Exhibit 10.3

FIRST AMENDMENT TO LEASE

This FIRST AMENDMENT TO LEASE (“First Amendment”) is made and entered into as of
the 3rd day of June, 2013, by and between BRITANNIA POINTE GRAND LIMITED
PARTNERSHIP, a Delaware limited partnership (“Landlord”), and KALOBIOS
PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

R E C I T A L S :

A. Landlord and Tenant entered into that certain Lease dated January 19, 2011
(the “Lease”), whereby Landlord leased to Tenant and Tenant leased from Landlord
those certain premises consisting of approximately 39,438 rentable square feet
(“Existing Premises”) in that certain building located at 260 East Grand Avenue,
South San Francisco, California (“Building”).

B. Tenant desires to expand the Existing Premises to include that certain space
consisting of approximately 9,913 rentable square feet of space in the Building
(the “Expansion Premises”), as delineated on Exhibit A attached hereto and made
a part hereof, and to make other modifications to the Lease, and in connection
therewith, Landlord and Tenant desire to amend the Lease as hereinafter
provided.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

1. Capitalized Terms. All capitalized terms when used herein shall have the same
meaning as is given such terms in the Lease unless expressly superseded by the
terms of this First Amendment.

2. Modification of Premises. Effective as of July 1, 2013 (the “Expansion
Commencement Date”), Tenant shall lease from Landlord and Landlord shall lease
to Tenant the Expansion Premises. Consequently, effective upon the Expansion
Commencement Date, the Existing Premises shall be increased to include the
Expansion Premises. Landlord and Tenant hereby acknowledge that such addition of
the Expansion Premises to the Existing Premises shall, effective as of the
Expansion Commencement Date, increase the size of the Premises to approximately
49,351 rentable square feet, and the Premises shall thereafter consist of the
entire Building. The Existing Premises and the Expansion Premises may
hereinafter collectively be referred to as the “Premises”. Landlord and Tenant
hereby acknowledge and agree that Tenant shall be entitled to the use of the
entirety of the Expansion Premises, including any portion of the Expansion
Premises which remains warehouse space, which warehouse space Tenant shall be
entitled to use for storage.

 

     

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3. Expansion Term. The term of Tenant’s lease of the Expansion Premises (the
“Expansion Term”) shall commence on the Expansion Commencement Date and shall
expire coterminously with Tenant’s Lease of the Existing Premises on the Lease
Expiration Date, unless sooner terminated as provided in the Lease, as hereby
amended.

4. Base Rent.

4.1. Existing Premises. Notwithstanding anything to the contrary in the Lease as
hereby amended, Tenant shall continue to pay Base Rent for the Existing Premises
in accordance with the terms of Article 3 of the Lease.

4.2. Expansion Premises. Commencing on the Expansion Commencement Date and
continuing throughout the Expansion Term, Tenant shall pay to Landlord monthly
installments of Base Rent for the Expansion Premises as follows:

 

Period During Expansion Term

   Annual Base Rent      Monthly Installment
of Base Rent  

July 1, 2013 - June 30, 2014

   $ 132,000.00       $ 11,000.00   

On or before the Expansion Commencement Date, Tenant shall pay to Landlord the
Base Rent payable for the Expansion Premises for the first full month of the
Expansion Term.

5. Tenant’s Share of Direct Expenses. Tenant shall continue to pay Tenant’s
Share of Direct Expenses in connection with the Existing Premises which arise or
accrue prior to the Expansion Commencement Date in accordance with the terms of
Article 4 of the Lease. Effective as of the Expansion Commencement Date, Tenant
shall pay Tenant’s Share of Direct Expenses in connection with the entire
Premises in accordance with the terms of Article 4 of the Lease, provided that
with respect to the calculation of Tenant’s Share of Direct Expenses in
connection with the entire Premises, Tenant’s Share shall equal 100%.

6. Expansion Improvements. Except as provided in the Tenant Work Letter attached
hereto as Exhibit B, Tenant hereby acknowledges that Landlord shall not be
obligated to provide or pay for any improvement work or services related to the
improvement of the Expansion Premises, and Tenant shall accept the Expansion
Premises in its presently existing, “as-is” condition.

