Document:

Exhibit 10.2

 

 

 

TRACON PHARMACEUTICALS, INC.

 

2011 EQUITY INCENTIVE PLAN 

 

EFFECTIVE AS OF AUGUST 10, 2011

 

AMENDED AS OF SEPTEMBER 19, 2014

 

 

TRACON PHARMACEUTICALS, INC.

2011 EQUITY INCENTIVE PLAN

 

EFFECTIVE AS OF AUGUST 10, 2011

 

AMENDED AS OF SEPTEMBER 19, 2014

 

SECTION 1.  INTRODUCTION.

 

The Company’s Board of Directors adopted the Tracon Pharmaceuticals, Inc. 2011 Equity Incentive Plan effective as of the Adoption Date and the Plan was timely approved by the Company’s stockholders. On September 19, 2014, the Board amended the Plan to increase the maximum aggregate number of Shares that may be issued under the Plan (and pursuant to the exercise of Incentive Stock Options) from 3,264,681 to 4,144,681 (the “2014 Amendment”). The 2014 Amendment was also approved by the Company’s stockholders on September 19, 2014.

 

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.

 

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

 

(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

 

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

 

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 

 

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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 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.

 

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(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)).

 

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(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.

 

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

 

(ww)    “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.

 

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

 

(yy)      “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 or advisable for the administration of the Plan. Such actions shall include without limitation:

 

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(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 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 

 

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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 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.

 

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(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 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 

 

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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 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 

 

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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 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 

 

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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 4,144,681 Shares (the “Share Limit”); and

 

(ii)  pursuant to the exercise of ISOs granted under this Plan shall not exceed 4,144,681 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 Option Agreement shall also specify whether the Option is an ISO and if not specified then the Option shall be an NSO.

 

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(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 may any Option or interest therein be gifted, transferred, assigned, alienated, pledged, hypothecated, attached, sold, or encumbered by the Optionee during his/her lifetime, 

 

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

 

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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 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 

 

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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.

 

(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 

 

17

 

 

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.

 

(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 

 

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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.

 

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 

 

19

 

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 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.

 

20

 

(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 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.

 

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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. 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 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.

 

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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.Exhibit 10.5

 

CONFIDENTIAL

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

This Amended and Restated Agreement (this “Agreement”), dated as of May 7, 2014 by and between TRACON PHARMACEUTICALS, INC., a Delaware corporation with principal executive offices at 8910 University Center Drive, Suite 700, San Diego, California (the “Company”) and CHARLES P. THEUER whose mailing address is P.O. Box 90729, San Diego, California 92169 (the “Executive”).

 

W I T N E S S E T H:

 

WHEREAS, the Company and Executive previously entered an Employment Agreement dated as of July 17, 2009 (the “Original Employment Agreement”) relating to Executive’s employment as the Company’s President and Chief Executive Officer;

 

WHEREAS, in connection with the Company’s preferred stock financing pursuant to that certain Series A Preferred Stock Purchase Agreement dated March 28, 2011, the Company and Executive entered into an Amendment to the Original Employment Agreement, which was effective as of June 21, 2011;

 

WHEREAS, the Company and Executive entered into an Amended and Restated Employment Agreement dated April 23, 2012 relating to Executive’s employment as the Company’s President and Chief Operating Officer;

 

WHEREAS, the Company and Executive entered into an Amended and Restated Employment Agreement dated April 23, 2013 (the “Previous Restated Employment Agreement”) relating to Executive’s employment as the Company’s President and Chief Executive Officer;

 

WHEREAS, the Company desires to continue to employ the Executive as the Company’s President and Chief Executive Officer, and the Executive desires to continue to serve the Company in this capacity upon the terms and subject to the conditions contained in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:

 

1.                                    Employment.

 

(a)                               Services.  The Executive will be employed by the Company as its President and Chief Executive Officer and will report to the Board of Directors of the Company (the “Board”).  Executive shall perform such duties as are consistent with his position as President and Chief Executive Officer (the “Services”).  The Executive agrees to perform such duties faithfully, to devote all of his working time, attention and energies to the business of the Company, and while he remains employed, not to engage in any other business activity that is in conflict with his duties and obligations to the Company.

 

(b)                              Acceptance.  The Executive hereby accepts such employment and agrees to render the Services.

 

-1-

 

CONFIDENTIAL

 

2.                                    Term.  The Executive’s employment under this Agreement (the “Term”) shall commence on January 1, 2014 (the “Commencement Date”) and shall continue for a term of one (1) year, unless sooner terminated pursuant to Section 8 of this Agreement.  Except as specifically provided otherwise the provisions of this Agreement specified in Sections 5, 6, 9, and 10 shall survive the expiration or termination hereof.  This Agreement may be renewed for an additional one (1) year term if the company and the Executive agree in writing at least six (6) months prior to the expiration or other termination of the Term.

 

3.                                    Best Efforts: Place of Performance.

 

(a)                               The Executive shall devote substantially all of his business time, attention and energies to the business and affairs of the Company and shall use his best efforts to advance the best interests of the Company and shall not during the Term be actively engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, that will interfere with the performance by the Executive of his duties hereunder or the Executive’s availability to perform such duties or that will adversely affect, or negatively reflect upon, the Company, except as set forth above in Section 1(a).

 

(b)                              The duties to be performed by the Executive hereunder shall be performed primarily at the office of the Company in San Diego, California, subject to reasonable travel requirements on behalf of the Company, or such other place as the Board may reasonably designate.  Notwithstanding the foregoing, the Executive’s primary place of business may not be relocated to another city without his written consent.

 

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

 

4.                                    Compensation.  As full compensation for the performance by the Executive of his duties under this Agreement, during the Term, the Company shall pay the Executive as follows:

 

(a)                               Base Salary.  The Company shall pay the Executive an annual salary (the “Base Salary”) of Three Hundred Ninety-five Thousand Dollars ($395,000).  Payment shall be made in accordance with the Company’s normal payroll practices.

 

(b)                              Bonus.  During each fiscal year of the Term and including for the fiscal year ending December 31, 2014, the Executive shall be eligible to earn an annual cash performance bonus (a “Performance Bonus”) of up to fifty percent (50%) of the Executive’s Base Salary.  The Executive’s actual bonus for fiscal year 2014 and any fiscal year thereafter, if any, shall be based upon the successful attainment by the Executive of certain financial, clinical development and financial milestones (the “Milestones”), to be approved annually by the Board (or a committee thereof), after receipt and review of proposed Milestones from the Executive and any revisions deemed appropriate by the Board, acting in good faith.  The proposed Milestones for each year during the Term shall be delivered by the Executive to the Board at least sixty (60)

 

-2-

 

CONFIDENTIAL

 

days prior to the beginning of each such fiscal year.  The determination of whether the Milestones have been achieved in any given year shall be made in the sole discretion of the Board.  The Performance Bonus shall be paid to Executive no later than the 15th day of the third month immediately following the fiscal year with respect to which the Performance Bonus relates.  To earn any Performance Bonus, the Executive must remain employed by the Company through the end of the fiscal year(s) with respect to which the Performance Bonus relates.  Any Performance Bonus that is earned shall be payable in cash in a lump sum payment or in installments as determined by the Board in its sole discretion, provided, however, that all payments of the Performance Bonus shall be made on or before the deadline required for short-term deferrals pursuant to Treasury Regulation (“Treas. Reg.”) § 1.409A-1(b)(4).

