Exhibit 10.2

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF
ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW, OR SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION CAN BE MADE IN COMPLIANCE WITH
RULE 144 OF THE ACT, OR IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

WARRANT TO PURCHASE STOCK

 

“Company”    KALOBIOS PHARMACEUTICALS, INC., a Delaware corporation
“Number of Shares”    The amount equal to (a) 4.00% of the original principal
amount of each Term Loan (as defined in the Loan Agreement (defined below))
divided by (b) the Warrant Price (subject to adjustment as hereinafter provided)
“Class of Stock”    Series E Preferred Stock “Warrant Price”    $3.40 per Share
(subject to adjustment as hereinafter provided) “Issue Date”    September 5,
2012 “Expiration Date”    September 5, 2022 “Credit Facility”    This Warrant is
issued in connection with the Loan and Security Agreement by and among MIDCAP
FINANCIAL SBIC, LP, as administrative agent, the Lenders listed on Schedule 1
thereto and otherwise party thereto from time to time and the Company, dated as
of September 5, 2012, as amended from time to time (the “Loan Agreement”).

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, including
without limitation the mutual promises contained in the Loan Agreement, MIDCAP
FINANCIAL SBIC, LP, a Delaware limited partnership (together with any successor
or permitted assignee or transferee of this Warrant or any holder of the Shares
issuable or issued upon exercise of this Warrant, “Holder”) is entitled to
purchase up to the Number of Shares of fully paid and nonassessable capital
stock of the Company of the Class of Stock and at the Warrant Price, as adjusted
pursuant to the terms of this Warrant, subject to the provisions and upon the
terms and conditions set forth in this Warrant. As used herein, “Share” or
“Shares” (a) shall refer to either (i) the shares of stock issuable upon the
exercise or conversion of this Warrant and any shares of capital stock into
which such shares may be converted or exchanged, or (ii) the authorized or
issued and outstanding shares of capital stock of the Company which are of the
same class and series as the shares of stock issuable upon the exercise or
conversion of this Warrant, in either case as the specific provisions of this
Warrant or the context may require.

This Warrant shall be exercisable for the Initial Shares. The “Initial Shares”
means the Number of Shares of the Class of Stock of the Company’s capital stock
each set forth above and as adjusted pursuant to the terms of this Warrant.

ARTICLE 1. EXERCISE.

1.1 Method of Exercise. Holder may at any time and from time to time exercise
this Warrant, in whole or in part, by delivering a duly completed and executed
Notice of

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Exercise in substantially the form attached as Appendix 1 to the principal
office of the Company (which notice may be delivered by facsimile or pdf).
Unless Holder is exercising the conversion right set forth in Section 1.2,
Holder shall also deliver to the Company a check, wire transfer (to an account
designated by the Company), or other form of payment acceptable to the Company
for the aggregate Warrant Price for the Shares being purchased.

1.2 Conversion Right. In lieu of exercising this Warrant as specified in Article
1.1, Holder may at any time and from time to time after the Issue Date convert
this Warrant, in whole or in part, into a number of Shares determined by
dividing (a) the aggregate fair market value of the number of Shares or the
securities otherwise issuable upon exercise of this Warrant with respect to
which Holder elects to convert this Warrant minus the aggregate Warrant Price of
such Shares by (b) the fair market value of one Share. The “fair market value”
of one Share shall be determined pursuant to Section 1.3.

1.3 Fair Market Value. If the Company’s common stock is traded in a public
market and the Shares are common stock, the fair market value of each Share
shall be the average of the closing prices of such common stock reported for the
fifteen (15) business days immediately before Holder delivers its Notice of
Exercise to the Company (or in the instance where the Warrant is exercised
immediately prior to the effectiveness of the Company’s initial public offering
of its common stock (“IPO”), the “price to public” per share price specified in
the final prospectus relating to such offering). If the Company’s common stock
is traded in a public market and the Shares are preferred stock, the fair market
value of each Share shall be the average of the closing prices of such common
stock reported for the fifteen (15) business days immediately before Holder
delivers its Notice of Exercise to the Company (or in the instance where the
Warrant is exercised immediately prior to the effectiveness of an IPO, the
initial “price to public” per share price specified in the final prospectus
relating to the IPO), in either case, multiplied by the number of shares of the
Company’s common stock into which a Share is then convertible. In the event of
an exercise in connection with an Acquisition, the fair market value of a Share
shall be the value to be received per Share by all holders of such Shares in
such transaction. If the Company’s common stock is not traded in a public market
and other than in the event of an exercise in connection with an Acquisition,
the Board of Directors of the Company shall determine the fair market value in
its reasonable good faith judgment.