7. Brokers. Landlord and Tenant hereby warrant to each other that they have had
no dealings with any real estate broker or agent in connection with the
negotiation of this First Amendment other than CBRE, Inc. and Jones Lang LaSalle
(collectively, the “Brokers”), and that they know of no other real estate broker
or agent who is entitled to a commission in connection with this First
Amendment. Each party agrees to indemnify and defend the other party against and
hold the other party harmless from and against any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including,
without limitation, reasonable attorneys’ fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of the
indemnifying party’s dealings with any real estate broker

 

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or agent, other than the Brokers, occurring by, through, or under the
indemnifying party. The terms of this Section 7 shall survive the expiration or
earlier termination of the term of the Lease, as hereby amended.

8. Parking. Effective as of the Expansion Commencement Date and continuing
throughout the Expansion Term, based on an allotment of 3.0 unreserved parking
spaces for every 1,000 rentable square feet of the Expansion Premises, Tenant
shall be entitled to rent up to thirty (30) unreserved parking passes in
connection with Tenant’s lease of the Expansion Premises (the “Expansion Parking
Passes”).

9. Security Deposit. Landlord and Tenant acknowledge (i) that, in accordance
with Article 21 of the Lease, and Section 8 of the Summary attached to the
Lease, Tenant has previously delivered the sum of Two Hundred Five Thousand
Seventy-Seven and 60/100 Dollars ($205,077.60) (the “Security Deposit”) to
Landlord as security for the faithful performance by Tenant of the terms,
covenants and conditions of the Lease, and (ii) that Landlord shall continue to
hold the Security Deposit as security for the faithful performance by Tenant of
the terms, covenants and conditions of the Lease (as hereby amended) during the
Expansion Term.

10. No Further Modification. Except as set forth in this First Amendment, all of
the terms and provisions of the Lease shall apply with respect to the Expansion
Premises and shall remain unmodified and in full force and effect.

[signatures follow on next page]

 

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IN WITNESS WHEREOF, this First Amendment has been executed as of the day and
year first above written.

 

LANDLORD:     TENANT: BRITANNIA POINTE GRAND LIMITED PARTNERSHIP,     KALOBIOS
PHARMACEUTICALS, INC., a Delaware limited partnership     a Delaware corporation
By:  

LOGO [g595393ex10_3pg004a.jpg]

 

    By:  

LOGO [g595393ex10_3pg004b.jpg]

 

  Jon M. Bergschneider       Name:  

Jeffrey H. Cooper

  Executive Vice President       Its:  

CFO

      By:  

 

        Name:  

 

        Its:  

 

 

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EXHIBIT A

BRITANNIA POINTE GRAND BUSINESS PARK

OUTLINE OF EXPANSION PREMISES

 

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EXHIBIT A

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EXHIBIT B

BRITANNIA POINTE GRAND BUSINESS PARK

TENANT WORK LETTER

This Tenant Work Letter shall set forth the terms and conditions relating to the
construction of the tenant improvements in the Expansion Premises. This Tenant
Work Letter is essentially organized chronologically and addresses the issues of
the construction of the Expansion Premises, in sequence, as such issues will
arise during the actual construction of the Expansion Premises. All references
in this Tenant Work Letter to Sections of “this Amendment” shall mean the
relevant portion of the First Amendment to which this Tenant Work Letter is
attached as Exhibit B and of which this Tenant Work Letter forms a part, all
references in this Tenant Work Letter to Articles or Sections of “the Lease”
shall mean the relevant portions of the Lease (as amended) being amended by this
Amendment, and all references in this Tenant Work Letter to Sections of “this
Tenant Work Letter” shall mean the relevant portions of Sections 1 through 6 of
this Tenant Work Letter.

SECTION 1

CONDITION OF PREMISES

Tenant acknowledges that except as provided in the preceding sentence, Tenant
shall accept the Expansion Premises, and continue to accept the Existing
Premises, in their existing, “as-is” condition on the date of delivery thereof
to Tenant. Except for the payment of the Tenant Improvement Allowance as
provided in Section 2. below, Landlord shall have no obligation to make or pay
for any improvements to the Premises.