 

(c)                               Withholding.  The Company shall withhold all applicable federal, state and local taxes and social security and such other amounts as may be required by law from all amounts payable to the Executive under this Section 4.

 

(d)                             Expenses.  The Company shall reimburse the Executive for all normal, usual and necessary expenses incurred by the Executive in furtherance of the business and affairs of the Company, including reasonable travel and entertainment, upon timely receipt by the Company of appropriate vouchers or other proof of the Executive’s expenditures and otherwise in accordance with any expense reimbursement policy as may from time to time be adopted by the Company.  If any such expense is included in the taxable income of the Executive, reimbursement shall be made in accordance with Treas. Reg. § 1.409A-3(i)(1)(iv).

 

(e)                               Other Benefits.  The Executive shall be entitled to all rights and benefits for which he shall be eligible under any benefit or other plans (including, without limitation, dental, medical, medical reimbursement and hospital plans, pension plans, employee stock purchase plans, profit sharing plans, bonus plans, prescription drug reimbursement plans, short and long term disability plans, life insurance and other so-called “fringe” benefits) as the Company shall make available to its senior executives from time to time.  Subject to approval by the Board of Directors, the Company shall continue to provide at a minimum the benefits currently offered to the Executive.

 

(f)                                Vacation.  The Executive shall be entitled to a vacation of four (4) non-consecutive weeks per annum, in addition to holidays observed by the Company.  The Executive shall be entitled to carry forward unused vacation from one year of employment to the next year of employment up to a maximum of 60 days of accrued vacation at any time (the “Maximum Accrual”).  At the end of the Term, the Executive shall receive compensation for all then accrued and unused vacation days up to the Maximum Accrual.

 

(g)                              Company Breach.  In the event that the Company breaches in any material respect its obligations in Sections 4(a), (b), (d), (e) or (f) (and in the case of a breach of Section 4(d), (e) or (f) such breach is not cured within thirty (30) days after notice thereof is given to the Company by the Executive), then, in addition to damages or any other rights which the Executive may have at law or equity under this Agreement, the Company agrees that Executive shall be relieved of all obligations imposed on him under Section 6(a) and (c).

 

5.                                    Confidential Information and Inventions.

 

-3-

 

CONFIDENTIAL

 

(a)                               The Executive recognizes and acknowledges that in the course of his duties he is likely to receive confidential or proprietary information of the Company, its affiliates or third parties with whom the Company or any such affiliates has an obligation of confidentiality.  Accordingly, during and after the Term, the Executive agrees to keep confidential and not disclose or make accessible to any other person or use for any other purpose other than in connection with the fulfillment of his duties under this Agreement, any Confidential and Proprietary Information owned by, or received by or on behalf of the Company or any affiliate which have been disclosed to the Executive on or before the date of termination.  “Confidential and Proprietary Information” shall include, but shall not be limited to, confidential or proprietary scientific or technical information, data, formulas and related concepts, business plans (both current and under development), client lists, promotion and marketing programs, trade secrets, or any other confidential or proprietary business information relating to development programs, costs, revenues, marketing, investments, sales activities, promotions, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of the Company or of any affiliate or client of the Company.  The Executive expressly acknowledges that the Confidential and Proprietary Information constitutes a protectable business interest of the Company.  The Executive agrees: (i) not to use any such Confidential and Proprietary Information for himself or others; and (ii) not to take any Company material or reproductions (including but not limited to writings, correspondence, notes, drafts, records, invoices, technical and business policies, computer programs or disks) thereof from the Company’s offices at any time during his employment by the Company, except as required in the execution of the Executive’s duties to the Company.  The Executive agrees to return immediately all Company material and reproductions (including but not limited, to writings, correspondence, notes, drafts, records, invoices, technical and business policies, computer programs or disks) thereof in his possession to the Company upon request and in any event immediately upon termination of employment.

 

(b)                              Except with prior written authorization by the Company, the Executive agrees for a period of five (5) years from the termination of his employment with the Company not to disclose or publish:

 

(i)                                  any of the Confidential and Proprietary Information; or

 

(ii)                              any confidential, scientific, technical or business information of any other party disclosed to the Executive during his employment with the Company to whom the Company or any affiliate owes an obligation of confidence.

 

(c)                               The Executive agrees that all inventions, discoveries, improvements, or other work product, whether or not patentable or copyrightable (“Inventions”) initiated, conceived, reduced to practice, or made by him, either alone or in conjunction with others, during the Term shall be the sole property of the Company to the maximum extent permitted by applicable law and, to the extent permitted by law, shall be “works made for hire” as that term is defined in the United States Copyright Act (17 U.S.C.A., Section 101).  The Company shall be the sole owner of all patents, copyrights, trade secret rights, and other intellectual property or other rights in connection therewith.  The Executive hereby assigns to the Company all right, title and interest he may have or acquire in all such Inventions; provided, however, that the Board may in its sole discretion agree to waive the Company’s rights pursuant to this

 

-4-

 

CONFIDENTIAL

 

Section 5(c) with respect to any Invention that is not directly or indirectly related to the Company’s business.  The Executive further agrees to assist the Company in every proper way (but at the Company’s expense) to obtain and from time to time enforce patents, copyrights or other rights on such Inventions in any and all countries, and to that end the Executive will execute all documents necessary:

 

(i)                                  to apply for, obtain and vest in the name of the Company alone (unless the Company otherwise directs) letters patent, copyrights or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and

 

(ii)                              to defend any opposition proceedings in respect of such applications and any opposition proceedings or petitions or applications for revocation of such letters patent, copyright or other analogous protection.

 

(d)                             The Executive acknowledges that while performing the Services, the Executive may locate, identify and/or evaluate patented or patentable inventions having commercial potential in the fields of pharmacy, pharmaceutical, biotechnology, healthcare, technology and other fields which may be of potential interest to the Company or one of its affiliates (the “Third Party Inventions”).  The Executive understands, acknowledges and agrees that all rights to, interests in or opportunities regarding, all Third-Party Inventions identified by the Company, any affiliate or either of the foregoing persons’ officers, directors, employees (including the Executive), agents or consultants during the Term shall be and remain the sole and exclusive property of the Company or such affiliate and the Executive shall have no rights whatsoever to such Third-Party Inventions and will not pursue for himself or for others any transaction relating to the Third-Party Inventions which is not on behalf of the Company unless the Company has expressly abandoned its interest in such Third Party Inventions in writing.

 

(e)                               The Executive agrees that he will promptly disclose to the Company all Inventions initiated, made or conceived or reduced to practice, either alone or jointly with others, during the Term.

 

(f)                                The provisions of this Section 5 shall survive any termination of this Agreement.

 

6.                                    Non-Solicitation and Non-Disparagement.

 

(a)                               During the Term and the Termination Benefits Period (as defined hereinafter), the Executive shall not, directly or indirectly, without the prior written consent of the Company:

 

(i)                                  solicit or induce any employee of the Company or any affiliate to leave the employ of the Company or any such affiliate; or hire for any purpose any employee of the Company or any affiliate; or hire any former employee who has left the employment of the Company or any affiliate within twelve (12) months of the termination of such employee’s employment with the Company or any such affiliate; or hire any former employee of the Company in violation of such employee’s non-competition agreement with the Company or any such affiliate; or

 

-5-

 

CONFIDENTIAL

 

(ii)                              solicit or accept the business of any agent, client or customer of the Company or any affiliate with respect to products, services or investments similar to those provided or supplied by the Company or any affiliate.