1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or
converts this Warrant pursuant to Article 1.1 or 1.2, respectively, and, if
applicable, the Company receives payment of the aggregate Warrant Price, the
Company shall promptly deliver to Holder certificates for the Shares acquired
and, if this Warrant has not been fully exercised or converted and has not
expired, a new Warrant representing the Shares not so acquired. This Warrant
shall be deemed to have been exercised and such certificates deemed issued, and
Holder shall become the holder of record of the Shares for all purposes, as of
the date of Holder’s delivery of the exercise notice pursuant to Article 1.1 and
payment of the Warrant Price, if applicable. If an exercise or conversion is to
be made in connection with an IPO or Acquisition, such exercise may at the
election of Holder be conditioned upon the consummation of such transaction, in
which case such exercise shall not be deemed to be effective until immediately
prior to the consummation of such transaction.

1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of
mutilation on surrender and cancellation of this Warrant, the Company shall
execute and deliver, in lieu of this Warrant, a new warrant of like tenor and
amount.

 

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1.6 Treatment of Warrant Upon Acquisition of Company.

1.6.1 “Acquisition”. For the purpose of this Warrant, “Acquisition” means
(a) any sale, assignment, transfer, license, or other disposition of all or
substantially all of the assets of the Company, or (b) any reorganization,
consolidation, share exchange or merger of the Company with or into another
person or entity, or sale of outstanding securities of the Company by the
holders thereof, in each case where the holders of the Company’s securities
before the transaction beneficially own less than 50% of the outstanding voting
securities of the successor, acquiring or surviving person or entity after the
transaction.

1.6.2 Treatment of Warrant Upon Acquisition.

A) Upon the written request of the Company, Holder agrees that, in the event of
an Acquisition that (i) is not described in Section 1.6.1(a), (ii) in which the
sole consideration is cash, and (iii) in connection with or as a result of which
all holders of the Shares will receive or have the right to receive solely cash
in the same proportions in respect of all of their Shares, then either
(a) Holder shall exercise its conversion or purchase right under this Warrant
and such exercise will be deemed effective immediately prior to the consummation
of such Acquisition, or (b) if Holder does not elect to exercise the Warrant,
this Warrant will expire upon the consummation of such Acquisition, subject to
Section 5.9. The Company shall provide Holder with written notice of its request
relating to the foregoing (together with such reasonable information as Holder
may reasonably request in connection with such contemplated Acquisition giving
rise to such notice), which notice is to be delivered to Holder not less than
twenty (20) days prior to the closing of the proposed Acquisition.

B) Upon the written request of the Company, Holder agrees that, in the event of
an Acquisition that is described in Section 1.6.1(a) and is an “arms’-length”
transaction with a third party that is not an Affiliate (as defined below) of
the Company (a “True Asset Sale”), Holder may (a) exercise its conversion or
purchase right under this Warrant and such exercise will be deemed effective
immediately prior to the consummation of such True Asset Sale, (b) if Holder
does not elect to exercise the Warrant, permit this Warrant to continue (unless
exercised in the interim) until the earlier of the Expiration Date or the
dissolution and/or liquidation of the Company following the closing of any such
True Asset Sale, subject to Section 5.9, or (c) if Holder does not elect to
exercise the Warrant, elect to have the terms of Section 1.6.2(D) below apply.
The Company shall provide Holder with written notice of its request relating to
the foregoing (together with such reasonable information as Holder may request
in connection with such contemplated Acquisition giving rise to such notice),
which notice is to be delivered to Holder not less than twenty (20) days prior
to the closing of the proposed True Asset Sale.