SECTION 2

TENANT IMPROVEMENTS

2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time tenant
improvement allowance (the “Tenant Improvement Allowance”) in the amount of One
Hundred Eighty Five Thousand and 00/100 Dollars ($185,000.00) for the costs
relating to the initial design and construction of Tenant’s improvements, which
are permanently affixed to the Expansion Premises (the “Tenant Improvements”).
In no event shall Landlord be obligated to make disbursements pursuant to this
Tenant Work Letter or otherwise in connection with Tenant’s construction of the
Tenant Improvements or any Tenant Improvement Allowance Items, as defined below,
in a total amount which exceeds the sum of the Tenant Improvement Allowance. All
Tenant Improvements for which the Tenant Improvement Allowance has been made
available shall be deemed Landlord’s property under the terms of the Lease;
provided, however, Landlord may, by written notice to Tenant given concurrently
with Landlord’s approval of the “Final Working Drawings”, as that term is
defined in Section 3.3, below, require Tenant, prior to the end of the Lease
Term, or given following any earlier termination of this Lease, at Tenant’s
expense, to remove any Tenant Improvements and to repair any damage to the
Premises and Building caused by such removal and return the affected portion of
the Premises to a

 

  

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Building standard general office condition. Any portion of the Tenant
Improvement Allowance that is not disbursed or allocated for disbursement by
December 31, 2013, shall revert to Landlord and Tenant shall have no further
rights with respect thereto.

2.2 Disbursement of the Tenant Improvement Allowance.

2.2.1 Tenant Improvement Allowance Items. Except as otherwise set forth in this
Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by
Landlord only for the following items and costs (collectively the “Tenant
Improvement Allowance Items”):

2.2.1.1 Payment of all reasonable fees of the “Architect” and the “Engineers,”
as those terms are defined in Section 3.1 of this Tenant Work Letter, project
management fees, and payment of the fees incurred by, and the cost of documents
and materials supplied by, Landlord and Landlord’s consultants in connection
with the preparation and review of the “Construction Drawings,” as that term is
defined in Section 3.2 of this Tenant Work Letter;

2.2.1.2 The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements;

2.2.1.3 The payment for all demolition and removal of existing improvements in
the Premises;

2.2.1.4 The cost of construction of the Tenant Improvements, including, without
limitation, testing and inspection costs, costs incurred for removal of existing
furniture, fixtures or equipment in the Premises, hoisting and trash removal
costs, costs to purchase and install in the Premises equipment customarily
incorporated into laboratory improvements or laboratory utility systems,
including, without limitation, UPS, DI Systems, boilers, air compressors,
glass/cage washers and autoclaves, painting, and contractors’ fees and general
conditions;

2.2.1.5 The cost of any changes in the Base Building when such changes are
required by the Construction Drawings (including if such changes are due to the
fact that such work is prepared on an unoccupied basis), such cost to include
all direct architectural and/or engineering fees and expenses incurred in
connection therewith;

2.2.1.6 The cost of any changes to the Construction Drawings or Tenant
Improvements required by all applicable building codes (the “Code”);

2.2.1.7 Sales and use taxes;

2.2.1.8 The cost of computer and telecommunication cabling, telephone systems
(but in no event shall the total cumulative fees and costs for the foregoing
items in this Section 2.2.1.8 exceed Twenty-Five Thousand and 00/100 Dollars
($25,000.00);

2.2.1.9 Subject to Section 2.2, above, all other actual out-of-pocket costs
expended by Landlord in connection with the construction of the Tenant
Improvements, including, without limitation, costs expended by Landlord pursuant
to Section 4.1.1 of this Tenant Work Letter, below.

 

  

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2.2.2 Disbursement of Tenant Improvement Allowance. During the construction of
the Tenant Improvements, Landlord shall make monthly disbursements of the Tenant
Improvement Allowance, for Tenant Improvement Allowance Items for the benefit of
Tenant and shall authorize the release of monies for the benefit of Tenant as
follows.