 

(b)                              The Company and the Executive each agree that both during the Term and for a period of three (3) years thereafter, neither party shall directly or indirectly disparage, whether or not true, the name or reputation of the other party or any affiliate including but not limited to any officer, director, employee or shareholder of the Company or any affiliate.  Notwithstanding this Section, nothing contained herein shall limit or impair the ability of the Executive to provide truthful testimony in response to any validly issued subpoena.

 

(c)                               In the event that the Executive breaches any provisions of Section 5 or this Section 6 or there is a threatened breach, then, in addition to any other rights which the Company may have, the Company shall be entitled to seek injunctive relief to enforce the restrictions contained in such Section 6.  The Company and the Executive agree that any such action for injunctive or equitable relief shall be heard in a state or federal court situated in or for the County of San Diego, California and each of the parties hereto agrees to accept service of process by registered or certified mail and to otherwise consent to the jurisdiction of such courts.

 

(d)                             Each of the rights and remedies enumerated in Section 6(c) shall be independent of the others and shall be in addition to and not in lieu of any other rights and remedies available to the Company at law or in equity.  If any of the covenants contained in this Section 6, or any part of any of them, is hereafter construed or adjudicated to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants or rights or remedies which shall be given full effect without regard to the invalid portions.  If any of the covenants contained in this Section 6 is held to be invalid or unenforceable because of the duration at such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision and in its reduced form such provision shall then be enforceable.

 

(e)                               The provisions of this Section 6 shall survive any termination of this Agreement.

 

7.                                    Representations and Warranties.  The Executive hereby represents and warrants to the company as follows:

 

(a)                               Neither the execution or delivery of this Agreement nor the performance by the Executive of his duties and other obligations hereunder violate or will violate any statute, law, determination or award, or conflict with or constitute a default or breach of any covenant or obligation under (whether immediately, upon the giving of notice or lapse of time or both) any prior employment agreement, contract, or other instrument to which the Executive is a party or by which he is bound.

 

(b)                              The Executive has the full right, power and legal capacity to enter and deliver this Agreement and to perform his duties and other obligations hereunder.  This Agreement constitutes the legal, valid and binding obligation of the Executive enforceable against him in accordance with its terms.  No approvals or consents of any persons or entities are

 

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required for the Executive to execute and deliver this Agreement or perform his duties and other obligations hereunder.

 

8.                                    Termination.  The Executive’s employment hereunder shall be terminated upon the Executive’s death and may be terminated as follows:

 

(a)                               The Executive’s employment hereunder may be terminated by the Board for Cause.  Any of the following actions by the Executive shall constitute “Cause”:

 

(i)                                  The willful failure, disregard or refusal by the Executive to perform his material duties or obligations under this Agreement, following written notice from the Board specifying the material duty or obligation at issue and upon the Executive’s failure to perform the material duty or obligation within ten days thereafter;

 

(ii)                              Any willful, intentional or grossly negligent act by the Executive having the effect of materially injuring (whether financial or otherwise and as determined in good-faith by a majority of the members of the Board) the business or reputation of the Company;

 

(iii)                          Willful insubordination with respect to lawful directions received by the Executive from the Board, following written notice from the Board specifying the insubordination at issue and upon the Executive’s failure to remedy the insubordination within ten days thereafter;

 

(iv)                          The Executive’s conviction of any felony involving moral turpitude (including entry of a nolo contendere plea);

 

(v)                              The determination by the Company, after a reasonable and good-faith investigation by the Company following a written allegation by another employee of the Company, that the Executive engaged in some form of harassment prohibited by law (including, without limitation, age, sex or race discrimination), unless the Executive’s actions were specifically directed by the Board;

 

(vi)                          Any material misappropriation or embezzlement of the property of the Company or its affiliates (whether or not a misdemeanor or felony);

 

(vii)                      Breach by the Executive of any material provision of this Agreement, which is not cured by the Executive within thirty (30) days after notice thereof is given to the Executive by the Board.

 

(b)                              The Executive’s employment hereunder may be terminated by the Board due to the Executive’s Disability.  For purposes of this Agreement, a termination for “Disability” shall occur (i) when the Board has provided a written termination notice to the Executive supported by a written statement from a reputable independent physician to the effect that the Executive shall have become so physically or mentally incapacitated as to be unable to resume, within the ensuing six (6) months, his employment under this Agreement by reason of physical or mental illness or injury or (ii) upon rendering of a written termination notice by the Board after the Executive has been unable to substantially perform his duties hereunder for 60 or more

 

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consecutive days, or more than 120 days in any consecutive twelve month period, by reason of any physical or mental illness or injury.  For purposes of this Section 8(b), the Executive agrees to make himself available and to cooperate in a reasonable examination by a reputable independent physician retained by the Company.

 

(c)                               The Executive’s employment hereunder may be terminated by the Board (or its successor) upon the occurrence of a Change of Control.  For purposes of this Agreement, “Change of Control” means (i) the acquisition, directly or indirectly, following the date hereof by any person (as such term is defined in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), in one transaction or a series of related transactions, of securities of the Company representing in excess of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding Securities if such person or his or its affiliate(s) do not own in excess of 50% of such voting power on the date of this Agreement, or (ii) the future disposition by the Company (whether direct or indirect, by sale of assets or stock, merger, consolidation or otherwise) of all or substantially all of its business and/or assets in one transaction or series of related transactions (other than a merger effected exclusively for the purpose of changing the domicile of the Company).

 

(d)                             The Executive’s employment hereunder may be terminated by the Executive for Good Reason.  For purposes of this Agreement, “Good Reason” shall mean:

 

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

 

(ii)                              without the Executive’s express written consent, any material reduction by the Company of the Executive’s duties, responsibilities, or authority as President and Chief Executive Officer of the Company which causes his position with the company to become of less responsibility or authority than his position as of immediately following the Commencement Date;

 

(iii)                          a relocation of the Company’s principal place of business of the Executive outside of the San Diego metropolitan area without the Executive’s written consent; or

 

(iv)                          without the Executive’s express written consent, any material reduction in the benefits currently offered to the Executive pursuant to Section 4(e).

 

In order for a resignation to qualify as for “Good Reason,” the Executive must provide the Company with written notice that reasonably identifies the acts or omissions constituting the grounds for Good Reason within sixty (60) days after Executive obtains knowledge of the occurrence of an event described in (i) through (iv) above, and the Company must have failed to cure such Good Reason condition within forty-five (45) days following the Company’s receipt of Executive’s written notice; and, provided further, that the Executive’s resignation on account of Good Reason must occur within one hundred twenty (120) days following the initial occurrence of the Good Reason condition.

 

(e)                               The Executive’s employment may be terminated by the Company for any reason or no reason.

 

9.                                    Compensation upon Termination.

 

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(a)                               If the Executive’s employment is terminated as a result of his death, the Company shall pay to the Executive’s estate (i) his Base Salary in accordance with the Company’s regular payroll schedule owed the Executive through the date which is twelve (12) months after his death and (ii) any expenses reimbursement amounts owed the Executive through the date of his death.  Additionally, Executive’s then outstanding unvested time-based Company stock option awards shall become incrementally vested on an accelerated basis as if Executive’s termination date occurred six (6) months later.