C) Upon the written request of the Company, Holder agrees that, in the event of
an Acquisition (i) in which the consideration is a combination of cash and
equity securities of the acquirer listed for trading on a U.S. national
securities exchange and which may be freely resold pursuant to a resale
registration statement or under Rule 144 of the Act without any restriction or
limitation (including without limitation volume and manner of sale
restrictions), (ii) in connection with or as a result of which all holders of
the shares are or have the right to receive solely cash and/or such securities
in the same proportions in respect of all of their Shares, and (iii) on the
record date for which the fair market value of one Share (or other

 

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securities issuable upon exercise of this Warrant) is greater than the Warrant
Price, Holder may (a) exercise its conversion or purchase right under this
Warrant and such exercise will be deemed effective immediately prior to the
consummation of such Acquisition, or (b) if Holder does not elect to exercise
the Warrant, this Warrant will expire upon the consummation of such Acquisition,
subject to Section 5.9.

D) Upon the closing of any Acquisition other than those particularly described
in subsections (A), (B) and (C) above (or in the case of an Acquisition
described in Section 1.6.2(B) above if Holder elects to have the terms of this
Section 1.6.2(D) apply), the successor, surviving or acquiring entity, if
applicable, shall assume in writing the obligations of this Warrant, including
agreements to deliver to Holder in exchange for this Warrant a written
instrument issued by the successor, surviving or acquiring entity pursuant to
which this Warrant shall thereafter be exercisable for the kind, amount and
value of securities, cash, and property as would have been payable for the
Shares issuable upon exercise of the unexercised portion of this Warrant had
such Shares been outstanding on the record date for the Acquisition and
subsequent closing. The Warrant Price and/or number of Shares shall be adjusted
accordingly.

As used herein “Affiliate” shall mean any person or entity that owns or controls
directly or indirectly ten percent (10%) or more of the voting securities of the
Company, any person or entity that controls, is controlled by or is under common
control with any such person or entity, and each of such person’s or entity’s
officers, directors, members, managers, joint venturers or partners, as
applicable (whether as a result of the ownership of voting securities, by
contract or otherwise).

1.7 Treatment of Warrant Upon Initial Public Offering. Upon the written request
of the Company, Holder agrees that, in the event of an IPO, then either
(a) Holder shall exercise its conversion or purchase right under this Warrant
and such exercise will be deemed effective immediately prior to the consummation
of such IPO, or (b) if Holder does not elect to exercise the Warrant, this
Warrant will expire upon the consummation of such IPO, subject to Section 5.9.
The Company shall provide Holder with written notice of its request relating to
the foregoing (together with such reasonable information as Holder may
reasonably request in connection with such contemplated Acquisition giving rise
to such notice), which notice is to be delivered to Holder not less than twenty
(20) days prior to the closing of the proposed IPO.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

2.1 Share Dividends, Subdivisions and Combinations. If the Company declares or
pays a dividend on the Shares payable in common stock or other securities, then
upon exercise of this Warrant, for each Share acquired, Holder shall receive,
without cost to Holder, the total number and kind of securities to which Holder
would have been entitled had Holder owned the Shares of record as of the date
the dividend occurred. If the Company subdivides the Shares by reclassification
or otherwise into a greater number of shares or takes any other action which
increases the number of shares of any class or series of capital stock into
which the Shares are convertible, the number of Shares purchasable hereunder
shall be proportionately increased and the Warrant Price shall be
proportionately decreased. If the outstanding Shares are combined or
consolidated, by reclassification or otherwise, into a lesser number of shares,
the Warrant Price shall be proportionately increased and the number of Shares
shall be proportionately decreased.