2.2.2.1 Monthly Disbursements. On or before the fifth (5th) day of each calendar
month, during the design and construction of the Tenant Improvements (or such
other date as Landlord may designate), Tenant shall deliver to Landlord: (i) a
request for reimbursement of amounts paid to the “Contractor,” as that term is
defined in Section 4.1.1 of this Tenant Work Letter, approved by Tenant, in a
form to be provided by Landlord, showing the schedule, by trade, of percentage
of completion of the Tenant Improvements in the Premises, detailing the portion
of the work completed and the portion not completed; (ii) invoices from all of
“Tenant’s Agents,” as that term is defined in Section 4.1.2 of this Tenant Work
Letter, for labor rendered and materials for the Premises; (iii) executed
mechanic’s lien releases, as applicable, from all of Tenant’s Agents which shall
comply with the appropriate provisions, as reasonably determined by Landlord, of
California Civil Code Section 3262(d); and (iv) all other information reasonably
requested by Landlord. Tenant’s request for payment shall be deemed Tenant’s
acceptance and approval of the work furnished and/or the materials supplied as
set forth in Tenant’s payment request. Within forty-five (45) days thereafter,
Landlord shall deliver a check to Tenant made payable to Tenant in payment of
the lesser of: (A) the amounts so requested by Tenant as set forth in this
Section 2.2.3.1, above (or, subject to the terms of Section 4.2.1, below, a
percentage thereof), and (B) the balance of any remaining available portion of
the Tenant Improvement Allowance, provided that Landlord does not dispute any
request for payment based on non-compliance of any work with the “Approved
Working Drawings,” as that term is defined in Section 3.5 below, or due to any
substandard work. Landlord’s payment of such amounts shall not be deemed
Landlord’s approval or acceptance of the work furnished or materials supplied as
set forth in Tenant’s payment request.

2.2.2.2 Final Deliveries. Following the completion of construction of the Tenant
Improvements, Tenant shall deliver to Landlord properly executed final
mechanic’s lien releases in compliance with both California Civil Code
Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4) from all
of Tenant’s Agents, and a certificate certifying that the construction of the
Tenant Improvements in the Premises has been substantially completed. Tenant
shall record a valid Notice of Completion in accordance with the requirements of
Section 4.3 of this Tenant Work Letter.

2.2.2.3 Other Terms. Landlord shall only be obligated to make disbursements from
the Tenant Improvement Allowance, to the extent costs are incurred by Tenant for
Tenant Improvement Allowance Items. All Tenant Improvement Allowance Items for
which the Tenant Improvement Allowance has been made available shall be deemed
Landlord’s property under the terms of this Lease.

2.4 Building Standards. The quality of Tenant Improvements shall be in keeping
with the existing improvements in the Premises.

SECTION 3

CONSTRUCTION DRAWINGS

3.1 Selection of Architect. Tenant shall retain an architect/space planner (the
“Architect”) approved in advance by Landlord (which approval shall not be
unreasonably

 

  

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withheld) to prepare the Final Space Plan and Final Working Drawings as provided
in Section 3.2 and 3.3, below. Tenant shall retain the engineering consultants
or design/build subcontractors designated by Tenant and reasonably approved in
advance by Landlord (the “Engineers”) to prepare all plans and engineering
working drawings relating to the structural, mechanical, electrical, plumbing,
HVAC, lifesafety, and sprinkler work in the Premises, which work is not part of
the Base Building. All such plans and drawings shall comply with the drawing
format and specifications reasonably determined by Landlord, and shall be
subject to Landlord’s reasonable approval. Tenant and Architect shall verify, in
the field, the dimensions and conditions as shown on the relevant portions of
the Base Building plans, and Tenant and Architect shall be solely responsible
for the same, and Landlord shall have no responsibility in connection therewith.
Landlord’s review of any plans or drawings as set forth in this Section 3, shall
be for its sole purpose and shall not imply Landlord’s review of the same, or
obligate Landlord to review the same, for quality, design, Code compliance or
other like matters.

3.2 Final Space Plan. Tenant shall supply Landlord with four (4) copies signed
by Tenant of its final space plan for the Premises before any architectural
working drawings or engineering drawings have been commenced. The final space
plan (the “Final Space Plan”) shall include a layout and designation of all
offices, labs, rooms and other partitioning, their intended use, and equipment
to be contained therein. Landlord may request clarification or more specific
drawings for special use items not included in the Final Space Plan. Landlord
shall advise Tenant within five (5) business days after Landlord’s receipt of
the Final Space Plan for the Premises if the same is unsatisfactory or
incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause
the Final Space Plan to be revised to correct any deficiencies or other matters
Landlord may reasonably require.