 

If the Executive’s employment is terminated as a result of his Disability, the Company shall pay to the Executive any expenses reimbursement amounts owed the Executive through the date of his Disability.  Additionally, Executive’s then outstanding unvested time-based Company stock option awards shall become incrementally vested on an accelerated basis as if Executive’s termination date occurred six (6) months later.

 

(b)                              If the Executive’s employment is terminated by the Board for Cause, then the Company shall pay to the Executive his Base Salary and any expense reimbursement amounts owed the Executive, as of the date of Executive’s termination of employment.  The Executive shall have no further entitlement hereunder to any other compensation or benefits from the Company, except to the extent otherwise provided by law.

 

(c)                               If the Executive’s employment is terminated (i) at the expiration of the Term without either (A) an offer by the Company to renew Executive’s employment pursuant to an employment agreement on terms and conditions that are either the same (except with respect to Section 4(d), which shall no longer apply) or better than as set forth in this Agreement or (B) renewal of Executive’s employment pursuant to a new employment agreement executed by Executive and the Company, or (ii) by the Executive for Good Reason, or (iii) by the Company other than for reasons specified in Sections 8(a) or 8(b), then: (A) the Company shall continue to pay in accordance with the Company’s regular payroll schedule Executive’s Base Salary for a period of twelve (12) months following the termination of Executive’s employment; (B) the Company shall pay the cost (to the same extent that the Company was doing so immediately before Executive’s termination date) for the employee benefit coverage continuation under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for the lesser of: (x) a period of twelve (12) months following the termination of Executive’s employment, or (y) Executive becomes eligible for group insurance benefits from another employer, provided that Executive timely elects COBRA coverage (“COBRA Benefits”); (C) the Company shall pay any expenses reimbursement amounts owed the Executive through the date of his termination; and (D) Executive’s then outstanding unvested time-based Company stock option awards shall become automatically vested as of the termination date.

 

(d)                             Executive agrees (i) at any time either before or during the period of time he is receiving COBRA Benefits under subsection (B) to Section 9(c), to inform the Company promptly in writing if Executive becomes eligible to receive group health coverage from another employer; and (ii) that Executive may not increase the number of his designated dependents, if any, during this time unless Executive is permitted to do so under COBRA and does so at his own expense.  The period of such COBRA Benefits shall be considered part of Executive’s COBRA coverage entitlement period.

 

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(e)                               Notwithstanding anything to the contrary, in order to receive any payments or benefits under Section 9(a) or Section 9(c) as applicable, Executive or Executive’s estate, as applicable, must timely execute and deliver (and not revoke) a separation agreement and general release of claims (the “Release”) in favor of the Company, any affiliates or related entities, and their employees and affiliates, in the form and content provided by the Company, within the time period specified in the Release, but in no event after the 60th day following Executive’s termination date; provided, however, that if the salary continuation benefit is triggered under Section 9(a) or Section 9(c), as applicable, the Company shall pay Executive’s Base Salary during the 60-day period following Executive’s termination date on the Company’s regularly scheduled payroll dates.  The Company’s obligation to pay Executive any further salary continuation payments after the 60-day period, as well as any other payments or benefits specified under Section 9(a) or Section 9(c), shall terminate if the Release is not effective and is no longer subject to revocation on the 60th day following Executive’s termination date.

 

(f)                                This Section 9 sets forth the only obligations of the Company with respect to the termination of the Executive’s employment with the Company, and the Executive acknowledges that, upon the termination of his employment, he shall not be entitled to any payments or benefits from the Company which are not explicitly provided in Section 9.  Additionally, for avoidance of doubt, the payments and benefits that may be provided under Sections 9(a) or 9(c) above shall not be provided more than once and if payments and benefits are provided under any of these subsections, then no payments or benefits will otherwise be provided again under any of these subsections.

 

(g)                              Upon the termination of the Executive’s employment hereunder for any reason, the Executive shall be deemed to have resigned as an officer and as a director (if applicable) of the Company, effective as of the date of such termination.

 

(h)                              The obligations of the Company that arise under this Section 9 shall survive the expiration or earlier termination of this Agreement.

 

10.                            Indemnification.  The Company shall defend and indemnify the Executive in his capacity as President and Chief Executive Officer of the Company to the fullest extent permitted under the Delaware General Corporate Law (the “DGCL”).  The Company shall also establish a policy for indemnifying its officers and directors, including but not limited to the Executive, for all actions permitted under the DGCL taken in good faith pursuit of their duties for the Company, including but not limited to the obtaining of an appropriate level of Directors and Officers Liability coverage and including such provisions in the Company’s by-laws or certificate of incorporation as applicable and customary.  The rights to indemnification shall survive any termination of this Agreement.

 

11.                            Miscellaneous.

 

(a)                               This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of California, without giving effect to its principles of conflicts of laws.

 

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(b)                              Any dispute arising out of, or relating to, this Agreement or the breach thereof (other than Section 5 or 6 hereof), or regarding the interpretation thereof, shall be finally settled by arbitration conducted in San Diego County, California, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect before a panel of three arbitrators appointed in accordance with such rules.  Judgment upon any award rendered therein may be entered and enforcement obtained thereon in any court having jurisdiction.  The arbitrator shall have authority to grant any form of appropriate relief whether legal or equitable in nature, including specific performance.  For the purpose of any judicial proceeding to enforce such award or incidental to such arbitration or to compel arbitration and for purposes of Sections 5 and 6 hereof, the parties hereby submit to the non-exclusive jurisdiction of the state or federal courts situated in or for the County of San Diego, California, and agree that service of process in such arbitration or court proceedings shall be satisfactorily made upon it if sent by registered mail addressed to it at the address referred to below in paragraph (g) of this Section 11.  Pending such resolution of any claim, the Executive shall be entitled to continue to receive all payments and benefits due under this Agreement or otherwise, unless the arbitration panel determines otherwise.

 

(c)                               This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective heirs, legal representatives, successors and assigns.

 

(d)                             This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive.  The Company may assign its rights together with its obligations, hereunder in connection with any sale, transfer or other disposition of all or substantially all of its business or assets.

 

(e)                               This Agreement cannot be amended orally, or by any course of conduct or dealing, but only by a written agreement signed by the parties hereto.

 

(f)                                The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver of relinquishment of future compliance therewith, and such terms conditions and provisions shall remain in full force and effect.  No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party.

 

(g)                              All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be delivered personally or by an overnight courier service or sent by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the address set forth on the first page of the Agreement and to the Company at its principal office, and shall be deemed given when so delivered personally or by overnight courier or when actually received if sent by registered or certified mail.  Each party may designate another address, for receipt of notices hereunder by giving notice to the other party in accordance with this paragraph (g) of this Section 11.

 

(h)                              This Agreement, together with the Restricted Stock Purchase Award Agreements between Executive and the Company dated December 8, 2006 and January 2, 2007, and the Amended and Restated Series A Preferred Stock Purchase Agreement dated July 16,

 

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2012, sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof, including without limitation the Original Employment Agreement, as previously amended, and the Previous Restated Employment Agreement.  No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth.

 

(i)                                  As used in this Agreement, “affiliate” means a corporate entity controlled by an individual identified by name herein, other than the Executive.

 

(j)                                  The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

 

(k)                              This Agreement may be executed in any number of counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument.

