or Stock Units shall be counted against the Share Limit. If a Participant pays the Exercise Price by Net Exercise or by surrendering previously owned Shares (or by stock attestation) and/or, as permitted by the Committee, pays any withholding tax obligation with respect to an Award by Net Exercise or by electing to have Shares withheld or surrendering previously owned Shares (or by stock attestation), the surrendered Shares and the Shares withheld to pay taxes shall not count toward the Share Limit. Any Shares that are delivered and any Awards that are granted by, or become obligations of, the Company, as a result of the assumption by the Company of, or in substitution for, outstanding awards previously granted by another entity (as provided in Sections 6(e), 8(f), 9(e) or 10(e)) shall not be counted against the Share Limit or ISO Limit.

 

(c)        Dividend Equivalents.  Any dividend equivalents distributed under the Plan shall not be counted against the Share Limit.

 

SECTION 6.  TERMS AND CONDITIONS OF OPTIONS.

 

(a)        Stock Option Agreement.  Each Award of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan (including without limitation any performance conditions). The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.  The Stock

 

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Option Agreement shall also specify whether the Option is an ISO and if not specified then the Option shall be an NSO.

 

(b)        Number of Shares.  Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 11.

 

(c)        Exercise Price.  An Option’s Exercise Price shall be established by the Committee and set forth in a Stock Option Agreement.  Except with respect to outstanding stock options being assumed or Options being granted in exchange for cancellation of options granted by another issuer as provided under Section 6(e), the Exercise Price of an Option shall not be less than 100% of the Fair Market Value (110% for 10-Percent Shareholders in the case of ISOs) of a Share on the date of Award.

 

(d)       Exercisability and Term.  Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become vested and/or exercisable.  The Stock Option Agreement shall also specify the term of the Option; provided, however that the term of an Option shall in no event exceed ten (10) years from the date of Award. An ISO that is granted to a 10-Percent Shareholder shall have a maximum term of five (5) years. No Option can be exercised after the expiration date specified in the applicable Stock Option Agreement.  A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee’s death, Disability or retirement or other events. A Stock Option Agreement may permit an Optionee to exercise an Option before it is vested (an “early exercise”), subject to the Company’s right of repurchase at the original Exercise Price of any Shares acquired under the unvested portion of the Option which right of repurchase shall lapse at the same rate the Option would have vested had there been no early exercise. In no event shall the Company be required to issue fractional Shares upon the exercise of an Option and the Committee may specify a minimum number of Shares that must be purchased in any one Option exercise.

 

(e)        Modifications or Assumption of Options.  Within the limitations of the Plan, the Committee may modify, extend or assume outstanding Options or may accept the cancellation of outstanding stock options (whether granted by the Company or by another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. For the avoidance of doubt, the Committee may in its discretion Re-Price outstanding Options. No modification of an Option shall, without the consent of the Optionee, impair his or her rights or increase his or her obligations under such Option.

 

(f)        Assignment or Transfer of Options.  Except as otherwise provided in the applicable Stock Option Agreement and then only to the extent permitted by applicable law, no Option shall be transferable by the Optionee other than by will or by the laws of descent and distribution.  Except as otherwise provided in the applicable Stock Option Agreement, an Option may be exercised during the lifetime of the Optionee only by Optionee or by the guardian or legal representative of the Optionee. Except as otherwise provided in the applicable Stock Option Agreement, no Option or interest therein may be subject to a short position or a Call Equivalent Position or Put Equivalent Position, nor

 

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may any Option or interest therein be gifted, transferred, assigned, alienated, pledged, hypothecated, attached, sold, or encumbered by the Optionee during his/her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

 

(g)        Additional Disclosure.  Solely to the extent that the Company is relying on the exemption from registration under Section 12(g) of the Exchange Act, as provided by Rule 12h-l(f) of the Exchange Act, the Company shall provide (or make available to) Optionees with the additional disclosures required by Rule 12h-1(f)(1)(vi) of the Exchange Act. As a condition to receiving these additional disclosures, an Optionee shall agree in writing to keep the information provided in these additional disclosures confidential. If an Optionee does not agree in writing to keep this information confidential, then the Company shall not be required to provide the additional disclosures required by this Section 6(g).

 

SECTION 7.  PAYMENT FOR OPTION SHARES.

 

(a)        General Rule.  The entire Exercise Price of Shares issued upon exercise of Options shall be payable in cash (or check) at the time when such Shares are purchased by the Optionee, except as follows and if so provided for in an applicable Stock Option Agreement:

 

(i)         In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement.  The Stock Option Agreement may specify that payment may be made in any form(s) described in this Section 7.

 

(ii)        In the case of an NSO granted under the Plan, the Committee may in its discretion, at any time accept payment in any form(s) described in this Section 7.

 

(b)        Surrender of Stock.  To the extent that the Committee makes this Section 7(b) applicable to an Option in a Stock Option Agreement, payment for all or any part of the Exercise Price may be made with Shares which have already been owned by the Optionee for such duration as shall be specified by the Committee. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan.

 

(c)        Cashless Exercise.  To the extent that the Committee makes this Section 7(c) applicable to an Option in a Stock Option Agreement, payment for all or a part of the Exercise Price may be made through Cashless Exercise.

 

(d)       Net Exercise.  To the extent that the Committee makes this Section 7(d) applicable to an Option in a Stock Option Agreement, payment for all or a part of the Exercise Price may be made through Net Exercise.

 

(e)        Other Forms of Payment.  To the extent that the Committee makes this Section 7(e) applicable to an Option in a Stock Option Agreement, payment may be made in any

 

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other form that is consistent with applicable laws, regulations and rules and approved by the Committee.

 

SECTION 8.  TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.

 

(a)        SAR Agreement.  Each Award of a SAR under the Plan shall be evidenced by a SAR Agreement between the Participant and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan (including without limitation any performance conditions). A SAR Agreement may provide for a maximum limit on the amount of any payout notwithstanding the Fair Market Value on the date of exercise of the SAR. The provisions of the various SAR Agreements entered into under the Plan need not be identical.  SARs may be granted in consideration of a reduction in the Participant’s other compensation.

 

(b)        Number of Shares.  Each SAR Agreement shall specify the number of Shares to which the SAR pertains and is subject to adjustment of such number in accordance with Section 11.

 

(c)        Exercise Price.  Each SAR Agreement shall specify the Exercise Price. A SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding. Except with respect to outstanding stock appreciation rights being assumed or SARs being granted in exchange for cancellation of stock appreciation rights granted by another issuer as provided under Section 8(f), the Exercise Price of a SAR shall not be less than 100% of the Fair Market Value on the date of Award.

 

(d)       Exercisability and Term.  Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR which shall not exceed ten years from the date of Award. No SAR can be exercised after the expiration date specified in the applicable SAR Agreement. A SAR Agreement may provide for accelerated exercisability in the event of the Participant’s death, or Disability or other events. SARs may be awarded in combination with Options or other Awards, and such an Award may provide that the SARs will not be exercisable unless the related Options or other Awards are forfeited. A SAR may be included in an ISO only at the time of Award but may be included in an NSO at the time of Award or at any subsequent time, but not later than six months before the expiration of such NSO. A SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control.

 

(e)        Exercise of SARs.  If, on the date when a SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR may automatically be deemed to be exercised as of such date with respect to such portion to the extent so provided in the applicable SAR agreement. Upon exercise of a SAR, the Participant (or any person having the right to exercise the SAR after Participant’s death) shall receive from the

 

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Company (i) Shares, (ii) cash or (iii) any combination of Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price of the Shares.

 

(f)        Modification or Assumption of SARs.  Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (including stock appreciation rights granted by another issuer) in return for the grant of new SARs for the same or a different number of Shares and at the same or a different Exercise Price. For the avoidance of doubt, the Committee may in its discretion Re-Price outstanding SARs. No modification of a SAR shall, without the consent of the Participant, impair his or her rights or increase his or her obligations under such SAR.

 

(g)        Assignment or Transfer of SARs.  Except as otherwise provided in the applicable SAR Agreement and then only to the extent permitted by applicable law, no SAR shall be transferable by the Participant other than by will or by the laws of descent and distribution. Except as otherwise provided in the applicable SAR Agreement, a SAR may be exercised during the lifetime of the Participant only by the Participant or by the guardian or legal representative of the Participant. No SAR or interest therein may be transferred, assigned, alienated, pledged, hypothecated, attached, sold, or encumbered by the Participant during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

 

SECTION 9.  TERMS AND CONDITIONS FOR RESTRICTED STOCK GRANTS.

 

(a)        Restricted Stock Grant Agreement.  Each Restricted Stock Grant awarded under the Plan shall be evidenced by a Restricted Stock Grant Agreement between the Participant and the Company. Each Restricted Stock Grant shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan (including without limitation any performance conditions). The provisions of the Restricted Stock Grant Agreements entered into under the Plan need not be identical.

 

(b)        Number of Shares and Payment.  Each Restricted Stock Grant Agreement shall specify the number of Shares to which the Restricted Stock Grant pertains and is subject to adjustment of such number in accordance with Section 11. Restricted Stock Grants may be issued with or without cash consideration under the Plan.

 

(c)        Vesting Conditions.  Each Restricted Stock Grant may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Grant Agreement. A Restricted Stock Grant Agreement may provide for accelerated vesting in the event of the Participant’s death, or Disability or other events.

 

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(d)       Voting and Dividend Rights.  The holder of a Restricted Stock Grant (irrespective of whether the Shares subject to the Restricted Stock Grant are vested or unvested) awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other stockholders. However, any dividends received on Shares that are unvested (whether such dividends are in the form of cash or Shares) may be subject to the same vesting conditions and restrictions as the Restricted Stock Grant with respect to which the dividends were paid. Such additional Shares issued as dividends that are subject to the Restricted Stock Grant shall not reduce the number of Shares available for issuance under Section 5.

 

(e)        Modification or Assumption of Restricted Stock Grants.  Within the limitations of the Plan, the Committee may modify or assume outstanding Restricted Stock Grants or may accept the cancellation of outstanding Restricted Stock Grants (including stock granted by another issuer) in return for the grant of new Restricted Stock Grants for the same or a different number of Shares. No modification of a Restricted Stock Grant shall, without the consent of the Participant, impair his or her rights or increase his or her obligations under such Restricted Stock Grant.

 

(f)        Assignment or Transfer of Restricted Stock Grants.  Except as provided in Section 14, or in a Restricted Stock Grant Agreement, or as required by applicable law, a Restricted Stock Grant awarded under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law. Any act in violation of this Section 9(f) shall be void. However, this Section 9(f) shall not preclude a Participant from designating a beneficiary pursuant to Section 4(d) nor shall it preclude a transfer of Restricted Stock Grant Awards by will or pursuant to Section 4(d).

 

SECTION 10.  TERMS AND CONDITIONS FOR STOCK UNITS.

 

(a)        Stock Unit Agreement.  Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit Agreement between the Participant and the Company. Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan (including without limitation any performance conditions). The provisions of the various Stock Unit Agreements entered into under the Plan need not be identical. Stock Units may be granted in consideration of a reduction in the Participant’s other compensation.

 

(b)        Number of Shares and Payment.  Each Stock Unit Agreement shall specify the number of Shares to which the Stock Unit Award pertains and is subject to adjustment of such number in accordance with Section 11. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of the Award recipients.

 

(c)        Vesting Conditions.  Each Award of Stock Units may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement. A Stock Unit Agreement may provide for accelerated vesting in the event of the Participant’s death, or Disability or other events.