3.3 Final Working Drawings. After the Final Space Plan has been approved by
Landlord, Tenant shall supply the Engineers with a complete listing of standard
and non-standard equipment and specifications, including, without limitation,
Title 24 calculations, electrical requirements and special electrical receptacle
requirements for the Premises, to enable the Engineers and the Architect to
complete the “Final Working Drawings” (as that term is defined below) in the
manner as set forth below. Upon the approval of the Final Space Plan by Landlord
and Tenant, Tenant shall promptly cause the Architect and the Engineers to
complete the architectural and engineering drawings for the Premises, and
Architect shall compile a fully coordinated set of architectural, structural,
mechanical, electrical and plumbing working drawings in a form which is
sufficiently complete to allow all of Tenant’s Agents to bid on the work and to
obtain all applicable permits (collectively, the “Final Working Drawings”) and
shall submit the same to Landlord for Landlord’s approval, which shall not be
unreasonably withheld, conditioned, or delayed. Tenant shall supply Landlord
with four (4) copies signed by Tenant of such Final Working Drawings. Landlord
shall advise Tenant within ten (10) business days after Landlord’s receipt of
the Final Working Drawings for the Premises if the same is unsatisfactory or
incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause
the Final Working Drawings to be revised in accordance with such review and any
disapproval of Landlord in connection therewith.

3.5 Approved Working Drawings. The Final Working Drawings shall be approved by
Landlord (the “Approved Working Drawings”) prior to the commencement of
construction of the Premises by Tenant. Concurrently with Tenant’s delivery of
the Final Working Drawings to Landlord for Landlord’s approval, Tenant may
submit the same to the appropriate municipal

 

  

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authorities for all applicable building permits. Tenant hereby agrees that
neither Landlord nor Landlord’s consultants shall be responsible for obtaining
any building permit or certificate of occupancy for the Premises and that
obtaining the same shall be Tenant’s responsibility; provided, however, that
Landlord shall cooperate with Tenant in executing permit applications and
performing other ministerial acts reasonably necessary to enable Tenant to
obtain any such permit or certificate of occupancy. No changes, modifications or
alterations in the Approved Working Drawings may be made without the prior
written consent of Landlord, which shall not be unreasonably withheld,
conditioned, or delayed.

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1 Tenant’s Selection of Contractors.

4.1.1 The Contractor; Landlord’s Project Manager. Tenant shall retain a licensed
general contractor, approved in advance by Landlord, to construct the Tenant
Improvements (“Contractor”). Landlord’s approval of the Contractor shall not be
unreasonably withheld. Landlord shall retain Project Management Advisors, Inc.
(“PMA”) as a third party project manager for construction oversight of the
Tenant Improvements on behalf of Landlord, and Tenant shall pay a fee to
Landlord with respect to the PMA services in an amount not to exceed $5,000.00.

4.1.2 Tenant’s Agents. All subcontractors, laborers, materialmen, and suppliers
used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and
the Contractor to be known collectively as “Tenant’s Agents”). The
subcontractors used by Tenant, but not any laborers, materialmen, and suppliers,
must be approved in writing by Landlord, which approval shall not be
unreasonably withheld, conditioned, or delayed; provided, however, Landlord may
nevertheless designate and require the use of particular mechanical,
engineering, plumbing, fire life-safety and other Base Building subcontractors.
If Landlord does not approve any of Tenant’s proposed subcontractors, Tenant
shall submit other proposed subcontractors for Landlord’s written approval.

4.2 Construction of Tenant Improvements by Tenant’s Agents.

4.2.1 Construction Contract; Cost Budget. Tenant shall engage the Contractor
under a commercially reasonable and customary construction contract, reasonably
approved by Landlord (collectively, the “Contract”). Prior to the commencement
of the construction of the Tenant Improvements, and after Tenant has accepted
all bids for the Tenant Improvements, Tenant shall provide Landlord with a
detailed breakdown, by trade, of the final costs to be incurred or which have
been incurred, as set forth more particularly in Sections 2.2.1.1 through
2.2.1.10, above, in connection with the design and construction of the Tenant
Improvements to be performed by or at the direction of Tenant or the Contractor,
which costs form a basis for the estimated total costs of the work of the Tenant
Improvement project (the “Final Budget”). Prior to the commencement of
construction of the Tenant Improvements, Tenant shall supply Landlord with cash
in an amount (the “Over-Allowance Amount”) equal to the difference between the
amount of the Final Costs and the amount of the Tenant Improvement Allowance
(less any portion thereof already disbursed by Landlord, or in the process of
being disbursed by Landlord, on or before the commencement of construction of
the Tenant