 

(l)                                  As used in this Agreement, the masculine, feminine or neuter gender, and the singular or plural, shall be deemed to include the others whenever and wherever the context so requires.  Additionally, unless the context requires otherwise, “or” is not exclusive.

 

(m)                          The Company shall have the right to withhold and deduct from any payment hereunder any federal, state or local taxes of any kind required by law to be withheld with respect to any such payment.  The Company (including without limitation members of the Board of Directors of the Company) shall not be liable to the Executive or other persons as to any unexpected or adverse tax consequence realized by the Executive and the Executive shall be solely responsible for the timely payment of all taxes arising from this Agreement that are imposed on the Executive.  This Agreement is intended to comply with the applicable requirements of Internal Revenue Code (“Code”) Section 409A and shall be limited, construed and interpreted in a manner so as to comply therewith.  Each payment made pursuant to any provision of this Agreement shall be considered a separate payment and not one of a series of payments for purposes of Code Section 409A.  While it is intended that all payments and benefits provided under this Agreement to the Executive will be exempt from or comply with Code Section 409A, the Company makes no representation or covenant to ensure that the payments under this Agreement are exempt from or compliant with Code Section 409A.  The Company will have no liability to the Executive or any other party if a payment or benefit under this Agreement is challenged by any taxing authority or is ultimately determined not to be exempt or compliant.  In addition, if upon the Executive’s date of termination of employment with the Company, the Executive 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 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 the Executive’s date of termination of employment with the Company until the earlier of (i) the first business day of the seventh month following the Executive’s date of termination of employment with the Company or (ii) ten (10) days after the Company receives written confirmation of the Executive’s death.  Any such delayed payments

 

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shall be made without interest.  Additionally, the reimbursement of expenses or in-kind benefits provided pursuant to this Agreement shall be subject to the following conditions: (1) the expenses eligible for reimbursement or in-kind benefits in one taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits in any other taxable year; (2) the reimbursement of eligible expenses or in-kind benefits shall be made promptly, subject to the Company’s applicable policies, but in no event later than the end of the year after the year in which such expense was incurred; and (3) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.  Notwithstanding any provision to the contrary, any references to “termination of employment” or similar terms or phrases in this Agreement that refer to the Executive’s termination of employment with the Company, shall mean a “separation from service” as defined under Code Section 409A and the Treasury Regulations promulgated thereunder.

 

(n)                              The Company agrees to reimburse Executive for legal fees he incurs in connection with the review of this Agreement, up to a maximum of $2,500.

 

(o)                              Anti-Dilution.  The Company has previously granted to the Executive stock options to purchase a number of shares of the common stock of the Company (“Common Stock”) sufficient to maintain the Executive’s ownership percentage (if such stock option was exercised, and taking into account any other Company securities and equity awards held by the Executive) at 5% of the outstanding Common Stock of the Company on a fully diluted basis. Within ninety (90) days following any future issue of Common Stock during the Term, if any, the Company will grant the Executive a stock option to purchase a number of shares of Common Stock sufficient to maintain the Executive’s ownership percentage (if such stock option was exercised, and taking into account any other Company securities and equity awards held by the Executive) at 5% of all of the outstanding stock of the Company on a fully diluted basis (“Options”).  The Options will vest in equal monthly installments over four years subject to the Executive’s continued employment with the Company on the date of each installment, except as otherwise provided in Section 9(c) or in the stock option award agreements.  The per share exercise price of the Options, if granted, will be determined by the Board, but in any event will be equal to not less than the fair market value of a Company common share on the date of grant as determined in accordance with the Company equity incentive plan under which it is granted.  The Options will be on other terms and conditions set forth in the stock option award agreements evidencing the grants, which the Executive must execute as a condition of grant.  Notwithstanding the foregoing, the provisions of this Section 11(o) shall not apply to and shall terminate upon an initial public offering of the Company’s Common Stock.

 

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

	
 
    	
COMPANY 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 /s/ Rainer   Twiford 
    
	
 
    	
 
    	
 Name: Rainer   Twiford 
    
	
 
    	
 
    	
 Title: Director
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
CHARLES P. THEUER 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Charles P. Theuer
    

 

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AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

This Amendment to Amended and Restated Employment Agreement (“Amendment”) is entered into as of this 17th day of September, 2014, by and between TRACON Pharmaceuticals, Inc., a Delaware corporation with principal executive offices at 8910 University Center Drive, Suite 700, San Diego, CA 92122 (the “Company”) and Charles P. Theuer (the “Executive”).

 

WHEREAS, the Company and Executive entered into an Amended and Restated Employment Agreement dated as of May 7, 2014 relating to Executive’s continuing employment as the Company’s President and Chief Executive Officer (the “Amended Employment Agreement”);

 

WHEREAS, the parties desire to amend the Amended Employment Agreement to better conform to applicable California law; and

 

WHEREAS, the Company and Executive have agreed to amend the Amended Employment Agreement in accordance with the terms set forth below.

 

NOW, THEREFORE, for good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby amend the Amended Employment Agreement as follows:

 

1.                                    Defined Terms.  Capitalized terms not otherwise defined in this Amendment shall have the meanings given to such terms in the Amended Employment Agreement.

 

2.                                   Termination Benefits Period.  The Termination Benefits Period referred to in Section 6(a) is hereby defined as the twelve (12) months following the termination of Executive’s employment starting on the day of such termination of employment and ending one year thereafter.

 

3.                                    Confidential Information and Inventions.  Section 5 of the Amended Employment Agreement is stricken in its entirety.  Concurrently with the execution of this Amendment, Executive shall execute and enter into the Employee Proprietary Information and Inventions Agreement (“Confidentiality Agreement”) attached as Exhibit A to this Amendment.  Executive acknowledges and agrees that the Confidentiality Agreement shall apply to Executive’s entire period of employment with the Company, including all past time periods.

 

4.                                    Non-Solicitation of Employees.  Section 6(a)(i) is hereby amended to delete the words “or hire for any purpose any employee of the Company or any affiliate; or hire any former employee who has left the employment of the Company or any affiliate within

 

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twelve (12) months of the termination of such employee’s employment with the Company or any such affiliate; or hire any former employee of the Company in violation of such employee’s non-competition agreement with the Company or any such affiliate; or”.

 

5.                                    Post-Employment Solicitation of Customers.  Section 6(a)(ii) is stricken in its entirety.

 

6.                                    Miscellaneous.

 

(a)                               Except as amended by this Amendment, the Amended Employment Agreement is effective in accordance with its terms and conditions and is hereby ratified and confirmed by the parties hereto for all purposes and in all respects.

 

(b)                              The titles of sections of this Amendment are for convenience of reference only and are not to be considered in construing this Amendment.

 

(c)                               This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all which together shall constitute one and the same instrument.

 

(d)                             A facsimile, telecopy or other reproduction of this Amendment may be executed by one or more parties hereto, and an executed copy of this Amendment may be delivered by one or more parties hereto by facsimile or similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes.

 

(e)                               This Amendment shall be governed by and construed in accordance with the laws of the State of California.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned has caused this Amendment to Amended and Restated Employment Agreement to be executed as of the date first set forth above.