 

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(d)       Voting and Dividend Rights.  The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash or Common Stock dividends paid on one Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to vesting of the Stock Units, any dividend equivalents accrued on such unvested Stock Units may be subject to the same vesting conditions and restrictions as the Stock Units to which they attach.

 

(e)        Modification or Assumption of Stock Units.  Within the limitations of the Plan, the Committee may modify or assume outstanding Stock Units or may accept the cancellation of outstanding Stock Units (including stock units granted by another issuer) in return for the grant of new Stock Units for the same or a different number of Shares. No modification of a Stock Unit shall, without the consent of the Participant, impair his or her rights or increase his or her obligations under such Stock Unit.

 

(f)        Assignment or Transfer of Stock Units.  Except as provided in Section 14, or in a Stock Unit Agreement, or as required by applicable law, Stock Units shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law. Any act in violation of this Section 10(f) shall be void. However, this Section 10(f) shall not preclude a Participant from designating a beneficiary pursuant to Section 4(d) nor shall it preclude a transfer of Stock Units pursuant to Section 4(d).

 

(g)        Form and Time of Settlement of Stock Units.  Settlement of vested Stock Units may be made in the form of (a) cash, (b) Shares or (c) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days. Except as otherwise provided in a Stock Unit Agreement or a timely completed deferral election, vested Stock Units shall be settled within thirty days after vesting. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred, in accordance with applicable law, to a later specified date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 11.

 

(h)        Creditors’ Rights.  A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement.

 

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SECTION 11.  ADJUSTMENTS.

 

(a)        Adjustments.  In the event of a subdivision of the outstanding Shares, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, a stock split, a reverse stock split, a reclassification or other distribution of the Shares without the receipt of consideration by the Company, of or on the Common Stock, a recapitalization, a combination, a spin-off or a similar occurrence, the Committee shall make equitable and proportionate adjustments to:

 

(i)         the Share Limit and ISO Limit specified in Section 5(a);

 

(ii)        the number and kind of securities available for Awards (and which can be issued as ISOs) under Section 5;

 

(iii)       the number and kind of securities covered by each outstanding Award;

 

(iv)       the Exercise Price under each outstanding Option and SAR; and

 

(v)        the number and kind of outstanding securities issued under the Plan.

 

(b)        Participant Rights.  Except as provided in this Section 11, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. If by reason of an adjustment pursuant to this Section 11, a Participant’s Award covers additional or different shares of stock or securities, then such additional or different shares and the Award in respect thereof shall be subject to all of the terms, conditions and restrictions which were applicable to the Award and the Shares subject to the Award prior to such adjustment.

 

(c)        Fractional Shares.  Any adjustment of Shares pursuant to this Section 11 shall be rounded down to the nearest whole number of Shares. Under no circumstances shall the Company be required to authorize or issue fractional shares. To the extent permitted by applicable law, no consideration shall be provided as a result of any fractional shares not being issued or authorized.

 

SECTION 12.  EFFECT OF A CHANGE IN CONTROL.

 

(a)        Merger or Reorganization.  In the event that there is a Change in Control and/or the Company is a party to a merger or acquisition or reorganization or similar transaction, outstanding Awards shall be subject to the merger agreement or other applicable transaction agreement, except as may otherwise be provided in a Participant employment agreement or applicable Award agreement (and in such case the employment agreement or Award agreement shall govern). Such agreement may provide, without limitation, that subject to the consummation of the applicable transaction, for the assumption (or

 

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substitution) of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for their cancellation with or without consideration, in all cases without the consent of the Participant.

 

(b)        Acceleration of Vesting.  In the event that a Change in Control occurs and there is no assumption, substitution or continuation of Awards pursuant to Section 12(a), the Committee in its discretion may provide that all Awards shall vest and become exercisable as of immediately before such Change in Control. For avoidance of doubt, “substitution” includes, without limitation, an Award being replaced by a cash award that provides an equivalent intrinsic value (wherein intrinsic value equals the difference between the market value of a share and any exercise price). The Committee may also in its discretion include in an Award agreement a requirement that unless Section 280G Approval has been obtained, no acceleration of vesting shall occur with respect to an Award to the extent that such acceleration would, after taking into account any other payments in the nature of compensation to which the Participant would have a right to receive from the Company and any other person contingent upon the occurrence of such Change in Control, result in a “parachute payment” as defined under Code Section 280G.

 

SECTION 13.  LIMITATIONS ON RIGHTS.

 

(a)        Retention Rights.  Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain in Service as an Employee, Consultant, Director or Non-Employee Director of the Company, a Parent, a Subsidiary or an Affiliate or to receive any future Awards under the Plan. The Company and its Parents and Subsidiaries and Affiliates reserve the right to terminate the Service of any person at any time, and for any reason, subject to applicable laws, the Company’s Certificate of Incorporation and Bylaws and a written employment agreement (if any).

 

(b)        Regulatory Requirements.  Any other provision of the Plan notwithstanding, the obligation of the Company to issue Shares or other securities under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Shares or other securities pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Shares or other securities, to their registration, qualification or listing or to an exemption from registration, qualification or listing.

 

(c)        Dissolution.  To the extent not previously exercised or settled, all Options, SARs, Stock Units and unvested Restricted Stock Grants shall terminate immediately prior to the dissolution or liquidation of the Company and shall be forfeited to the Company without consideration (except for repayment of any amounts a Participant had paid to the Company to acquire unvested Shares underlying the forfeited Awards).

 

(d)       Clawback Policy.  The Company may (i) cause the cancellation of any Award, (ii) require reimbursement of any Award by a Participant and (iii) effect any other right

 

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of recoupment of equity or other compensation provided under this Plan or otherwise in accordance with Company policies and/or applicable law (each, a “Clawback Policy”). In addition, a Participant may be required to repay to the Company certain previously paid compensation, whether provided under this Plan or an Award Agreement or otherwise, in accordance with the Clawback Policy.

 

SECTION 14.  WITHHOLDING TAXES.

 

(a)        General.  A Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with his or her Award. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied.

 

(b)        Share Withholding.  The Committee in its discretion may permit or require a Participant to satisfy all or part of his or her withholding tax obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously acquired (or by stock attestation). Such Shares shall be valued based on the value of the actual trade or, if there is none, the Fair Market Value as of the previous day. Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the SEC. The Committee may also, in its discretion, permit or require a Participant to satisfy withholding tax obligations related to an Award through a sale of Shares underlying the Award or, in the case of Options, through Net Exercise or Cashless Exercise. The number of Shares that are withheld from an Award pursuant to this section may also be limited by the Committee, to the extent necessary, to avoid liability-classification of the Award (or other adverse accounting treatment) under applicable financial accounting rules including without limitation by requiring that no amount may be withheld which is in excess of minimum statutory withholding rates.

 

SECTION 15.  DURATION AND AMENDMENTS.

 

(a)        Term of the Plan.  The Plan, as set forth herein, is effective on the Adoption Date provided, however, that the Plan is subject to the approval of the Company’s stockholders within one year of the Adoption Date. If the Stockholder Approval Date does not occur before the first anniversary of the Adoption Date, then the Plan shall terminate as of the first anniversary of the Adoption Date and any Awards granted under the Plan shall also immediately terminate without consideration to any Award holder. If the stockholders timely approve the Plan, then the Plan shall terminate on the day before the tenth anniversary of the Adoption Date and may be terminated on any earlier date pursuant to this Section 15. This Plan will not in any way affect outstanding awards that were issued under any other Company equity compensation plans.

 

(b)        Right to Amend or Terminate the Plan.  The Board may amend or terminate the Plan at any time and for any reason. No Awards shall be granted under the Plan after the Plan’s termination. An amendment of the Plan shall be subject to the approval of the

 

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Company’s stockholders only to the extent required by applicable laws, regulations or rules. In addition, no such amendment or termination shall be made which would materially impair the rights of any Participant, without such Participant’s written consent, under any then-outstanding Award. In the event of any conflict in terms between the Plan and any Award agreement, the terms of the Plan shall prevail and govern.

 

SECTION 16.  EXECUTION.

 

To record the adoption of the Plan by the Board, the Company has caused its duly authorized Officer to execute this Plan on behalf of the Company.

 

	
 
    	
TRACON   PHARMACEUTICALS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Charles P. Theuer
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
Charles P. Theuer
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
President and Chief Executive Officer
    

 

23

 

 

GRANT NO. ________

 

TRACON PHARMACEUTICALS, INC.

2011 EQUITY INCENTIVE PLAN

 

INCENTIVE STOCK OPTION AGREEMENT

 

The Company hereby grants an Option to purchase Shares to the Optionee named below.  The terms and conditions of the Option are set forth in this cover sheet, in the attached Incentive Stock Option Agreement and in the Tracon Pharmaceuticals, Inc. 2011 Equity Incentive Plan.  This cover sheet is incorporated into and a part of the attached Incentive Stock Option Agreement (together, the “Agreement”).

 

Date of Option Grant:  __________________

 

Name of Optionee:  _________________________________________________

 

Number of Shares Covered by Option:  ______________

 

Exercise Price per Share:  $_____.___

 

Fair Market Value of a Share on Date of Option Grant:  $_____.___

 

Expiration Date:  _____________

 

Vesting Calculation Date:  _____________

 

Vesting Schedule:

 

Subject to all the terms of the Agreement and your continued Service, your right to purchase Shares under this Option shall vest as to one-fourth (1/4) of the total number of Shares covered by this Option, as shown above, on the first anniversary of the Vesting Calculation Date.  Thereafter, the number of Shares which you may purchase under this Option shall vest at the rate of one-forty-eighth (1/48) of the total number of Shares covered by this Option per calendar month on the last day of each of the thirty-five (35) months following the month of the first anniversary of the Vesting Calculation Date and the final one-forty-eighth (1/48) of the total number of Shares covered by this Option shall vest on the fourth anniversary of the Vesting Calculation Date.  In all cases, the resulting aggregate number of vested Shares will be rounded down to the nearest whole number.  No Shares subject to this Option will vest after your Service has terminated for any reason.

 

By signing this cover sheet, you agree to all of the terms and conditions described in the Agreement and in the Plan.  You are also acknowledging receipt of this Agreement and a copy of the Plan, a copy of which is also enclosed.

 

	
Optionee:
    	
 
    
	
 
    	
(Signature)
    
	
 
    
	
Company:
    	
 
    
	
 
    	
(Signature)
    

 

 

	
Title:
    	
 
    

 

Attachment

 

2

 

TRACON PHARMACEUTICALS, INC.

2011 EQUITY INCENTIVE PLAN

 

INCENTIVE STOCK OPTION AGREEMENT

 

	
1.
    	
The   Plan and
   Other Agreements
    	
 
    	
The text of the Plan is incorporated in this Agreement by   reference.  Certain capitalized terms   used in this Agreement are defined in the Plan.

 

This Agreement and the Plan constitute the entire understanding   between you and the Company regarding this Option.  Any prior agreements, commitments or   negotiations concerning this Option are superseded.
    
	
 
    	
 
    	
 
    	
 
    
	
2.
    	
Incentive   Stock Option
    	
 
    	
This Option is intended to be an Incentive Stock Option under section   422 of the Code and will be interpreted accordingly.

 

If you cease to be an employee of the Company, a Subsidiary or of a   Parent but continue to provide Service, this Option will be treated as a   Nonstatutory Stock Option on the day after the date that is three   (3) months after you cease to be an employee of the Company (and any   Subsidiary or any Parent): (i) even if you continue to provide Service   after your employment has terminated or (ii) if your termination of   employment was for any reason other than due to your death or   Disability.  In addition, to the extent   that all or part of this Option exceeds the $100,000 limitation rule of   section 422(d) of the Code, this Option or the lesser excess part will   be treated as a Nonstatutory Stock Option.