 

  

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Improvements). The Over-Allowance Amount shall be disbursed by Landlord prior to
the disbursement of any of the then remaining portion of the Tenant Improvement
Allowance, and such disbursement shall be pursuant to the same procedure as the
Tenant Improvement Allowance. In the event that, after the Final Costs have been
delivered by Tenant to Landlord, the costs relating to the design and
construction of the Tenant Improvements shall change, any additional costs
necessary to such design and construction in excess of the Final Costs, shall be
paid by Tenant to Landlord immediately as an addition to the Over-Allowance
Amount or at Landlord’s option, Tenant shall make payments for such additional
costs out of its own funds, but Tenant shall continue to provide Landlord with
the documents described in Sections 2.2.2.1 (i), (ii), (iii) and (iv) of this
Tenant Work Letter, above, for Landlord’s approval, prior to Tenant paying such
costs. All Tenant Improvements paid for by the Over-Allowance Amount shall be
deemed Landlord’s property under the terms of the Lease.

4.2.2 Tenant’s Agents.

4.2.2.1 Compliance with Drawings and Schedule. Tenant’s and Tenant’s Agent’s
construction of the Tenant Improvements shall comply with the following: (i) the
Tenant Improvements shall be constructed in strict accordance with the Approved
Working Drawings; and (ii) Tenant’s Agents shall submit schedules of all work
relating to the Tenant’s Improvements to Contractor and Contractor shall, within
five (5) business days of receipt thereof, inform Tenant’s Agents of any changes
which are necessary thereto, and Tenant’s Agents shall adhere to such corrected
schedule.

4.2.2.2 Indemnity. Tenant’s indemnity of Landlord as set forth in this Lease
shall also apply with respect to any and all costs, losses, damages, injuries
and liabilities related in any way to any act or omission of Tenant or Tenant’s
Agents, or anyone directly or indirectly employed by any of them, or in
connection with Tenant’s non-payment of any amount arising out of the Tenant
Improvements and/or Tenant’s disapproval of all or any portion of any request
for payment. Such indemnity by Tenant, as set forth in this Lease, shall also
apply with respect to any and all costs, losses, damages, injuries and
liabilities related in any way to Landlord’s performance of any ministerial acts
reasonably necessary (i) to permit Tenant to complete the Tenant Improvements,
and (ii) to enable Tenant to obtain any building permit or certificate of
occupancy for the Premises. The foregoing indemnity shall not apply to claims
caused by the gross negligence or willful misconduct of Landlord, its member
partners, shareholders, officers, directors, agents, employees, and/or
contractors.

4.2.2.2 Requirements of Tenant’s Agents. Each of Tenant’s Agents shall guarantee
to Tenant and for the benefit of Landlord that the portion of the Tenant
Improvements for which it is responsible shall be free from any defects in
workmanship and materials for a period of not less than one (1) year from the
date of substantial completion of the work under the Contract (“Substantial
Completion”). Each of Tenant’s Agents shall be responsible for the replacement
or repair, without additional charge, of all work done or furnished in
accordance with its contract that shall become defective within one (1) year
after Substantial Completion. The correction of such work shall include, without
additional charge, all additional expenses and damages incurred in connection
with such removal or replacement of all or any part of the Tenant Improvements,
and/or the Building and/or common areas that may be damaged or disturbed
thereby. All such warranties or guarantees as to materials or workmanship of or
with respect to the Tenant Improvements shall be contained in the Contract or
subcontract and shall be written such that such guarantees or warranties shall
inure to the benefit of both Landlord and

 

  

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Tenant, as their respective interests may appear, and can be directly enforced
by either. Tenant covenants to give to Landlord any assignment or other
assurances which may be necessary to effect such right of direct enforcement.

4.2.2.4 Insurance Requirements.

4.2.2.4.1 General Coverages. All of Tenant’s Agents shall carry the following
insurance provided by insurers with an A.M. Best rating of A- VIII or better:
(1) worker’s compensation insurance covering ail of their respective employees
with a waiver of subrogation in favor of Landlord and Landlord’s Representative,
and (2) commercial general liability insurance, including contractual and
products/completed operations coverage with a limit not less than $1,000,000 per
occurrence/$2,000,000 aggregate Tenant shall require the Agents’ commercial
general liability insurance policies name Landlord and Landlord’s and Landlord’s
Representative as additional insureds with respect to the work being done under
this agreement.