 

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2.2 Reclassification, Exchange, Combinations or Substitution. Upon any
reclassification, exchange, substitution, reorganization, merger, consolidation
or other event that results in a change of the number and/or class of the
underlying securities as to which purchase rights under this Warrant exist,
Holder shall be entitled to receive, upon exercise or conversion of this
Warrant, the number, amount and kind of securities, money and property that
Holder would have ultimately received upon the completion of such
reclassification, exchange, substitution, reorganization, merger, consolidation
or other event if this Warrant had been exercised immediately before such
reclassification, exchange, substitution, reorganization, merger, consolidation
or other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company’s Second Amended
and Restated Certificate of Incorporation (the “Certificate”) upon the closing
of a registered public offering of the Company’s common stock. The Company or
its successor shall promptly issue to Holder an amendment to this Warrant
setting forth the number and kind of such new securities or other property
issuable upon exercise or conversion of this Warrant as a result of such
reclassification, exchange, substitution, reorganization, merger, consolidation
or other event that results in a change of the number and/or class of securities
issuable upon exercise or conversion of this Warrant. The amendment to this
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The provisions
of this Article 2.2 shall similarly apply to successive reclassifications,
exchanges, substitutions, reorganizations, mergers, consolidations or other
events.

2.3 Adjustments for Diluting Issuances. The Warrant Price and the number of
Shares issuable upon exercise of this Warrant, and the number of shares of
common stock or other securities issuable upon conversion of the Shares, shall
be subject to adjustment, from time to time in the manner set forth in the
Certificate as if the Shares were issued and outstanding on and as of the date
of any such required adjustment. The provisions set forth for the Shares in the
Certificate relating to the above in effect as of the Issue Date may not be
amended, modified or waived, without the prior written consent of Holder unless
such amendment, modification or waiver affects the rights associated with the
Shares in the same manner as such amendment, modification or waiver affects the
rights associated with all other shares of the same series and class as the
Shares.

2.4 Reserved.

2.5 No Impairment. Without the prior written consent of Holder, the Company
shall not, by amendment of the Certificate, any shareholders agreement or its
by-laws, or through any reorganization, recapitalization, share exchange,
transfer of assets, consolidation, merger, dissolution, issuance or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, and shall at all times in
good faith assist in carrying out of all such terms and in taking all such
action as may be necessary or appropriate to protect Holder’s rights against
such avoidance or impairment.

2.6 Fractional Shares. No fractional Shares shall be issuable upon exercise or
conversion of this Warrant and the number of Shares to be issued shall be
rounded down to the nearest whole Share. If a fractional share interest arises
upon any exercise or conversion of the Warrant, the Company shall eliminate such
fractional share interest by paying Holder the amount computed by multiplying
the fractional interest by the fair market value of a full Share.

 

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2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant Price or
the kind or number of securities issuable under this Warrant pursuant to this
Article 2, the Company shall promptly notify Holder in writing, and, at the
Company’s expense, promptly compute such adjustment, and furnish Holder with a
certificate of its Chief Executive Officer, Corporate Secretary or a senior
financial officer setting forth such adjustment and the facts upon which such
adjustment is based. The Company shall, upon written request, furnish Holder a
certificate setting forth the Warrant Price and the number and kind of
securities issuable under this Warrant in effect upon the date thereof and the
series of adjustments leading to such Warrant Price and such number and kind of
securities.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.1 Representations and Warranties. The Company represents and warrants and
covenants to Holder as follows:

(a) The Company has all requisite legal and corporate power and authority, and
has taken all corporate action on the part of itself, its officers, directors
and stockholders necessary, to execute, issue and deliver this Warrant, to issue
the Shares issuable upon exercise or conversion of this Warrant and the
securities issuable upon conversion of the Shares, and to carry out and perform
its obligations under this Warrant, and this Warrant constitutes the legally
binding and valid obligation of the Company enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or similar laws relating to or affecting the
enforcement of creditors’ rights, or to principles of equity.

(b) This Warrant has been validly issued and is free of restrictions on transfer
other than restrictions on transfer set forth herein and under applicable state
and federal securities laws. All Shares which may be issued upon the exercise of
the purchase or conversion right represented by this Warrant, and all
securities, if any, issuable upon conversion of the Shares, shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable, and
free of any liens and encumbrances (including preemptive or other similar
rights) except for restrictions on transfer provided for herein or under
applicable federal and state securities laws.