 

This Option is not intended to be deferred compensation under section   409A of the Code and will be interpreted accordingly.
    
	
 
    	
 
    	
 
    	
 
    
	
3.
    	
Vesting
    	
 
    	
This Option is only exercisable before it expires and only with   respect to the vested portion of the Option.    This Option will vest according to the Vesting Schedule described in   the cover sheet of this Agreement.
    
	
4.
    	
Term
    	
 
    	
Your Option will expire in all cases no later than the close of   business at Company headquarters on the Expiration Date, as shown on the   cover sheet.  Your Option may expire   earlier if your Service terminates, as described in Sections 5, 6 and 7 below   or on the date on which the Option is cancelled (and not substituted   or assumed) pursuant to a Change in Control or merger or acquisition or   reorganization or similar transaction involving the Company.
    
	
 
    	
 
    	
 
    	
 
    
	
5.
    	
Termination   of Service - General
    	
 
    	
If, while the Option is outstanding, your Service terminates for any   reason, other than being terminated by the Company for Cause or due to your   death or Disability, then the unvested 
    

 

3

 

	
 
    	
 
    	
 
    	
portion of your Option shall be forfeited without consideration and   shall immediately expire on your Termination Date and the vested portion of   your Option will expire at the earlier of (i) the close of   business at Company headquarters on the date that is ninety (90) days after your Termination   Date, (ii) the Expiration Date set forth in the attached cover sheet and   further described in Section 4 above, or (iii) the date on which   the Option is cancelled (and not substituted or assumed) pursuant to a Change   in Control or merger or acquisition or reorganization or similar transaction   involving the Company.  In no event is the Option exercisable   after the Expiration Date.
    
	
 
    	
 
    	
 
    	
 
    
	
6.
    	
Termination   of Service for Cause
    	
 
    	
If your Service is terminated by the Company for Cause or if you   commit an act(s) of Cause while this Option is outstanding, as   determined by the Committee in its sole discretion, then you shall   immediately forfeit all rights to your Option without consideration,   including any vested portion of the Option, and the entire Option shall   immediately expire, and any rights, payments and benefits with respect to the   Option shall be subject to reduction or recoupment in accordance with the   Clawback Policy and the Plan.  For   avoidance of doubt, your Service shall also be deemed to have been   terminated for Cause by the Company if, after your Service has otherwise   terminated, facts and circumstances are discovered that would have justified   a termination for Cause, including, without limitation, your violation of   Company policies or breach of confidentiality or other restrictive covenants   or conditions that may apply to you prior to or after your Termination Date.
    
	
 
    	
 
    	
 
    	
 
    
	
7.
    	
Termination   of Service due to Death or Disability
    	
 
    	
If your Service terminates because of your death or Disability, then   the unvested portion of your Option shall be forfeited without consideration   and shall immediately expire on your Termination Date and the vested portion   of your Option will expire at the earlier of (i) the close of   business at Company headquarters on the date that is six (6) months after your Termination   Date, (ii) the Expiration Date set forth in the attached cover sheet and   further described in Section 4 above, or (iii) the date on which   the Option is cancelled (and not substituted or assumed) pursuant to a Change   in Control or merger or acquisition or similar transaction involving the   Company.  In no event is the Option exercisable after the Expiration Date.  If your Service terminated due to your   death, then your estate may exercise the vested portion of your Option during   the foregoing post-Service exercise period.
    
	
 
    	
 
    	
 
    	
 
    
	
8.
    	
Leaves   of Absence
    	
 
    	
For purposes of this Option, your Service does not terminate when you   go on a bona fide leave of absence that was   approved by the Company in writing, if the terms of the leave provide for 
    

 

4

 

	
 
    	
 
    	
 
    	
continued Service crediting, or when continued Service crediting is   required by applicable law.  For income   tax purposes, if the period of leave exceeds three (3) months and your   right to reemployment is not provided either by statute or by contract, then   this Option will be treated as a Nonstatutory Stock Option if the exercise of   this Option occurs after the expiration of six (6) months from the   commencement of such leave of absence.    Your Service terminates in any event when the approved leave ends   unless you immediately return to active work.

 

The Company determines which leaves count for this purpose (along   with determining the effect of a leave of absence on vesting of the Option),   and when your Service terminates for all purposes under the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
9.
    	
Notice   of Exercise
    	
 
    	
When you wish to exercise this Option, you must notify the Company by   filing a “Notice of Exercise” form at the address given on the form.  Your notice must specify how many Shares   you wish to purchase.  Your notice must   also specify how your Shares should be registered (in your name only or in   your and your spouse’s names as community property or as joint tenants with   right of survivorship).  The notice   will be effective when it is received by the Company.

 

If someone else wants to exercise this Option after your death, that   person must prove to the Company’s satisfaction that he or she is entitled to   do so.
    
	
 
    	
 
    	
 
    	
 
    
	
10.
    	
Form of   Payment
    	
 
    	
When you submit your notice of exercise, you must include payment of   the Exercise Price for the Shares you are purchasing.  Payment may be made in one (or a   combination) of the following forms:

 

·                Cash, your personal check, a cashier’s   check or a money order.

 

·                Shares which have already been owned   by you for more than six (6) months and which are surrendered to the   Company.  The Fair Market Value of the   Shares, determined as of the effective date of the Option exercise, will be   applied to the Exercise Price.

 

·                 To the   extent a public market for the Shares exists as determined by the Company, by   Cashless Exercise through delivery (on a form prescribed by the Company) of   an irrevocable direction to a securities broker to sell Shares and to deliver   all or part of the sale proceeds to the Company in 
    

 

5

 

	
 
    	
 
    	
 
    	
payment of the aggregate Exercise Price.
    
	
 
    	
 
    	
 
    	
 
    
	
11.
    	
Withholding   Taxes
    	
 
    	
You will be solely responsible for payment of any and all applicable   taxes associated with this Option.

 

You will not be allowed to exercise this Option unless you make   acceptable arrangements to pay any withholding or other taxes that may be due   as a result of the Option exercise or sale of Shares acquired under this   Option.
    
	
 
    	
 
    	
 
    	
 
    
	
12.
    	
Restrictions   on Exercise and Resale
    	
 
    	
By signing this   Agreement, you agree not to (i) exercise this Option (“Exercise   Prohibition”), or (ii) sell, transfer, dispose of, pledge, hypothecate,   make any short sale of, or otherwise effect a similar transaction of any   Shares acquired under this Option (each a “Sale Prohibition”) at a time when   applicable laws, regulations or Company or underwriter trading policies   prohibit the exercise or disposition of Shares.  The Company will not permit you to exercise this Option if the   issuance of Shares at that time would violate any law or regulation.  The Company shall have the right to   designate one or more periods of time, each of which generally will not   exceed one hundred eighty (180) days in length (provided however, that   such period may be extended in connection with the Company’s release (or   announcement of release) of earnings results or other material news or   events), and to impose an Exercise Prohibition and/or Sale Prohibition, if   the Company determines (in its sole discretion) that such   limitation(s) is needed in connection with a public offering of Shares   or to comply with an underwriter’s request or trading policy, or could in any   way facilitate a lessening of any restriction on transfer pursuant to the   Securities Act or any state securities laws with respect to any issuance of   securities by the Company, facilitate the registration or qualification of   any securities by the Company under the Securities Act or any state   securities laws, or facilitate the perfection of any exemption from the   registration or qualification requirements of the Securities Act or any   applicable state securities laws for the issuance or transfer of any   securities.  The Company may issue   stop/transfer instructions and/or appropriately legend any stock certificates   issued pursuant to this Option in order to ensure compliance with the   foregoing.  Any such Exercise   Prohibition shall not alter the vesting schedule set forth in this Agreement   other than to limit the periods during which this Option shall be   exercisable.

 

If the sale of Shares   under the Plan is not registered under the Securities Act, but an exemption   is available which requires an investment or other representation, you shall   represent and agree at the time of exercise that the Shares being acquired   upon 
    

 

6

 

	
 
    	
 
    	
 
    	
exercise of this Option   are being acquired for investment, and not with a view to the sale or   distribution thereof, and shall make such other representations as are deemed   necessary or appropriate by the Company and its counsel.

 

You may also be   required, as a condition of exercise of this Option, to enter into any   Stockholders Agreement or other agreements that are applicable to   stockholders.

 

If you sell or otherwise dispose of any of the Shares acquired   pursuant to the exercise of this Option on or before the later of   (i) the date that is two years after the Date of Option Grant or   (ii) the date that is one year after the applicable exercise of this   Option, then you shall within ten days of any and all such sales or   dispositions provide the Company with written notice of such transactions   including without limitation the date of each disposition, the number of   Shares that you disposed of in each transaction and their original Date of   Option Grant, and the amount of proceeds you received from each disposition.
    
	
 
    	
 
    	
 
    	
 
    
	
13.
    	
The   Company’s Right of First Refusal
    	
 
    	
In the event that you propose to sell, pledge or otherwise transfer   to a third party any Shares acquired under this Agreement, or any interest in   such Shares, the Company shall have the “Right of First Refusal” with respect   to all (and not less than all) of such Shares.  If you desire to transfer Shares acquired   under this Agreement, you must give a written “Transfer Notice” to the   Company describing fully the proposed transfer, including the number of   Shares proposed to be transferred, the proposed transfer price and the name   and address of the proposed transferee.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
The Transfer Notice shall be signed both by you and by the proposed   new transferee and must constitute a binding commitment of both parties to   the transfer of the Shares.  The   Company shall have the right to purchase all, and not less than all, of the   Shares on the terms of the proposal described in the Transfer Notice   (subject, however, to any change in such terms permitted in the next   paragraph) by delivery of a notice of exercise of the Right of First Refusal   within thirty (30) days after the date when the Transfer Notice was received   by the Company.  The Company’s rights   under this subsection shall be freely assignable, in whole or in part.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
If the Company fails to exercise its Right of First Refusal within   thirty (30) days after the date when it received the Transfer Notice, you   may, not later than ninety (90) days following receipt of the Transfer Notice   by the Company, conclude a transfer of the Shares subject to the Transfer   Notice on the terms 
    

 

7

 

	
 
    	
 
    	
 
    	
and conditions described in the Transfer Notice.  Any proposed transfer on terms and   conditions different from those described in the Transfer Notice, as well as   any subsequent proposed transfer by you, shall again be subject to the Right   of First Refusal and shall require compliance with the procedure described in   the paragraph above.  If the Company   exercises its Right of First Refusal, the parties shall consummate the sale   of the Shares on the terms set forth in the Transfer Notice within sixty   (60) days after the date when the Company received the Transfer Notice   (or within such longer period as may have been specified in the Transfer   Notice); provided, however, that in the event the Transfer Notice provided   that payment for the Shares was to be made in a form other than lawful money   paid at the time of transfer, the Company shall have the option of paying for   the Shares with lawful money equal to the present value of the consideration   described in the Transfer Notice.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
The Company’s Right of First Refusal shall inure to the benefit of   its successors and assigns and shall be binding upon any transferee of the   Shares.

 

The Company’s Right of First Refusal shall terminate in the event   that Shares are listed on an established stock exchange or are quoted   regularly on the OTC Bulletin Board.
    
	
 
    	
 
    	
 
    	
 
    
	
14.
    	