 

	
 
    	
COMPANY:
    
	
 
    	
 
    
	
 
    	
TRACON PHARMACEUTICALS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Rainer Twiford 
    
	
 
    	
Name:
    	
Rainer Twiford
    
	
 
    	
Title:
    	
Director
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
EXECUTIVE:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Charles P. Theuer
    
	
 
    	
Charles P. Theuer
    

 

 

[Signature Page to Amendment to Amended and Restated Employment Agreement]

 

 

Statement Regarding
 Employee Proprietary Information and Inventions Agreement

 

Attached to this statement is your Employee Proprietary Information and Inventions Agreement (the “Agreement”) with TRACON Pharmaceuticals, Inc. (the “Company”).

 

Please take the time to review the Agreement carefully.  It contains material restrictions on your right to disclose or use, during or after your employment, certain information and technology learned or developed by you (either alone or jointly with others) during your employment.  The Company considers this Agreement to be very important to the protection of its business.

 

If you have any questions concerning the Agreement, you may wish to consult an attorney.  Managers, legal counsel and others in the Company are not authorized to give you legal advice concerning the Agreement.

 

If you have read and understand the Agreement, and if you agree to its terms and conditions, please return a fully executed copy of it to the Company, retaining one copy for yourself.

 

Reviewed And Understood:

 

	
Date:
    	
 17 SEP 2014
    	
 
    	
Charles P.   Theuer
    
	
 
    	
 
    	
Employee Name
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
/s/ Charles P.   Theuer
    
	
 
    	
 
    	
Employee   Signature
    

 

 

TRACON PHARMACUETICALS, INC.

 

EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

 

1.                                    In consideration of my continued employment by Tracon Pharmaceuticals, Inc. (the “Company”), I hereby agree to certain restrictions placed by the Company on my use and development of information and technology of the Company, as more fully set out below.

 

2.                                    Proprietary Information.

 

(a)                               Proprietary Information Defined.  I understand that the term “Proprietary Information” in this Agreement means any and all nonpublic information, ideas and materials, in whatever form, tangible or intangible, whether disclosed to or learned or developed by me, pertaining in any manner to the business of or used by the Company (including, without limitation, any person or entity owned by, controlled by or affiliated with the Company) or to any other person or entity to whom or which the Company owes a duty of confidentiality, including, but not limited to, any trade secret, technical know-how, information, knowledge or data relating to the Company’s past, present, planned or foreseeable business as more fully described in Schedule A attached hereto.

 

(b)                              Often, Proprietary Information will be stamped or otherwise marked “Confidential, “Proprietary,” or with some similar designation.  If any information or material is not so marked however and it meets the definition in the foregoing Section 2(a) above, it is still Proprietary Information.  If I am uncertain as to whether particular information or materials are Proprietary Information, I will request the Company’s written opinion as to their status.  I understand that Proprietary Information does not include any information, idea or material that (i) is or becomes publicly known through lawful means and without breach of this Agreement by me; (ii) was rightfully in my possession or part of my general knowledge prior to my employment by the Company; or (iii) is disclosed to me without confidential or proprietary restrictions by a third party who rightfully possesses the information, ideas or materials (without confidential or proprietary restrictions) and did not learn of it, directly or indirectly, from the Company.  Any information, idea or material will not be considered to be publicly known or in the public domain merely because it is embraced by more general information in my prior possession or the possession of others, or merely because it is expressed in public literature in general terms.  Proprietary Information also does not include my general knowledge and skill obtained during the course of my employment.

 

(c)                               I acknowledge that all information generated, received or maintained by or for me on the premises or equipment of Company (including, without limitation, computer systems and electronic or voice mail systems) is Proprietary Information and the sole property of the Company, and I hereby waive any property or privacy rights I may have with respect to such information.

 

3.                                    Restrictions on Use and Disclosure.  I will not, during or at any time after the termination of my employment with the Company, use or reproduce any Proprietary Information, except in the course of performing my duties as an employee of the Company.  I also will not disclose or deliver, directly or indirectly, any Proprietary Information to any person or entity, except in the course of performing my duties as an employee of the Company and with the Company’s consent.  I will use my best efforts to prevent the unauthorized reproduction, disclosure or use of Proprietary Information by others.

 

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4.                                    Creations.

 

(a)                               Assignment.  I hereby assign, and agree to assign, to the Company, without additional compensation, my entire right, title and interest in and to (a) all Creations, and (b) all benefits, privileges, causes of action and remedies relating to the Creations, whether before or hereafter accrued (including, without limitation, the exclusive rights to apply for and maintain all such registrations, renewals and/or extensions; to sue for all past, present or future infringements or other violations of any rights in the Creation; and to settle and retain proceeds from any such actions).  The term Creations includes, but is not limited to, creations, inventions, works of authorship, ideas, processes, technology, formulas, software programs, writings, designs, discoveries, modifications and improvements, whether or not patentable or reduced to practice and whether or not copyrightable, and whether created by me alone or jointly with others, that (i) are made, conceived or developed during work hours, (ii) are developed using the Company’s equipment, supplies, facilities, or trade secret information, or (iii) relate at the time of conception or reduction to practice to the Company’s business, or actual or demonstrably anticipated research or development of the Company, or result from any work performed by me for the Company, whether or not made, conceived or developed during regular business hours or (iv) after termination of my employment if based on Proprietary Information.  I agree that all such Creations are the sole property of the Company or any other entity designated by it, and, to the maximum extent permitted by applicable law, any copyrightable Creation will be deemed a work made for hire.  I UNDERSTAND THAT THIS PARAGRAPH DOES NOT APPLY TO ANY CREATION WHICH QUALIFIES FULLY UNDER THE PROVISIONS OF SECTION 2870 OF THE LABOR CODE OF THE STATE OF CALIFORNIA, A COPY OF WHICH IS ATTACHED TO THIS AGREEMENT AS EXHIBIT 1 (Limited Exclusion Notification).  I have reviewed the Limited Exclusion Notification in Exhibit 1 and agree that my signature acknowledges receipt of the notification.  I understand that nothing in this Agreement is intended to expand the scope of protection provided me by Sections 2870 through 2872 of the California Labor Code.

 

(b)                              Disclosure.  I agree to disclose promptly and fully in writing to my immediate supervisor at the Company, with a copy to the President, and to hold in confidence for the sole right, benefit and use of Company, any and all Creations made, conceived or developed by me (either alone or jointly with others) during my employment with the Company, or within one (1) year after the termination of my employment, whether or not I believe such Creations are subject to this Agreement, to permit a determination by the Company as to whether the Creations should be the property of the Company.  Any such information will be received in confidence by the Company.  I further agree to keep and maintain adequate and current written records on the development of all Creations made, conceived or developed by me (either alone or jointly with others) during my period of employment or during the one-year period following termination of my employment, which records will be available to and remain the sole property of the Company at all times.

 

(c)                               Assist with Registration.  I agree that I will, at the Company’s request, promptly execute a written assignment of title for any Creation required to be assigned by this Section 4.  I further agree to perform, during and after my employment, all acts deemed necessary or desirable by the Company to assist it (at its expense) in obtaining and enforcing the full benefits, enjoyment, rights and title throughout the world in the Creation assigned to the Company pursuant to this Section 4.  Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings.  Should the Company be unable to secure my signature on any document necessary to apply for, prosecute, obtain, or enforce any patent, copyright, or other right or protection relating to any Creation, whether due to my mental or physical incapacity or any other cause, I hereby irrevocably designate and appoint the Company and each of its duly authorized officers and agents as my agent and attorney-in-fact, to undertake such acts in my name as if executed and delivered by me, and I waive and quitclaim to the Company any and all claims of any nature whatsoever that I may not have or may later

 

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have for infringement of any intellectual property rights in the Creations.  The Company will compensate me at a reasonable rate for time actually spent by me at the Company’s request on such assistance at any time following termination of my employment with the Company.