4.2.2.4.2 Special Coverages. While the total cost of the work to be done is
$100,000 or more, Tenant shall carry “Builder’s All Risk” insurance covering the
construction of the Tenant Improvements in an amount equal to the total of the
hard and soft costs of such work, and such other insurance as Landlord may
require, it being understood and agreed that the Tenant Improvements shall be
insured by Tenant pursuant to this Lease immediately upon completion thereof.

4.2.2.4.3 General Terms. Certificates for all insurance carried pursuant to this
Section 4.2.2.4 shall be delivered to Landlord before the commencement of
construction of the Tenant Improvements and before the Contractor’s equipment is
moved onto the site. Should any policies expire during the time work is being
done under this agreement, a renewal certificate shall be delivered to Landlord
prior to the expiration date on such policy. All such policies of insurance must
contain a provision that the company writing said policy will give Landlord
thirty (30) days prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance. In the event
that the Tenant Improvements are damaged by any cause during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant’s sole
cost and expense. Tenant’s Agents shall maintain all of the foregoing insurance
coverage in force until the Tenant Improvements are fully completed and accepted
by Landlord,. All policies carried under this Section 4.2.2.4, except workers
compensation, shall insure Landlord and Tenant, as their interests may appear,
as well as Contractor and Tenant’s Agents, and “Landlord’s Representative”, as
that term is defined below. All insurance maintained by Tenant’s Agents shall
preclude subrogation claims by the insurer against anyone insured thereunder.
All such insurance required of tenant and its Agents shall provide that it is
primary insurance as respects the owner and Landlord’s Representative and that
any other insurance maintained by owner is excess and noncontributing with the
insurance required hereunder. The requirements for the foregoing insurance shall
not derogate from the provisions for indemnification of Landlord by Tenant under
Section 4.2.2.2 of this Tenant Work Letter. Landlord may, in its discretion,
require Tenant to obtain a lien and completion bond or some alternate form of
security satisfactory to Landlord in an amount sufficient to ensure the
lien-free completion of the Tenant Improvements and naming Landlord as a
co-obligee.

 

  

EXHIBIT B

-7-

  

Brittania Pointe Grand Business Park

[First Amendment]

[KaloBios Pharmaceuticals, Inc.]

--------------------------------------------------------------------------------

4.2.2 Governmental Compliance. The Tenant Improvements shall comply in all
respects with the following: (i) all state, federal, city or quasi-governmental
laws, codes, ordinances and regulations, as each may apply according to the
rulings of the controlling public official, agent or other person;
(ii) applicable standards of the American Insurance Association (formerly, the
National Board of Fire Underwriters) and the National Electrical Code; and (iii)
building material manufacturer’s specifications.

4.2.4 Inspection by Landlord. Landlord shall have the right to inspect the
Tenant Improvements at all times, provided however, that Landlord’s failure to
inspect the Tenant Improvements shall in no event constitute a waiver of any of
Landlord’s rights hereunder nor shall Landlord’s inspection of the Tenant
Improvements constitute Landlord’s approval of the same. Should Landlord
reasonably disapprove any portion of the Tenant Improvements, on the grounds
that the construction is defective or fails to comply with the Approved Working
Drawings, Landlord shall notify Tenant in writing of such disapproval and shall
specify the items disapproved. Any such defects or deviations shall be rectified
by Tenant at no expense to Landlord, provided however, that in the event
Landlord determines that a defect or deviation exists that might adversely
affect the mechanical, electrical, plumbing, heating, ventilating and air
conditioning or life-safety systems of the Building, the structure or exterior
appearance of the Building or any other tenant’s use of such other tenant’s
leased premises, Landlord may, take such action as Landlord reasonably deems
necessary, at Tenant’s expense and without incurring any liability on Landlord’s
part, to correct any such defect, deviation and/or matter, including, without
limitation, causing the cessation of performance of the construction of the
Tenant Improvements until such time as the defect, deviation and/or matter is
corrected to Landlord’s reasonable satisfaction.