Right   of Repurchase
    	
 
    	
Following your Termination Date after   termination of your Service for any reason, the Company shall have the right   to purchase all of those Shares that you have or will acquire under this   Option.  If the Company exercises its   right to purchase such Shares, the purchase price shall be the Fair Market Value   of those Shares on the date of purchase as determined by the Board of   Directors and shall be paid in cash.    The Company will notify you of its intention to purchase such Shares,   and will consummate the purchase within any time period established by applicable   law.  The Company’s right of repurchase shall inure to the   benefit of its successors and assigns and shall be binding upon any   transferee of the Shares.  The   Company’s rights under this subsection shall be freely assignable, in whole   or in part. The Company’s right of   repurchase shall terminate in the event that the Shares are listed on an   established stock exchange or are quoted regularly on the OTC Bulletin   Board.
    
	
 
    	
 
    	
 
    	
 
    
	
15.
    	
Transfer   of Option
    	
 
    	
Prior to your death, only you may exercise this Option.  You cannot gift, transfer, assign, alienate,   pledge, hypothecate, attach, sell, or encumber this Option or subject it to   any short position, Call Equivalent Position or Put Equivalent Position.  If you attempt to do any of these things,   this Option will immediately become invalid.    You may, however, dispose of this 
    

 

8

 

	
 
    	
 
    	
 
    	
Option in your will or it may be transferred by the laws of descent   and distribution.  Regardless of any   marital property settlement agreement, the Company is not obligated to honor   a notice of exercise from your spouse, nor is the Company obligated to   recognize your spouse’s interest in your Option in any other way.
    
	
 
    	
 
    	
 
    	
 
    
	
16.
    	
Retention   Rights
    	
 
    	
Your Option or this Agreement does not give you the right to be   retained by the Company (or any Parent or any Subsidiaries or Affiliates) in   any capacity.  The Company (or any   Parent and any Subsidiaries or Affiliates) reserves the right to terminate   your Service at any time and for any reason.

 

This Option and the Shares subject to the Option are not intended to   constitute or replace any pension rights or compensation and are not to be   considered compensation of a continuing or recurring nature, or part of your   normal or expected compensation, and in no way represent any portion of your   salary, compensation or other remuneration for any purpose, including but not   limited to, calculating any severance, resignation, termination, redundancy,   dismissal, end of service payments, bonuses, long-service awards, pension or   retirement benefits or similar payments.
    
	
 
    	
 
    	
 
    	
 
    
	
17.
    	
Stockholder   Rights
    	
 
    	
You, or your estate, shall have no rights as a stockholder of the   Company with regard to the Option until you have been issued the applicable   Shares by the Company and have satisfied all other conditions specified in   Section 4(f) of the Plan.  No   adjustment shall be made for cash or stock dividends or other rights for   which the record date is prior to the date when such applicable Shares are   issued, except as provided in the Plan.

    
	
 
    	
 
    	
 
    	
 
    
	
18.
    	
Adjustments
    	
 
    	
In the event of a stock split, a stock dividend or a similar change   in the Company stock, the number of Shares covered by this Option (rounded   down to the nearest whole number) and the Exercise Price per Share may be   adjusted pursuant to the Plan.  Your   Option shall be subject to the terms of the agreement of merger, liquidation   or reorganization in the event the Company is subject to such corporate   activity.
    
	
 
    	
 
    	
 
    	
 
    
	
19.
    	
Legends
    	
 
    	
All certificates representing the Shares issued upon exercise of this   Option may, where applicable, have endorsed thereon the following   legends and any other legend the Company determines appropriate:
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
“THE SHARES REPRESENTED BY THIS CERTIFICATE 
    

 

9

 

	
 
    	
 
    	
 
    	
ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OPTIONS TO   PURCHASE SUCH SHARES SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE   REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST. A COPY OF SUCH   AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED   UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY BY THE HOLDER OF RECORD   OF THE SHARES REPRESENTED BY THIS CERTIFICATE.”
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE   SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR   OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH   ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,   THAT SUCH REGISTRATION IS NOT REQUIRED.”
    
	
 
    	
 
    	
 
    	
 
    
	
20.
    	
Applicable   Law
    	
 
    	
This Agreement will be interpreted and enforced under the laws of the   State of Delaware without reference to the conflicts of law provisions   thereof.
    
	
 
    	
 
    	
 
    	
 
    
	
21.
    	
Voluntary   Participant
    	
 
    	
You acknowledge that you are voluntarily participating in the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
22.
    	
No   Rights to Future Awards
    	
 
    	
Your rights, if any, in respect of or in connection with this Option   or any other Awards are derived solely from the discretionary decision of the   Company to permit you to participate in the Plan and to benefit from a   discretionary future Award.  By   accepting this Option, you expressly acknowledge that there is no obligation   on the part of the Company to continue the Plan and/or grant any additional   Awards to you or benefits in lieu of Options or any other Awards even if   Awards have been granted repeatedly in the past.  All decisions with respect to future   Awards, if any, will be at the sole discretion of the Committee.
    
	
 
    	
 
    	
 
    	
 
    
	
23.
    	
Future   Value
    	
 
    	
The future value of the underlying Shares is unknown and cannot be   predicted with certainty.  If the underlying   Shares do not increase in value after the Date of Option Grant, the Option   will have little or no value.  If you   exercise the Option and obtain Shares, the value of the Shares acquired upon   exercise may increase or decrease in value, even below the Exercise Price. 
    

 

10

 

	
24.
    	
No   Advice Regarding Grant
    	
 
    	
The Company has not provided any tax, legal or financial advice, nor   has the Company made any recommendations regarding your participation in the   Plan, or your acquisition or sale of the underlying Shares.  You are hereby advised to consult with your   own personal tax, legal and financial advisors regarding your participation   in the Plan before taking any action related to the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
25.
    	
No   Right to Damages
    	
 
    	
You will have no right to bring a claim or to receive damages if any   portion of the Option is cancelled or expires unexercised.  The loss of existing or potential profit in   the Option will not constitute an element of damages in the event of the termination   of your Service for any reason, even if the termination is in violation of an   obligation of the Company or a Parent or a Subsidiary or an Affiliate to you.

 

Additionally, you understand and agree that the Company will not be   responsible for any adverse or unexpected tax consequences imposed by Code   Sections 409A, 422 or 280G or any other law or regulation and that you will   be solely responsible for any tax liability imposed on you as a result of   this Agreement.  Moreover, the Company   makes no representation or covenant to ensure that this Option is exempt from   Code Section 409A and will have no liability to you or any other party   if this Option, as amended, is not so exempt from or compliant with Code   Section 409A.
    

 

11

 

	
26.
    	
Data   Privacy
    	
 
    	
You hereby explicitly   and unambiguously consent to the collection, use and transfer, in electronic   or other form, of your personal data as described in this document by the   Company for the exclusive purpose of implementing, administering and managing   your participation in the Plan.  You   understand that the Company holds certain personal information about you,   including, but not limited to, name, home address and telephone number, date   of birth, social security or insurance number or other identification number,   salary, nationality, job title, any shares of stock or directorships held in   the Company, details of all Awards or any other entitlement to Shares   awarded, cancelled, purchased, exercised, vested, unvested or outstanding in   your favor for the purpose of implementing, managing and administering the   Plan (“Data”).  You understand that the   Data may be transferred to any third parties assisting in the implementation,   administration and management of the Plan, that these recipients may be   located in your country or elsewhere and that the recipient country may have   different data privacy laws and protections than your country.  You authorize the recipients to receive,   possess, use, retain and transfer the Data, in electronic or other form, for   the purposes of implementing, administering and managing your participation   in the Plan, including any requisite transfer of such Data, as may be   required to a broker or other third party with whom you may elect to deposit   any Shares acquired under the Plan.
    

 

By signing the cover sheet of this Agreement, you agree to all of the terms and
 conditions described above and in the Plan.

 

12

 

GRANT NO. ________

 

TRACON PHARMACEUTICALS, INC.

2011 EQUITY INCENTIVE PLAN

 

INCENTIVE STOCK OPTION AGREEMENT

 

The Company hereby grants an Option to purchase Shares to the Optionee named below.  The terms and conditions of the Option are set forth in this cover sheet, in the attached Incentive Stock Option Agreement and in the Tracon Pharmaceuticals, Inc. 2011 Equity Incentive Plan.  This cover sheet is incorporated into and a part of the attached Incentive Stock Option Agreement (together, the “Agreement”).

 

Date of Option Grant:  __________________

 

Name of Optionee:  _________________________________________________

 

Number of Shares Covered by Option:  ______________

 

Exercise Price per Share:  $_____.___

 

Fair Market Value of a Share on Date of Option Grant:  $_____.___

 

Expiration Date:  _____________

 

Vesting Calculation Date:  _____________

 

Vesting Schedule:

 

Subject to all the terms of the Agreement and your continued Service, your right to purchase Shares under this Option shall vest as to one-fourth (1/4) of the total number of Shares covered by this Option, as shown above, on the first anniversary of the Vesting Calculation Date.  Thereafter, the number of Shares which you may purchase under this Option shall vest at the rate of one-forty-eighth (1/48) of the total number of Shares covered by this Option per calendar month on the last day of each of the thirty-five (35) months following the month of the first anniversary of the Vesting Calculation Date and the final one-forty-eighth (1/48) of the total number of Shares covered by this Option shall vest on the fourth anniversary of the Vesting Calculation Date.  In all cases, the resulting aggregate number of vested Shares will be rounded down to the nearest whole number.  No Shares subject to this Option will vest after your Service has terminated for any reason.

 

By signing this cover sheet, you agree to all of the terms and conditions described in the Agreement and in the Plan.  You are also acknowledging receipt of this Agreement and a copy of the Plan, a copy of which is also enclosed.

 

	
Optionee:
    	
 
    
	
 
    	
(Signature)
    
	
 
    
	
Company:
    	
 
    
	
 
    	
(Signature)
    

 

 

	
Title:
    	
 
    

 

Attachment

 

2

 

TRACON PHARMACEUTICALS, INC.

2011 EQUITY INCENTIVE PLAN

 

INCENTIVE STOCK OPTION AGREEMENT

 

	
1.
    	
The   Plan and Other Agreements
    	
 
    	
The text of the Plan is incorporated in this Agreement by   reference.  Certain capitalized terms   used in this Agreement are defined in the Plan.

 

This Agreement and the Plan constitute the entire understanding between   you and the Company regarding this Option.    Any prior agreements, commitments or negotiations concerning this   Option are superseded.
    
	
 
    	
 
    	
 
    	
 
    
	
2.
    	
Incentive   Stock Option
    	
 
    	
This Option is intended to be an Incentive Stock Option under section   422 of the Code and will be interpreted accordingly.

 

If you cease to be an employee of the Company, a Subsidiary or of a   Parent but continue to provide Service, this Option will be treated as a   Nonstatutory Stock Option on the day after the date that is three   (3) months after you cease to be an employee of the Company (and any   Subsidiary or any Parent): (i) even if you continue to provide Service   after your employment has terminated or (ii) if your termination of   employment was for any reason other than due to your death or   Disability.  In addition, to the extent   that all or part of this Option exceeds the $100,000 limitation rule of   section 422(d) of the Code, this Option or the lesser excess part will   be treated as a Nonstatutory Stock Option.

 

This Option is not intended to be deferred compensation under section   409A of the Code and will be interpreted accordingly.
    

 

3

 

	
3.
    	
Vesting
    	
 
    	
This Option is only exercisable before it expires and only with   respect to the vested portion of the Option.    This Option will vest according to the Vesting Schedule described in   the cover sheet of this Agreement and in the following paragraphs of this   Section 3.