 

(d)                              License for Other Inventions.  If, in the course of my employment with the Company, I incorporate into Company property an invention owned by me or in which I have an interest, the Company is hereby granted a nonexclusive, royalty-free, irrevocable, perpetual, world-wide license to make, modify, use, offer for sale, sell and import any invention as part of and in connection with the Company property.

 

5.                                    Prior Creations.  All inventions, works of authorship, ideas, processes, technology, formulas, software programs, writings, designs, discoveries, modifications, improvements or other creations, if any, that I made, conceived or developed (either alone or jointly with others) prior to my employment by the Company (collectively, “Prior Creations”) are excluded from the scope of this Agreement.  Set forth on Schedule B attached hereto is a complete list of all such Prior Creations that are owned by me, either alone or jointly with others.  I represent and covenant that such list is complete, and I understand that by not listing an invention, work of authorship, discovery, modification, improvement or other creation I am acknowledging that such creation was not made, conceived or developed before commencement of my employment with the Company.  I agree to notify the Company in writing before I make any disclosure to, or perform any work on behalf of, the Company that appears to conflict with proprietary rights I claim in any Prior Creation.  If I fail to give such notice, I agree that I will make no claim against the Company with respect to any such Prior Creation.

 

6.                                    Confidential Information of Others.  I will not use, disclose to the Company or induce the Company to use any confidential, proprietary or trade secret information or material belonging to others which comes into my knowledge or possession at any time, nor will I use any such information or material in the course of my employment with the Company.  Except as disclosed on Schedule B to this Agreement, I have no other agreements or relationships with or commitments to any other person or entity that conflict with my obligations to the Company as an employee of the Company or under this Agreement, and I represent that my employment will not require me to violate any obligation to or confidence with another.  In the event I believe that my work at the Company would make it difficult for me not to disclose to the Company any confidential, proprietary or trade secret information or materials belonging to others, I will immediately inform my supervisor.  I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with this Agreement.

 

7.                                    Business Relationships.  I acknowledge that the Company’s relationships with its employees, customers, vendors and service providers are valuable business assets.  I agree that, during my employment and for one (1) year thereafter, I will not: (i) use or disclose Proprietary Information or Company trade secrets (on behalf of myself or for any third party) in order to divert or attempt to divert from the Company any business, employee, customer, vendor or service provider, through solicitation or otherwise, (ii) solicit, encourage, or cause others to solicit or encourage any employees of the Company to terminate their employment with the Company; or (iii) for the purpose of recruitment directly or indirectly make known to any person, firm, corporation or other entity the names, addresses or other confidential information which identifies or characterizes any of the Company’s employees or any other information pertaining to them.

 

8.                                    Government Contracts and Other Obligations.  I understand that the Company has or may enter into contracts with other persons or entities, including the United States government or its agents, under which certain intellectual property rights will be required to be protected, assigned, licensed, or otherwise transferred.  I hereby agree to be bound by all such agreements, and to execute such

 

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other documents and agreements as are necessary to enable the Company to meet its obligations under any such contracts.

 

9.                                    Return of Materials; Termination.  I hereby acknowledge and agree that all property, including, without limitation, all source code listings, books, manuals, records, models, drawings, reports, notes, contracts, lists, blueprints, and other documents or materials and all copies thereof, all equipment furnished to or prepared by me in the course of or incident to my employment, and all Proprietary Information belonging to the Company will be promptly returned to the Company upon termination of my employment with the Company for any reason or at any other time at the Company’s request.  Following my termination, I will not retain any written or other tangible material containing any Proprietary Information or information pertaining to any Creation.  I understand that my obligations contained in this Agreement will survive the termination of my employment and I will continue to make all disclosures required of me by Section 4(b) above.  I further agree not to use any Proprietary Information for my benefit or the benefit of others.  In the event of the termination of my employment, I agree, if requested by the Company, to sign and deliver the Termination Certificate attached as Schedule C hereto and incorporated herein.

 

10.                            Remedies.  I recognize that nothing in this Agreement is intended to limit any remedy of the Company under the California Uniform Trade Secrets Act or other federal or state law, and that I could face possible criminal and civil actions resulting in imprisonment and substantial monetary liability if I misappropriate the Company’s trade secrets.  In addition, I acknowledge that it may be extremely difficult to measure in money the damage to the Company of any failure by me to comply with this Agreement, that the restrictions and obligations under this Agreement are material, and that, in the event of any failure, the Company could suffer irreparable harm and significant injury and may not have an adequate remedy at law or in damages.  Therefore, I agree that if I breach any provision of this Agreement, the Company will be entitled to the issuance of an injunction or other restraining order or to the enforcement of other equitable remedies against me to compel performance of the terms of this Agreement without the necessity of showing or proving it has sustained any actual damage.  This will be in addition to any other remedies available to the Company in law or equity.

 

11.                            Miscellaneous Provisions.

 

(a)                               Application of this Agreement.  The Company and I acknowledge that I have been engaged to provide services to the Company for a period of time prior to the date of this Agreement (the “Prior Engagement Period”).  I agree that if and to the extent that, during the Prior Engagement Period: (i) I received access to any information from or on behalf of the Company that would have been “Proprietary Information” if I had received access to such information during the period of my employment with the Company under this Agreement; or (ii) I conceived, created, authored, invented, developed or reduced to practice any item, including any intellectual property rights with respect thereto, that would have been a “Creation” if conceived, created, authored, invented, developed or reduced to practice during the period of my employment with the Company under this Agreement; then any such information shall be deemed “Proprietary Information” hereunder and any such item shall be deemed a “Creation” hereunder, and this Agreement shall apply to such information or item as if conceived, created, authored, invented, developed or reduced to practice under this Agreement.

 

(b)                              No Waiver by Conduct or Prior Waiver.  A party’s delay, failure or waiver of any right or remedy under this Agreement will not impair, preclude, cancel, waive or otherwise affect such right or remedy or any subsequent rights or remedies that may arise.

 

(c)                               General Provisions.  This Agreement constitutes the entire agreement between the Company and me relating generally to the same subject matter, replaces any existing agreement

 

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entered into by me and the Company relating generally to the same subject matter, and may not be changed or modified, in whole or in part, except by written supplemental agreement signed by me and the Company.  I agree that any subsequent change in my duties or compensation will not affect the validity or scope of this Agreement.  If any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement will not fail on account thereof but will otherwise remain in full force and effect.  If any obligation in this Agreement is held to be too broad to be enforced, it will be construed to be enforceable to the full extent permitted by law.  The obligations of this Agreement will continue beyond the termination of my employment and will be binding upon my heirs, executors, assigns, administrators, legal representatives and other successors in interest.  This Agreement will inure to the benefit of the Company, its successors, assigns and affiliates.  This Agreement will be governed by and construed in accordance with the laws of the State of California, without giving effect to its conflict of law rules.  This Agreement may be signed in two counterparts, each of which will be deemed an original and both of which will constitute one agreement.