4.2.5 Meetings. Commencing upon the execution of this Lease, Tenant shall hold
weekly meetings at a reasonable time, with the Architect and the Contractor
regarding the progress of the preparation of Construction Drawings and the
construction of the Tenant Improvements, and Landlord and/or its agents shall
receive prior notice of, and shall have the right to attend, all such meetings,
and, upon Landlord’s request, certain of Tenant’s Agents shall attend such
meetings. In addition, minutes shall be taken at all such meetings, a copy of
which minutes shall be promptly delivered to Landlord. One such meeting each
month shall include the review of Contractor’s current request for payment.

4.3 Notice of Completion; Copy of Record Set of Plans. Within ten (10) days
after completion of construction of the Tenant Improvements, Tenant shall cause
a valid Notice of Completion to be recorded in the office of the Recorder of the
county in which the Building is located in accordance with Section 3093 of the
Civil Code of the State of California or any successor statute, and shall
furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do
so, Landlord may execute and file the same on behalf of Tenant as Tenant’s agent
for such purpose, at Tenant’s sole cost and expense. At the conclusion of
construction, (i) Tenant shall cause the Architect and Contractor (x) to update
the Approved Working Drawings as necessary to reflect all changes made to the
Approved Working Drawings during the course of construction, (y) to certify to
the best of their knowledge that the “record-set” of as-built drawings are true
and correct, which certification shall survive the expiration or termination of
this Lease, and (z) to deliver to Landlord two (2) sets of copies of such record
set of drawings (hard copy and CAD files) within ninety (90) days following
issuance of a certificate of occupancy for the Premises, and (ii) Tenant shall
deliver to Landlord a copy of all warranties,

 

  

EXHIBIT B

-8-

  

Brittania Pointe Grand Business Park

[First Amendment]

[KaloBios Pharmaceuticals, Inc.]

--------------------------------------------------------------------------------

guaranties, and operating manuals and information relating to the improvements,
equipment, and systems in the Premises. Within fifteen (15) days after request
by Tenant following the Substantial Completion of the Tenant Improvements,
Landlord will acknowledge its approval of the Tenant Improvements (provided that
such approval has been granted) by placing its signature on a Contractor’s
Certificate of Substantial Completion fully executed by the Architect,
Contractor and Tenant. Landlord’s approval shall not create any contingent
liabilities for Landlord with respect to any latent quality, design, Code
compliance or other like matters that may arise subsequent to Landlord’s
approval.

SECTION 5

MISCELLANEOUS

5.1 Tenant’s Representative. Tenant has designated Gil De Vincenzi as its sole
representatives with respect to the matters set forth in this Tenant Work
Letter, who shall each have full authority and responsibility to act on behalf
of the Tenant as required in this Tenant Work Letter.

5.2 Landlord’s Representative. Landlord has designated Bernie Baker and/or Jeff
Marcowitz with PMA, as its sole representatives with respect to the matters set
forth in this Tenant Work Letter, who, until further notice to Tenant, shall
have full authority and responsibility to act on behalf of the Landlord as
required in this Tenant Work Letter.

5.3 Time is of the Essence in This Tenant Work Letter. Unless otherwise
indicated, all references herein to a “number of days” shall mean and refer to
calendar days. If any item requiring approval is timely disapproved by Landlord,
the procedure for preparation of the document and approval thereof shall be
repeated until the document is approved by Landlord.

5.4 Tenant’s Lease Default. Notwithstanding any provision to the contrary
contained in the Lease or this Tenant Work Letter, if any default by Tenant
under the Lease or this Tenant Work Letter (including, without limitation, any
failure by Tenant to fund any portion of the Over-Allowance Amount) occurs at
any time on or before the substantial completion of the Tenant Improvements and
such default remains uncured ten (10) days following Landlord’s notice of such
default to Tenant, then in addition to all other rights and remedies granted to
Landlord pursuant to the Lease, Landlord shall have the right to withhold
payment of all or any portion of the Tenant Improvement Allowance and/or
Landlord may, without any liability whatsoever, cause the cessation of
construction of the Tenant Improvements (in which case, Tenant shall be
responsible for any delay in the substantial completion of the Tenant
Improvements and any costs occasioned thereby).

 

  

EXHIBIT B

-9-

  

Brittania Pointe Grand Business Park

[First Amendment]

[KaloBios Pharmaceuticals, Inc.]