 

In accordance with Plan Section 12, if a Change in Control   occurs during your Service and there is no assumption, substitution or   continuation of this Option pursuant to Plan Section 12, then the   outstanding unvested portion of this Option shall fully vest on an   accelerated basis and become exercisable as of immediately before such Change   in Control.

 

If your Service is terminated without Cause by the Company (or its   successor) either on the date of a Change in Control or during the 18 month   period following a Change in Control, then the outstanding unvested portion   of this Option shall fully vest on an accelerated basis and become   exercisable on your Termination Date.

 

Notwithstanding the foregoing paragraphs, in accordance with Plan   Section 12, unless Section 280G Approval has been obtained or   unless the Committee in its sole discretion waives this requirement to obtain   Section 280G Approval, no acceleration of vesting shall occur with   respect to this Option to the extent that such acceleration would, after   taking into account any other payments in the nature of compensation to which   you would have a right to receive from the Company and any other person   contingent upon the occurrence of a Change in Control, result in a “parachute   payment” as defined under Code Section 280G.  You agree to cooperate and execute   any waivers of compensation as may be necessary to enable the   Section 280G Approval vote to comply with the requirements specified   under Code Section 280G and the regulations promulgated thereunder.
    
	
 
    	
 
    	
 
    	
 
    
	
4.
    	
Term
    	
 
    	
Your Option will expire in all cases no later than the close of business   at Company headquarters on the Expiration Date, as shown on the cover   sheet.  Your Option may expire earlier   if your Service terminates, as described in Sections 5, 6 and 7 below or on the   date on which the Option is cancelled (and not substituted or assumed)   pursuant to a Change in Control or merger or acquisition or reorganization or   similar transaction involving the Company.
    
	
 
    	
 
    	
 
    	
 
    
	
5.
    	
Termination   of Service - General
    	
 
    	
If, while the Option is outstanding, your Service terminates for any   reason, other than being terminated by the Company for Cause or due to your   death or Disability, then the unvested portion of your Option shall be forfeited without   consideration 
    

 

4

 

	
 
    	
 
    	
 
    	
and shall immediately expire on your Termination Date and the vested   portion of your Option will expire at the earlier of (i) the   close of business at Company headquarters on the date that is ninety (90) days after your Termination   Date, (ii) the Expiration Date set forth in the attached cover sheet and   further described in Section 4 above, or (iii) the date on which   the Option is cancelled (and not substituted or assumed) pursuant to a Change   in Control or merger or acquisition or reorganization or similar transaction   involving the Company.  In no event is the Option exercisable   after the Expiration Date.
    
	
 
    	
 
    	
 
    	
 
    
	
6.
    	
Termination   of Service for Cause
    	
 
    	
If your Service is terminated by the Company for Cause or if you   commit an act(s) of Cause while this Option is outstanding, as   determined by the Committee in its sole discretion, then you shall   immediately forfeit all rights to your Option without consideration,   including any vested portion of the Option, and the entire Option shall   immediately expire, and any rights, payments and benefits with respect to the   Option shall be subject to reduction or recoupment in accordance with the   Clawback Policy and the Plan.  For   avoidance of doubt, your Service shall also be deemed to have been   terminated for Cause by the Company if, after your Service has otherwise   terminated, facts and circumstances are discovered that would have justified   a termination for Cause, including, without limitation, your violation of   Company policies or breach of confidentiality or other restrictive covenants   or conditions that may apply to you prior to or after your Termination Date.
    
	
 
    	
 
    	
 
    	
 
    
	
7.
    	
Termination   of Service due to Death or Disability
    	
 
    	
If your Service terminates because of your death or Disability, then   the unvested portion of your Option shall be forfeited without consideration   and shall immediately expire on your Termination Date and the vested portion   of your Option will expire at the earlier of (i) the close of   business at Company headquarters on the date that is six (6) months after your Termination   Date, (ii) the Expiration Date set forth in the attached cover sheet and   further described in Section 4 above, or (iii) the date on which   the Option is cancelled (and not substituted or assumed) pursuant to a Change   in Control or merger or acquisition or similar transaction involving the   Company.  In no event is the Option exercisable after the Expiration Date.  If your Service terminated due to your   death, then your estate may exercise the vested portion of your Option during   the foregoing post-Service exercise period.
    
	
 
    	
 
    	
 
    	
 
    
	
8.
    	
Leaves   of Absence
    	
 
    	
For purposes of this Option, your Service does not terminate when you   go on a bona fide leave of absence that was   approved by the Company in writing, if the terms of the leave provide for   continued Service crediting, or when continued Service crediting 
    

 

5

 

	
 
    	
 
    	
 
    	
is required by applicable law.    For income tax purposes, if the period of leave exceeds three   (3) months and your right to reemployment is not provided either by   statute or by contract, then this Option will be treated as a Nonstatutory   Stock Option if the exercise of this Option occurs after the expiration of   six (6) months from the commencement of such leave of absence.  Your Service terminates in any event when   the approved leave ends unless you immediately return to active work.

 

The Company determines which leaves count for this purpose (along   with determining the effect of a leave of absence on vesting of the Option),   and when your Service terminates for all purposes under the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
9.
    	
Notice   of Exercise
    	
 
    	
When you wish to exercise this Option, you must notify the Company by   filing a “Notice of Exercise” form at the address given on the form.  Your notice must specify how many Shares   you wish to purchase.  Your notice must   also specify how your Shares should be registered (in your name only or in   your and your spouse’s names as community property or as joint tenants with   right of survivorship).  The notice   will be effective when it is received by the Company.

 

If someone else wants to exercise this Option after your death, that   person must prove to the Company’s satisfaction that he or she is entitled to   do so.
    
	
 
    	
 
    	
 
    	
 
    
	
10.
    	
Form of   Payment
    	
 
    	
When you submit your notice of exercise, you must include payment of   the Exercise Price for the Shares you are purchasing.  Payment may be made in one (or a   combination) of the following forms:

 

·    Cash, your personal check, a cashier’s   check or a money order.

 

·    Shares which have already been owned by   you for more than six (6) months and which are surrendered to the   Company.  The Fair Market Value of the   Shares, determined as of the effective date of the Option exercise, will be   applied to the Exercise Price.

 

·    To the extent a public market for the   Shares exists as determined by the Company, by Cashless Exercise through   delivery (on a form prescribed by the Company) of an irrevocable direction to   a securities broker to sell Shares and to deliver all or part of the sale   proceeds to the Company in payment of the aggregate Exercise Price.
    

 

6

 

	
11.
    	
Withholding   Taxes
    	
 
    	
You will be solely responsible for payment of any and all applicable   taxes associated with this Option.

 

You will not be allowed to exercise this Option unless you make   acceptable arrangements to pay any withholding or other taxes that may be due   as a result of the Option exercise or sale of Shares acquired under this   Option.
    
	
 
    	
 
    	
 
    	
 
    
	
12.
    	
Restrictions   on Exercise and Resale
    	
 
    	
By signing this   Agreement, you agree not to (i) exercise this Option (“Exercise   Prohibition”), or (ii) sell, transfer, dispose of, pledge, hypothecate,   make any short sale of, or otherwise effect a similar transaction of any   Shares acquired under this Option (each a “Sale Prohibition”) at a time when   applicable laws, regulations or Company or underwriter trading policies   prohibit the exercise or disposition of Shares.  The Company will not permit you to exercise this Option if the   issuance of Shares at that time would violate any law or regulation.  The Company shall have the right to   designate one or more periods of time, each of which generally will not   exceed one hundred eighty (180) days in length (provided however, that   such period may be extended in connection with the Company’s release (or   announcement of release) of earnings results or other material news or   events), and to impose an Exercise Prohibition and/or Sale Prohibition, if   the Company determines (in its sole discretion) that such   limitation(s) is needed in connection with a public offering of Shares   or to comply with an underwriter’s request or trading policy, or could in any   way facilitate a lessening of any restriction on transfer pursuant to the   Securities Act or any state securities laws with respect to any issuance of   securities by the Company, facilitate the registration or qualification of   any securities by the Company under the Securities Act or any state   securities laws, or facilitate the perfection of any exemption from the   registration or qualification requirements of the Securities Act or any   applicable state securities laws for the issuance or transfer of any   securities.  The Company may issue   stop/transfer instructions and/or appropriately legend any stock certificates   issued pursuant to this Option in order to ensure compliance with the   foregoing.  Any such Exercise   Prohibition shall not alter the vesting schedule set forth in this Agreement   other than to limit the periods during which this Option shall be exercisable.

 

If the sale of Shares   under the Plan is not registered under the Securities Act, but an exemption   is available which requires an investment or other representation, you shall   represent and agree at the time of exercise that the Shares being acquired upon   exercise of this Option are being acquired for investment, and not with a   view to the sale or distribution thereof, and shall make 
    

 

7

 

	
 
    	
 
    	
 
    	
such other   representations as are deemed necessary or appropriate by the Company and its   counsel.

 

You may also be   required, as a condition of exercise of this Option, to enter into any   Stockholders Agreement or other agreements that are applicable to   stockholders.

 

If you sell or otherwise dispose of any of the Shares acquired   pursuant to the exercise of this Option on or before the later of   (i) the date that is two years after the Date of Option Grant or   (ii) the date that is one year after the applicable exercise of this   Option, then you shall within ten days of any and all such sales or   dispositions provide the Company with written notice of such transactions   including without limitation the date of each disposition, the number of   Shares that you disposed of in each transaction and their original Date of   Option Grant, and the amount of proceeds you received from each disposition.
    
	
 
    	
 
    	
 
    	
 
    
	
13.
    	
The   Company’s Right of First Refusal
    	
 
    	
In the event that you propose to sell, pledge or otherwise transfer   to a third party any Shares acquired under this Agreement, or any interest in   such Shares, the Company shall have the “Right of First Refusal” with respect   to all (and not less than all) of such Shares.  If you desire to transfer Shares acquired   under this Agreement, you must give a written “Transfer Notice” to the   Company describing fully the proposed transfer, including the number of   Shares proposed to be transferred, the proposed transfer price and the name   and address of the proposed transferee.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
The Transfer Notice shall be signed both by you and by the proposed   new transferee and must constitute a binding commitment of both parties to   the transfer of the Shares.  The   Company shall have the right to purchase all, and not less than all, of the   Shares on the terms of the proposal described in the Transfer Notice (subject,   however, to any change in such terms permitted in the next paragraph) by   delivery of a notice of exercise of the Right of First Refusal within thirty   (30) days after the date when the Transfer Notice was received by the   Company.  The Company’s rights under   this subsection shall be freely assignable, in whole or in part.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
If the Company fails to exercise its Right of First Refusal within   thirty (30) days after the date when it received the Transfer Notice, you   may, not later than ninety (90) days following receipt of the Transfer Notice   by the Company, conclude a transfer of the Shares subject to the Transfer   Notice on the terms and conditions described in the Transfer Notice.  Any proposed transfer on terms and   conditions different from those described 
    

 

8

 

	
 
    	
 
    	
 
    	
in the Transfer Notice, as well as any subsequent proposed transfer   by you, shall again be subject to the Right of First Refusal and shall   require compliance with the procedure described in the paragraph above.  If the Company exercises its Right of First   Refusal, the parties shall consummate the sale of the Shares on the terms set   forth in the Transfer Notice within sixty (60) days after the date when   the Company received the Transfer Notice (or within such longer period as may   have been specified in the Transfer Notice); provided, however, that in the   event the Transfer Notice provided that payment for the Shares was to be made   in a form other than lawful money paid at the time of transfer, the Company   shall have the option of paying for the Shares with lawful money equal to the   present value of the consideration described in the Transfer Notice.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
The Company’s Right of First Refusal shall inure to the benefit of   its successors and assigns and shall be binding upon any transferee of the   Shares.