 

I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS.  I UNDERSTAND THAT I AM AN AT-WILL EMPLOYEE, AND THAT MY EMPLOYMENT MAY BE TERMINATED AT ANY TIME WITH OR WITHOUT CAUSE AND WITH OR WITHOUT NOTICE.  I HAVE COMPLETELY NOTED ON SCHEDULE B TO THIS AGREEMENT ANY PROPRIETARY INFORMATION, IDEAS, PROCESSES, INVENTIONS, TECHNOLOGY, WRITINGS, PROGRAMS, DESIGNS, FORMULAS, DISCOVERIES, PATENTS, COPYRIGHTS, OR TRADEMARKS, OR IMPROVEMENTS, RIGHTS, OR CLAIMS RELATING TO THE FOREGOING, THAT I BELIEVE SHOULD BE EXCLUDED FROM THIS AGREEMENT.  I HAVE ALSO NOTED ON SCHEDULE B TO THIS AGREEMENT ANY AGREEMENT OR RELATIONSHIP WITH OR COMMITMENT TO ANY OTHER PERSON OR ENTITY THAT CONFLICTS WITH MY OBLIGATIONS AS AN EMPLOYEE OF THE COMPANY.

 

	
Date:
    	
 17 SEP 2014
    	
 
    	
Charles P.   Theuer
    
	
 
    	
 
    	
Employee Name
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
s/ Charles P.   Theuer
    
	
 
    	
 
    	
Employee   Signature
    

 

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SCHEDULE A

 

EXAMPLES OF PROPRIETARY INFORMATION

 

Proprietary Information includes, but is not limited to, any of the following types of information, ideas and materials:

 

any trade secret; technical know-how; information; data; knowledge; idea; design; formula; schematics; instrument; product; machinery; project; equipment; document; file; photograph; computer printout; drawing; manual; sketch or other visual representation; data processing or computer software technique, program or system; biological, chemical, mechanical or other invention; improvement; discovery; composition; process; part of a process; manufacturing technique; book; notebook; paper; compilation of information; record; specification; operating method; patent disclosure or patent application; list or other written record used in the Company’s business; information regarding the Company’s financial condition; employee personnel files and compensation and other terms of employment of the Company’s employees and consultants; names and practices of any customers or potential customers of the Company and its affiliates; names, marketing methods, operating practices and related data regarding the Company’s existing and potential vendors, suppliers, distributors, joint venture partners, and affiliates; the marketing methods and plans of the Company and its affiliates, licensors and licensees and related data and prices at which the Company obtains or has obtained, or at which it sells or has sold, its products or services; research, development, manufacturing and sales plans, costs and receipts of the Company; any information of the type described above which the Company has a legal obligation to treat as confidential, or which the Company treats as proprietary or designates as confidential, whether or not owned or developed by the Company; and any other information, ideas or materials relating to the past, present, planned or foreseeable business, products, developments, technology or activities of the Company.

 

 

SCHEDULE B

 

Prior Knowledge of Proprietary Information; 
 Prior Creations; Prior Commitments

 

1.                                      EMPLOYEE’S DISCLOSURE OF PROPRIETARY INFORMATION

 

Except as set forth below, I acknowledge that at this time I know nothing about the business or Proprietary Information of the Company, other than information I have learned from the Company in the course of being hired (Check here            if continued on additional attached sheets):

 

	
 
    
	
 
    
	
 
    

 

2.                                      EMPLOYEE’S DISCLOSURE OF PRIOR CREATIONS

 

The following information is provided in accordance with Section 5 of the Company’s Employee Proprietary Information and Inventions Agreement (the “Agreement”) executed by me.

 

   ü                                               I have made no inventions, discoveries or improvements prior to my employment with the Company that are owned by me, either alone or jointly with others.

 

                                                      The following is a complete and current list of all inventions, discoveries, or improvements I have made, conceived, or first reduced to practice prior to my employment with the Company, that are owned by me, alone or jointly with others, which I desire to remove from the operation of the Agreement.  (Check here                                      if continued on additional attached sheets.)

 

	
 
    
	
 
    
	
 
    

 

3.                                      EMPLOYEE’S DISCLOSURE OF CONFLICTING AGREEMENTS

 

The following information is provided in accordance with Section 6 of the Agreement:

 

  ü                                                    I am not party to any agreement or relationships with or commitments to any other person or entity that conflict with my obligations as an employee of the Company or under the Agreement.

 

                                                      The following is a complete and current list of all agreements or relationships with or commitments to any other person or entity that conflict with my obligations as an employee of the Company under the Agreement.  (Check here                                                                                                                                                if continued on additional attached sheets.)

 

	
 
    
	
 
    
	
 
    

 

	
Date: 
    	
17 Sept 2014
    	
 
    	
Charles P. Theuer
    
	
 
    	
 
    	
Employee Name
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
/s/ Charles P. Theuer
    
	
 
    	
 
    	
Employee Signature
    

 

 

SCHEDULE C

 

TERMINATION CERTIFICATE CONCERNING 
 COMPANY’S PROPRIETARY INFORMATION AND CREATIONS

 

This is to certify that I have returned all property of TRACON Pharmaceuticals, Inc., a Delaware corporation (the “Company”), including, without limitation, all source code listings, books, manuals, records, models, drawings, reports, notes, contracts, lists, blueprints, and other documents and materials, Proprietary Information, and equipment furnished to or prepared by me in the course of or incident to my employment with the Company, and that I did not make or distribute any copies of the foregoing.

 

I further certify that I have reviewed the Employee Proprietary Information and Inventions Agreement (the “Agreement”) signed by me and that I have complied with and will continue to comply with all of its terms, including, without limitation, (i) the reporting of any idea, process, invention, technology, writing, program, design, formula, discovery, patent, copyright, or trademark, or any improvement, rights, or claims related to any and all Creations, conceived or developed by me and covered by the Agreement and (ii) the preservation as confidential of all Proprietary Information pertaining to the Company.  This certificate in no way limits my responsibilities or the Company’s rights under the Agreement.

 

On termination of my employment with the Company, I will be employed by                                             [Name of New Employer] [in the                              division] and I will be working in connection with the following projects:

 

[generally describe the projects]

 

	
 
    
	
 
    
	
 
    
	
 
    

 

	
Date:
    	
 
    	
 
    	
Charles P. Theuer
    
	
 
    	
 
    	
Employee Name
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Employee Signature
    

 

 

EXHIBIT 1

 

CALIFORNIA LABOR CODE
 SECTIONS 2870-2872

 

2870. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

 

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

 

(2) Result from any work performed by the employee for the employer.

 

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

 

2871. No employer shall require a provision made void and unenforceable by Section 2870 as a condition of employment or continued employment. Nothing in this article shall be construed to forbid or restrict the right of an employer to provide in contracts of employment for disclosure, provided that any such disclosures be received in confidence, of all of the employee’s inventions made solely or jointly with others during the term of his or her employment, a review process by the employer to determine such issues as may arise, and for full title to certain patents and inventions to be in the United States, as required by contracts between the employer and the United States or any of its agencies.

 

2872. If an employment agreement entered into after January 1, 1980, contains a provision requiring the employee to assign or offer to assign any of his or her rights in any invention to his or her employer, the employer must also, at the time the agreement is made, provide a written notification to the employee that the agreement does not apply to an invention which qualifies fully under the provisions of Section 2870. In any suit or action arising thereunder, the burden of proof shall be on the employee claiming the benefits of its provisions.

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