 

The Company’s Right of First Refusal shall terminate in the event   that Shares are listed on an established stock exchange or are quoted   regularly on the OTC Bulletin Board.
    
	
 
    	
 
    	
 
    	
 
    
	
14.
    	
Right   of Repurchase
    	
 
    	
Following your Termination Date after   termination of your Service for any reason, the Company shall have the right   to purchase all of those Shares that you have or will acquire under this   Option.  If the Company exercises its   right to purchase such Shares, the purchase price shall be the Fair Market   Value of those Shares on the date of purchase as determined by the Board of   Directors and shall be paid in cash.    The Company will notify you of its intention to purchase such Shares,   and will consummate the purchase within any time period established by   applicable law.  The Company’s right of repurchase shall inure to the   benefit of its successors and assigns and shall be binding upon any   transferee of the Shares.  The   Company’s rights under this subsection shall be freely assignable, in whole   or in part. The Company’s right of   repurchase shall terminate in the event that the Shares are listed on an   established stock exchange or are quoted regularly on the OTC Bulletin   Board.
    
	
 
    	
 
    	
 
    	
 
    
	
15.
    	
Transfer   of Option
    	
 
    	
Prior to your death, only you may exercise this Option.  You cannot gift, transfer, assign,   alienate, pledge, hypothecate, attach, sell, or encumber this Option or   subject it to any short position, Call Equivalent Position or Put Equivalent   Position.  If you attempt to do any of   these things, this Option will immediately become invalid.  You may, however, dispose of this Option in   your will or it may be transferred by the laws of descent and distribution.  Regardless of any marital property 
    

 

9

 

	
 
    	
 
    	
 
    	
settlement agreement, the Company is not obligated to honor a notice   of exercise from your spouse, nor is the Company obligated to recognize your   spouse’s interest in your Option in any other way.
    
	
 
    	
 
    	
 
    	
 
    
	
16.
    	
Retention   Rights
    	
 
    	
Your Option or this Agreement does not give you the right to be   retained by the Company (or any Parent or any Subsidiaries or Affiliates) in   any capacity.  The Company (or any   Parent and any Subsidiaries or Affiliates) reserves the right to terminate   your Service at any time and for any reason.

 

This Option and the Shares subject to the Option are not intended to   constitute or replace any pension rights or compensation and are not to be   considered compensation of a continuing or recurring nature, or part of your   normal or expected compensation, and in no way represent any portion of your   salary, compensation or other remuneration for any purpose, including but not   limited to, calculating any severance, resignation, termination, redundancy,   dismissal, end of service payments, bonuses, long-service awards, pension or   retirement benefits or similar payments.
    
	
 
    	
 
    	
 
    	
 
    
	
17.
    	
Stockholder   Rights
    	
 
    	
You, or your estate, shall have no rights as a stockholder of the   Company with regard to the Option until you have been issued the applicable   Shares by the Company and have satisfied all other conditions specified in   Section 4(f) of the Plan.  No   adjustment shall be made for cash or stock dividends or other rights for which   the record date is prior to the date when such applicable Shares are issued,   except as provided in the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
18.
    	
Adjustments
    	
 
    	
In the event of a stock split, a stock dividend or a similar change   in the Company stock, the number of Shares covered by this Option (rounded   down to the nearest whole number) and the Exercise Price per Share may be   adjusted pursuant to the Plan.  Your   Option shall be subject to the terms of the agreement of merger, liquidation   or reorganization in the event the Company is subject to such corporate   activity.
    
	
 
    	
 
    	
 
    	
 
    
	
19.
    	
Legends
    	
 
    	
All certificates representing the Shares issued upon exercise of this   Option may, where applicable, have endorsed thereon the following   legends and any other legend the Company determines appropriate:
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN   RESTRICTIONS ON TRANSFER AND OPTIONS TO PURCHASE SUCH 
    

 

10

 

	
 
    	
 
    	
 
    	
SHARES SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE   REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST. A COPY OF SUCH   AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE   FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY BY THE HOLDER   OF RECORD OF THE SHARES REPRESENTED BY THIS CERTIFICATE.”
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE   SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR   OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH   ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,   THAT SUCH REGISTRATION IS NOT REQUIRED.”
    
	
 
    	
 
    	
 
    	
 
    
	
20.
    	
Applicable   Law
    	
 
    	
This Agreement will be interpreted and enforced under the laws of the   State of Delaware without reference to the conflicts of law provisions   thereof.
    
	
 
    	
 
    	
 
    	
 
    
	
21.
    	
Voluntary   Participant
    	
 
    	
You acknowledge that you are voluntarily participating in the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
22.
    	
No   Rights to Future Awards
    	
 
    	
Your rights, if any, in respect of or in connection with this Option   or any other Awards are derived solely from the discretionary decision of the   Company to permit you to participate in the Plan and to benefit from a   discretionary future Award.  By   accepting this Option, you expressly acknowledge that there is no obligation   on the part of the Company to continue the Plan and/or grant any additional   Awards to you or benefits in lieu of Options or any other Awards even if   Awards have been granted repeatedly in the past.  All decisions with respect to future   Awards, if any, will be at the sole discretion of the Committee.
    
	
 
    	
 
    	
 
    	
 
    
	
23.
    	
Future   Value
    	
 
    	
The future value of the underlying Shares is unknown and cannot be   predicted with certainty.  If the   underlying Shares do not increase in value after the Date of Option Grant,   the Option will have little or no value.    If you exercise the Option and obtain Shares, the value of the Shares   acquired upon exercise may increase or decrease in value, even below the   Exercise Price. 
    

 

11

 

	
24.
    	
No   Advice Regarding Grant
    	
 
    	
The Company has not provided any tax, legal or financial advice, nor   has the Company made any recommendations regarding your participation in the   Plan, or your acquisition or sale of the underlying Shares.  You are hereby advised to consult with your   own personal tax, legal and financial advisors regarding your participation   in the Plan before taking any action related to the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
25.
    	
No   Right to Damages
    	
 
    	
You will have no right to bring a claim or to receive damages if any   portion of the Option is cancelled or expires unexercised.  The loss of existing or potential profit in   the Option will not constitute an element of damages in the event of the   termination of your Service for any reason, even if the termination is in   violation of an obligation of the Company or a Parent or a Subsidiary or an   Affiliate to you.

 

Additionally, you understand and agree that the Company will not be   responsible for any adverse or unexpected tax consequences imposed by Code   Sections 409A, 422 or 280G or any other law or regulation and that you will   be solely responsible for any tax liability imposed on you as a result of   this Agreement.  Moreover, the Company   makes no representation or covenant to ensure that this Option is exempt from   Code Section 409A and will have no liability to you or any other party   if this Option, as amended, is not so exempt from or compliant with Code   Section 409A.
    

 

12

 

	
26.
    	
Data   Privacy
    	
 
    	
You hereby explicitly   and unambiguously consent to the collection, use and transfer, in electronic   or other form, of your personal data as described in this document by the   Company for the exclusive purpose of implementing, administering and managing   your participation in the Plan.  You   understand that the Company holds certain personal information about you,   including, but not limited to, name, home address and telephone number, date   of birth, social security or insurance number or other identification number,   salary, nationality, job title, any shares of stock or directorships held in   the Company, details of all Awards or any other entitlement to Shares   awarded, cancelled, purchased, exercised, vested, unvested or outstanding in   your favor for the purpose of implementing, managing and administering the   Plan (“Data”).  You understand that the   Data may be transferred to any third parties assisting in the implementation,   administration and management of the Plan, that these recipients may be   located in your country or elsewhere and that the recipient country may have   different data privacy laws and protections than your country.  You authorize the recipients to receive,   possess, use, retain and transfer the Data, in electronic or other form, for   the purposes of implementing, administering and managing your participation   in the Plan, including any requisite transfer of such Data, as may be   required to a broker or other third party with whom you may elect to deposit   any Shares acquired under the Plan.
    

 

By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.

 

13

 

GRANT NO. ________

 

TRACON PHARMACEUTICALS, INC.

2011 EQUITY INCENTIVE PLAN

 

NONSTATUTORY STOCK OPTION AGREEMENT

 

The Company hereby grants an Option to purchase Shares to the Optionee named below.  The terms and conditions of the Option are set forth in this cover sheet, in the attached Nonstatutory Stock Option Agreement and in the Tracon Pharmaceuticals, Inc. 2011 Equity Incentive Plan.  This cover sheet is incorporated into and a part of the attached Nonstatutory Stock Option Agreement (together, the “Agreement”).

 

Date of Option Grant:  __________________

 

Name of Optionee:  _________________________________________________

 

Number of Shares Covered by Option:  ______________

 

Exercise Price per Share:  $_____.___

 

Fair Market Value of a Share on Date of Option Grant:  $_____.___

 

Expiration Date:  _____________

 

Vesting Calculation Date:  _____________

 

Vesting Schedule:

 

Subject to all the terms of the Agreement and your continued Service, your right to purchase Shares under this Option shall vest as to one-fourth (1/4) of the total number of Shares covered by this Option, as shown above, on the first anniversary of the Vesting Calculation Date.  Thereafter, the number of Shares which you may purchase under this Option shall vest at the rate of one-forty-eighth (1/48) of the total number of Shares covered by this Option per calendar month on the last day of each of the thirty-five (35) months following the month of the first anniversary of the Vesting Calculation Date and the final one-forty-eighth (1/48) of the total number of Shares covered by this Option shall vest on the fourth anniversary of the Vesting Calculation Date.  In all cases, the resulting aggregate number of vested Shares will be rounded down to the nearest whole number.  No Shares subject to this Option will vest after your Service has terminated for any reason.

 

By signing this cover sheet, you agree to all of the terms and conditions described in the Agreement and in the Plan.  You are also acknowledging receipt of this Agreement and a copy of the Plan, a copy of which is also enclosed.

 

	
Optionee:
    	
 
    	
 
    
	
 
    	
(Signature)
    	
 
    
	
 
    	
 
    	
 
    
	
Company:
    	
 
    	
 
    
	
 
    	
(Signature)
    	
 
    

 

 

	
Title:
    	
 
    	
 
    

 

Attachment

 

2

 

TRACON PHARMACEUTICALS, INC.

2011 EQUITY INCENTIVE PLAN

 

NONSTATUTORY STOCK OPTION AGREEMENT

 

	
1.
    	
The   Plan and Other Agreements
    	
 
    	
The text of the Plan is incorporated in this Agreement by   reference.  Certain capitalized terms   used in this Agreement are defined in the Plan.

 

This Agreement and the Plan constitute the entire understanding   between you and the Company regarding this Option.  Any prior agreements, commitments or   negotiations concerning this Option are superseded.
    
	
 
    	
 
    	
 
    	
 
    
	
2.
    	
Nonstatutory   Stock Option
    	
 
    	
This Option is not intended to be an Incentive Stock Option under   section 422 of the Code and will be interpreted accordingly.

 

This Option is not intended to be deferred compensation under section   409A of the Code and will be interpreted accordingly.
    
	
 
    	
 
    	
 
    	
 
    
	
3.
    	
Vesting
    	
 
    	
This Option is only exercisable before it expires and only with   respect to the vested portion of the Option.    This Option will vest according to the Vesting Schedule described in   the cover sheet of this Agreement.
    
	
 
    	
 
    	
 
    	
 
    
	
4.
    	
Term
    	
 
    	
Your Option will expire in all cases no later than the close of   business at Company headquarters on the Expiration Date, as shown on the   cover sheet.  Your Option may expire   earlier if your Service terminates, as described in Sections 5, 6 and 7 below   or on the date on which the Option is cancelled (and not substituted   or assumed) pursuant to a Change in Control or merger or acquisition or   reorganization or similar transaction involving the Company.
    
	
 
    	
 
    	
 
    	
 
    
	
5.
    	
Termination   of Service - General
    	
 
    	
If, while the Option is outstanding, your Service terminates for any   reason, other than being terminated by the Company for Cause or due to your   death or Disability, then the unvested portion of your Option shall be forfeited without   consideration and shall immediately expire on your Termination Date and the   vested portion of your Option will expire at the earlier of   (i) the close of business at Company headquarters on the date that is ninety (90) days   after your Termination Date, (ii) the Expiration Date set forth   in the attached cover sheet and further described in Section 4 above, or   (iii) the date on which the Option is cancelled (and not substituted or   assumed) pursuant to a Change in Control or merger or acquisition or   reorganization or similar transaction involving the Company.  In   no event is the Option exercisable after the Expiration Date.
    
	
 
    	
 
    	
 
    	
 
    
	
6.
    	
Termination   of 
    	
 
    	
If your Service is terminated by the Company for Cause or if you 
    

 

3

 

	
 
    	
Service   for Cause
    	
 
    	
commit an act(s) of Cause while this Option is outstanding, as   determined by the Committee in its sole discretion, then you shall   immediately forfeit all rights to your Option without consideration,   including any vested portion of the Option, and the entire Option shall   immediately expire, and any rights, payments and benefits with respect to the   Option shall be subject to reduction or recoupment in accordance with the   Clawback Policy and the Plan.  For   avoidance of doubt, your Service shall also be deemed to have been   terminated for Cause by the Company if, after your Service has otherwise   terminated, facts and circumstances are discovered that would have justified   a termination for Cause, including, without limitation, your violation of   Company policies or breach of confidentiality or other restrictive covenants   or conditions that may apply to you prior to or after your Termination Date.
    
	
 
    	
 
    	
 
    	
 
    
	
7.
    	
Termination   of Service due to Death or Disability
    	
 
    	
If your Service terminates because of your death or Disability, then   the unvested portion of your Option shall be forfeited without consideration   and shall immediately expire on your Termination Date and the vested portion   of your Option will expire at the earlier of (i) the close of   business at Company headquarters on the date that is six (6) months after your Termination   Date, (ii) the Expiration Date set forth in the attached cover sheet and   further described in Section 4 above, or (iii) the date on which   the Option is cancelled (and not substituted or assumed) pursuant to a Change   in Control or merger or acquisition or similar transaction involving the   Company.  In no event is the Option exercisable after the Expiration Date.  If your Service terminated due to your   death, then your estate may exercise the vested portion of your Option during   the foregoing post-Service exercise period.
    
	
 
    	
 
    	
 
    	
 
    
	
8.
    	
Leaves   of Absence
    	
 
    	
For purposes of this Option, your Service does not terminate when you   go on a bona fide leave of absence that was   approved by the Company in writing, if the terms of the leave provide for   continued Service crediting, or when continued Service crediting is required   by applicable law.  Your Service   terminates in any event when the approved leave ends unless you immediately   return to active work.

 

The Company determines which leaves count for this purpose (along   with determining the effect of a leave of absence on vesting of the Option),   and when your Service terminates for all purposes under the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
9.
    	
Notice   of Exercise
    	
 
    	
When you wish to exercise this Option, you must notify the Company by   filing a “Notice of Exercise” form at the address given on the form.  Your notice must specify how many Shares   you wish to purchase.  Your notice must   also specify how your 
    

 

4

 

	
 
    	
 
    	
 
    	
Shares should be registered (in your name only or in your and your   spouse’s names as community property or as joint tenants with right of   survivorship).  The notice will be   effective when it is received by the Company.

 

If someone else wants to exercise this Option after your death, that   person must prove to the Company’s satisfaction that he or she is entitled to   do so.
    
	
 
    	
 
    	
 
    	
 
    
	
10.
    	
Form of   Payment
    	
 
    	
When you submit your notice of exercise, you must include payment of   the Exercise Price for the Shares you are purchasing.  Payment may be made in one (or a   combination) of the following forms:

 

·    Cash, your personal check, a cashier’s   check or a money order.

 

·    Shares which have already been owned by   you for more than six (6) months and which are surrendered to the   Company.  The Fair Market Value of the   Shares, determined as of the effective date of the Option exercise, will be   applied to the Exercise Price.

 

·    To the extent a public market for the   Shares exists as determined by the Company, by Cashless Exercise through   delivery (on a form prescribed by the Company) of an irrevocable direction to   a securities broker to sell Shares and to deliver all or part of the sale   proceeds to the Company in payment of the aggregate Exercise Price.
    
	
 
    	
 
    	
 
    	
 
    
	
11.
    	
Withholding   Taxes
    	
 
    	
You will be solely responsible for payment of any and all applicable   taxes associated with this Option.

 

You will not be allowed to exercise this Option unless you make   acceptable arrangements to pay any withholding or other taxes that may be due   as a result of the Option exercise or sale of Shares acquired under this   Option.
    
	
 
    	
 
    	
 
    	
 
    
	
12.
    	
Restrictions   on Exercise and Resale
    	
 
    	
By signing this   Agreement, you agree not to (i) exercise this Option (“Exercise   Prohibition”), or (ii) sell, transfer, dispose of, pledge, hypothecate,   make any short sale of, or otherwise effect a similar transaction of any   Shares acquired under this Option (each a “Sale Prohibition”) at a time when   applicable laws, regulations or Company or underwriter trading policies   prohibit the exercise or disposition of Shares.  The Company will not permit you to exercise this Option if the   issuance of Shares at that time would violate any law or regulation.  The Company shall have the right to   designate one or more periods of time, each of which generally will not   exceed one hundred eighty (180) days in length (provided 
    

 

5

 

	
 
    	
 
    	
 
    	
however, that such period   may be extended in connection with the Company’s release (or announcement of   release) of earnings results or other material news or events), and to impose   an Exercise Prohibition and/or Sale Prohibition, if the Company determines   (in its sole discretion) that such limitation(s) is needed in connection   with a public offering of Shares or to comply with an underwriter’s request   or trading policy, or could in any way facilitate a lessening of any   restriction on transfer pursuant to the Securities Act or any state   securities laws with respect to any issuance of securities by the Company,   facilitate the registration or qualification of any securities by the Company   under the Securities Act or any state securities laws, or facilitate the   perfection of any exemption from the registration or qualification   requirements of the Securities Act or any applicable state securities laws   for the issuance or transfer of any securities.  The Company may issue stop/transfer   instructions and/or appropriately legend any stock certificates issued   pursuant to this Option in order to ensure compliance with the   foregoing.  Any such Exercise   Prohibition shall not alter the vesting schedule set forth in this Agreement   other than to limit the periods during which this Option shall be   exercisable.

 

If the sale of Shares   under the Plan is not registered under the Securities Act, but an exemption   is available which requires an investment or other representation, you shall   represent and agree at the time of exercise that the Shares being acquired   upon exercise of this Option are being acquired for investment, and not with   a view to the sale or distribution thereof, and shall make such other   representations as are deemed necessary or appropriate by the Company and its   counsel.

 

You may also be   required, as a condition of exercise of this Option, to enter into any   Stockholders Agreement or other agreements that are applicable to   stockholders.
    
	
 
    	
 
    	
 
    	
 
    
	
13.
    	
The   Company’s Right of First Refusal
    	
 
    	
In the event that you propose to sell, pledge or otherwise transfer   to a third party any Shares acquired under this Agreement, or any interest in   such Shares, the Company shall have the “Right of First Refusal” with respect   to all (and not less than all) of such Shares.  If you desire to transfer Shares acquired   under this Agreement, you must give a written “Transfer Notice” to the   Company describing fully the proposed transfer, including the number of   Shares proposed to be transferred, the proposed transfer price and the name   and address of the proposed transferee.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
The Transfer Notice shall be signed both by you and by the proposed   new transferee and must constitute a binding commitment of both parties to   the transfer of the Shares.  The 
    

 

6

 

	
 
    	
 
    	
 
    	
Company shall have the right to purchase all, and not less than all,   of the Shares on the terms of the proposal described in the Transfer Notice   (subject, however, to any change in such terms permitted in the next   paragraph) by delivery of a notice of exercise of the Right of First Refusal   within thirty (30) days after the date when the Transfer Notice was received   by the Company.  The Company’s rights   under this subsection shall be freely assignable, in whole or in part.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
If the Company fails to exercise its Right of First Refusal within   thirty (30) days after the date when it received the Transfer Notice, you   may, not later than ninety (90) days following receipt of the Transfer Notice   by the Company, conclude a transfer of the Shares subject to the Transfer   Notice on the terms and conditions described in the Transfer Notice.  Any proposed transfer on terms and   conditions different from those described in the Transfer Notice, as well as   any subsequent proposed transfer by you, shall again be subject to the Right   of First Refusal and shall require compliance with the procedure described in   the paragraph above.  If the Company   exercises its Right of First Refusal, the parties shall consummate the sale   of the Shares on the terms set forth in the Transfer Notice within sixty   (60) days after the date when the Company received the Transfer Notice   (or within such longer period as may have been specified in the Transfer   Notice); provided, however, that in the event the Transfer Notice provided   that payment for the Shares was to be made in a form other than lawful money   paid at the time of transfer, the Company shall have the option of paying for   the Shares with lawful money equal to the present value of the consideration   described in the Transfer Notice.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
The Company’s Right of First Refusal shall inure to the benefit of   its successors and assigns and shall be binding upon any transferee of the   Shares.

 

The Company’s Right of First Refusal shall terminate in the event   that Shares are listed on an established stock exchange or are quoted   regularly on the OTC Bulletin Board.
    
	
 
    	
 
    	
 
    	
 
    
	
14.
    	
Right   of Repurchase
    	
 
    	
Following your Termination Date after   termination of your Service for any reason, the Company shall have the right   to purchase all of those Shares that you have or will acquire under this   Option.  If the Company exercises its   right to purchase such Shares, the purchase price shall be the Fair Market   Value of those Shares on the date of purchase as determined by the Board of   Directors and shall be paid in cash.  The   Company will notify you of its intention to purchase such Shares, and will   consummate the purchase within any time period established by applicable   law.  
    

 

7

 

	
 
    	
 
    	
 
    	
The Company’s right of repurchase   shall inure to the benefit of its successors and assigns and shall be   binding upon any transferee of the Shares.    The Company’s rights under this subsection shall be freely assignable,   in whole or in part. The Company’s   right of repurchase shall terminate in the event that the Shares are listed   on an established stock exchange or are quoted regularly on the OTC   Bulletin Board.
    
	
 
    	
 
    	
 
    	
 
    
	
15.
    	
Transfer   of Option
    	
 
    	
Prior to your death, only you may exercise this Option.  You cannot gift, transfer, assign,   alienate, pledge, hypothecate, attach, sell, or encumber this Option or   subject it to any short position, Call Equivalent Position or Put Equivalent   Position.  If you attempt to do any of   these things, this Option will immediately become invalid.  You may, however, dispose of this Option in   your will or it may be transferred by the laws of descent and   distribution.  Regardless of any   marital property settlement agreement, the Company is not obligated to honor   a notice of exercise from your spouse, nor is the Company obligated to   recognize your spouse’s interest in your Option in any other way.
    
	
 
    	
 
    	
 
    	
 
    
	
16.
    	
Retention   Rights
    	
 
    	
Your Option or this Agreement does not give you the right to be   retained by the Company (or any Parent or any Subsidiaries or Affiliates) in   any capacity.  The Company (or any   Parent and any Subsidiaries or Affiliates) reserves the right to terminate   your Service at any time and for any reason.

 

This Option and the Shares subject to the Option are not intended to   constitute or replace any pension rights or compensation and are not to be   considered compensation of a continuing or recurring nature, or part of your   normal or expected compensation, and in no way represent any portion of your   salary, compensation or other remuneration for any purpose, including but not   limited to, calculating any severance, resignation, termination, redundancy,   dismissal, end of service payments, bonuses, long-service awards, pension or   retirement benefits or similar payments.
    
	
 
    	
 
    	
 
    	
 
    
	
17.
    	
Stockholder   Rights
    	
 
    	
You, or your estate, shall have no rights as a stockholder of the   Company with regard to the Option until you have been issued the applicable   Shares by the Company and have satisfied all other conditions specified in   Section 4(f) of the Plan.  No   adjustment shall be made for cash or stock dividends or other rights for   which the record date is prior to the date when such applicable Shares are   issued, except as provided in the Plan.
    

 

8

 

	
18.
    	
Adjustments
    	
 
    	
In the event of a stock split, a stock dividend or a similar change   in the Company stock, the number of Shares covered by this Option (rounded   down to the nearest whole number) and the Exercise Price per Share may be   adjusted pursuant to the Plan.  Your   Option shall be subject to the terms of the agreement of merger, liquidation   or reorganization in the event the Company is subject to such corporate   activity.
    
	
 
    	
 
    	
 
    	
 
    
	
19.
    	
Legends
    	
 
    	
All certificates representing the Shares issued upon exercise of this   Option may, where applicable, have endorsed thereon the following   legends and any other legend the Company determines appropriate:
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN   RESTRICTIONS ON TRANSFER AND OPTIONS TO PURCHASE SUCH SHARES SET FORTH IN AN   AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER   PREDECESSOR IN INTEREST. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL   OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST TO THE   SECRETARY OF THE COMPANY BY THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY   THIS CERTIFICATE.”
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE   SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR   OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH   ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,   THAT SUCH REGISTRATION IS NOT REQUIRED.”
    
	
 
    	
 
    	
 
    	
 
    
	
20.
    	
Applicable   Law
    	
 
    	
This Agreement will be interpreted and enforced under the laws of the   State of Delaware without reference to the conflicts of law provisions   thereof.
    
	
 
    	
 
    	
 
    	
 
    
	
21.
    	
Voluntary   Participant
    	
 
    	
You acknowledge that you are voluntarily participating in the Plan.
    

 

9

 

	
22.
    	
No   Rights to Future Awards
    	
 
    	
Your rights, if any, in respect of or in connection with this Option   or any other Awards are derived solely from the discretionary decision of the   Company to permit you to participate in the Plan and to benefit from a   discretionary future Award.  By   accepting this Option, you expressly acknowledge that there is no obligation   on the part of the Company to continue the Plan and/or grant any additional   Awards to you or benefits in lieu of Options or any other Awards even if   Awards have been granted repeatedly in the past.  All decisions with respect to future   Awards, if any, will be at the sole discretion of the Committee.
    
	
 
    	
 
    	
 
    	
 
    
	
23.
    	
Future   Value
    	
 
    	
The future value of the underlying Shares is unknown and cannot be   predicted with certainty.  If the   underlying Shares do not increase in value after the Date of Option Grant,   the Option will have little or no value.    If you exercise the Option and obtain Shares, the value of the Shares   acquired upon exercise may increase or decrease in value, even below the   Exercise Price. 
    
	
 
    	
 
    	
 
    	
 
    
	
24.
    	
No   Advice Regarding Grant
    	
 
    	
The Company has not provided any tax, legal or financial advice, nor   has the Company made any recommendations regarding your participation in the   Plan, or your acquisition or sale of the underlying Shares.  You are hereby advised to consult with your   own personal tax, legal and financial advisors regarding your participation   in the Plan before taking any action related to the Plan.
    
	
 
    	
 
    	
 
    	
 
    
	
25.
    	
No   Right to Damages
    	
 
    	
You will have no right to bring a claim or to receive damages if any   portion of the Option is cancelled or expires unexercised.  The loss of existing or potential profit in   the Option will not constitute an element of damages in the event of the   termination of your Service for any reason, even if the termination is in   violation of an obligation of the Company or a Parent or a Subsidiary or an   Affiliate to you.

 

Additionally, you understand and agree that the Company will not be   responsible for any adverse or unexpected tax consequences imposed by Code   Sections 409A, 422 or 280G or any other law or regulation and that you will   be solely responsible for any tax liability imposed on you as a result of   this Agreement.  Moreover, the Company   makes no representation or covenant to ensure that this Option is exempt from   Code Section 409A and will have no liability to you or any other party   if this Option, as amended, is not so exempt from or compliant with Code   Section 409A.
    

 

10

 

	
26.
    	
Data   Privacy
    	
 
    	
You hereby explicitly   and unambiguously consent to the collection, use and transfer, in electronic   or other form, of your personal data as described in this document by the   Company for the exclusive purpose of implementing, administering and managing   your participation in the Plan.  You   understand that the Company holds certain personal information about you,   including, but not limited to, name, home address and telephone number, date   of birth, social security or insurance number or other identification number,   salary, nationality, job title, any shares of stock or directorships held in   the Company, details of all Awards or any other entitlement to Shares   awarded, cancelled, purchased, exercised, vested, unvested or outstanding in   your favor for the purpose of implementing, managing and administering the   Plan (“Data”).  You understand that the   Data may be transferred to any third parties assisting in the implementation,   administration and management of the Plan, that these recipients may be   located in your country or elsewhere and that the recipient country may have   different data privacy laws and protections than your country.  You authorize the recipients to receive,   possess, use, retain and transfer the Data, in electronic or other form, for   the purposes of implementing, administering and managing your participation   in the Plan, including any requisite transfer of such Data, as may be   required to a broker or other third party with whom you may elect to deposit   any Shares acquired under the Plan.
    

 

By signing the cover sheet of this Agreement, you agree to all of the terms and
 conditions described above and in the Plan.

 

11

 

TRACON PHARMACEUTICALS, INC.
 NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION BY OPTIONEE

 

Tracon Pharmaceuticals, Inc.
 8910 University Center Dr., Suite 700

San Diego, CA  92122
 Attention:  Secretary

 

	
Re:
    	
Exercise of Incentive Stock Option to   Purchase Shares of Company Stock
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
[PRINT NAME OF OPTIONEE]
    	
 
    

 

Pursuant to the Incentive Stock Option Agreement dated ___________________, ______ between Tracon Pharmaceuticals, Inc., a Delaware corporation, (the “Company”) and me, made pursuant to the 2011Equity Incentive Plan (the “Plan”), I hereby request to purchase _______ Shares (whole number only and must be not less than twenty-five Shares or the remaining number of vested Shares subject to this Option) of common stock of the Company (the “Shares”), at the exercise price of $__________ per Share.  I am hereby making full payment of the aggregate exercise price by one or more of the following forms of payment in accordance with the whole number percentages that I have provided below.  I further understand and agree that I will timely satisfy any and all applicable tax withholding obligations as a condition of this Option exercise.

 

	
Percentage
    	
 
    	
 
    
	
of Payment
    	
 
    	
Form of Payment As Provided In the   Incentive Stock Option Agreement
    
	
 
    	
 
    	
 
    
	
            %
    	
 
    	
Cash/My Personal Check/Cashier’s Check/Money   Order (payable to “Tracon Pharmaceuticals, Inc.”)
    
	
 
    	
 
    	
 
    
	
            %
    	
 
    	
Surrender of vested Shares (Valued At Their   Fair Market Value) Owned
    
	
  100%
    	
 
    	
By Me For More Than Six (6) Months
    

 

	
Check one:
    	
o The Shares certificate is to be issued and registered in my name   only.
    
	
 
    	
 
    
	
 
    	
o The Shares certificate is to be issued and registered in my name and   my spouse’s name.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
[PRINT SPOUSE’S NAME, IF CHECKING SECOND BOX]
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Check one (if checked second box above):
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
o Community Property or  o Joint Tenants With Right of Survivorship
    

 

I acknowledge that I have received, understand and continue to be bound by all of the terms and conditions set forth in the Plan and in the Incentive Stock Option Agreement.

 

Dated:  __________________

 

	
 
    	
 
    	
 
    
	
(Optionee’s   Signature)
    	
 
    	
(Spouse’s   Signature)**
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
**Spouse must sign this   Notice of Exercise if listed above.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Full Address)
    	
 
    	
(Full Address)
    

 

*THIS NOTICE OF EXERCISE MAY BE REVISED BY THE COMPANY AT ANY TIME WITHOUT NOTICE.

 

 

TRACON PHARMACEUTICALS, INC.
 NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION BY OPTIONEE

 

Tracon Pharmaceuticals, Inc.
 8910 University Center Dr., Suite 700

San Diego, CA  92122
 Attention:  Secretary

 

	
Re:
    	
Exercise of Nonstatutory Stock Option to   Purchase Shares of Company Stock
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
[PRINT NAME OF OPTIONEE]
    	
 
    

 

Pursuant to the Nonstatutory Stock Option Agreement dated ___________________, ______ between Tracon Pharmaceuticals, Inc., a Delaware corporation, (the “Company”) and me, made pursuant to the 2011 Equity Incentive Plan (the “Plan”), I hereby request to purchase _______ Shares (whole number only and must be not less than twenty-five Shares or the remaining number of vested Shares subject to this Option) of common stock of the Company (the “Shares”), at the exercise price of $__________ per Share.  I am hereby making full payment of the aggregate exercise price by one or more of the following forms of payment in accordance with the whole number percentages that I have provided below.  I further understand and agree that I will timely satisfy any and all applicable tax withholding obligations as a condition of this Option exercise.

 

	
 
    	
Percentage
    	
 
    
	
 
    	
of Payment
    	
Form of Payment As Provided In the Nonstatutory   Stock Option Agreement
    
	
 
    	
 
    	
 
    
	
 
    	
             %
    	
Cash/My Personal Check/Cashier’s Check/Money   Order (payable to “Tracon Pharmaceuticals, Inc.”)
    
	
 
    	
 
    	
 
    
	
 
    	
             %
    	
Surrender of vested Shares (Valued At Their   Fair Market Value) Owned
    
	
 
    	
   100%
    	
By Me For More Than Six (6) Months
    

 

	
Check one:
    	
 ̈ The Shares certificate is to be issued and registered in my name   only.
    
	
 
    	
 
    
	
 
    	
 ̈ The Shares certificate is to be issued and registered in my name and   my spouse’s name.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
[PRINT SPOUSE’S NAME, IF CHECKING SECOND BOX]
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Check one (if checked second box above):
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 ̈ Community Property or   ̈ Joint Tenants With Right of Survivorship
    

 

I acknowledge that I have received, understand and continue to be bound by all of the terms and conditions set forth in the Plan and in the Nonstatutory Stock Option Agreement.

 

Dated:  __________________

 

	
 
    	
 
    	
 
    
	
(Optionee’s   Signature)
    	
 
    	
(Spouse’s   Signature)**
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
**Spouse must sign this   Notice of Exercise if listed above.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Full Address)
    	
 
    	
(Full Address)
    

 

*THIS NOTICE OF EXERCISE MAY BE REVISED BY THE COMPANY AT ANY TIME WITHOUT NOTICE.

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