(c) The execution, delivery, and performance of this Warrant will not result in
an violation of, be in conflict with, or constitute a default under, with or
without the passage of time or giving of notice, any provision of the
Certificate, the Shareholders Agreement or the Company’s by-laws, any provision
of any judgment, decree, or order to which the Company is a party, by which it
is bound, or to which any of its material assets are subject, any contract,
obligation, or commitment to which the Company is a party or by which it is
bound, or any statute, rule, or governmental regulation applicable to the
Company, or the creation of any lien, charge, or encumbrance upon any assets of
the Company.

(d) The Company has provided Holder with a capitalization table of the Company,
and such capitalization table is complete and accurate as of the date hereof and
reflects all outstanding capital stock of the Company and all outstanding
warrants, options, conversion privileges, preemptive rights and other rights or
agreements to purchase or otherwise acquire or issued any equity securities or
convertible debt securities of the Company. The Company has reserved and will,
at all times during the term of this Warrant keep reserved, a sufficient number
of Shares for issuance upon the exercise of this Warrant and a sufficient number
of shares of the securities issuable upon conversion of the Shares.

 

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(e) The Warrant Price is no greater than the lowest price at which the Company
has issued Series E Preferred Stock prior to the Issue Date.

3.2 Notice of Certain Events; Information. If the Company proposes at any time
(a) to declare any dividend or distribution upon any of its stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to effect any reclassification or recapitalization of any of its
stock; (c) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, (d) to approve
or participate in any Acquisition or an IPO, (e) to liquidate, dissolve or wind
up, or (f) to take any action or to effect any transaction which requires the
Company to provide notice to other holders of the Shares, then, in connection
with each such event, the Company shall give Holder: (1) at least twenty
(20) days prior written notice of the date on which a record will be taken for
such dividend or distribution (and specifying the date on which the holders of
stock will be entitled thereto) or for determining rights to vote, if any, in
respect of the matters referred to in (a) above; and (2) in the case of the
matters referred to in (b), (c), (d), (e) or (f) above, at least twenty
(20) days prior written notice of the date when the same will take place (and,
if applicable, specifying the date on which the holders of stock will be
entitled to exchange their common stock for securities or other property
deliverable upon the occurrence of such event). After this Warrant has become
exercisable pursuant to Article 1.1 hereof, the Company will also provide such
information in its possession as is requested by Holder and as is reasonably
necessary to enable Holder to comply with Holder’s accounting or reporting
requirements, including without limitation, a capitalization table, to be
provided to Holder within thirty (30) days after the end of each fiscal quarter
of the Company; provided, that the Company’s obligations set forth in this
sentence shall terminate immediately prior to the Company’s IPO.

3.3 Registration Rights. The Company agrees that the Shares or, if the Shares
are convertible into common stock of the Company, such common stock, shall have
the piggyback registration rights (i.e., the right to participate in
registrations initiated by other parties) and the S-3 demand registration rights
pursuant to and as set forth in the Amended and Restated Investor Rights
Agreement, made as of May 2, 2012 by and among the Company, each of the
Investors listed on Schedule A thereto (the “Rights Agreement”) on a pari passu
basis with the parties thereto holding shares of the Class. The provisions set
forth in the Rights Agreement relating to the foregoing registration rights in
effect as of the Issue Date may not be amended, modified or waived without the
prior written consent of Holder unless such amendment, modification or waiver
affects the rights associated with the Shares in the same manner as such
amendment, modification, or waiver affects the rights associated with all other
shares of the Class whose holders are parties thereto.

3.4 No Shareholder Rights. Except as provided in this Warrant, Holder will not
have any rights as a shareholder of the Company until the exercise or conversion
of this Warrant.

3.5 Certain Information. The Company agrees to provide Holder at any time and
from time to time with such information as Holder may reasonably request for
purposes of Holder’s compliance with regulatory, accounting and reporting
requirements applicable to Holder. Holder agrees that it shall hold and treat
all such information in confidence in accordance with the provisions of
Section 12.9 of the Loan Agreement, which provisions are hereby incorporated
herein by reference and agreed to apply to such information.

 

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ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. Holder represents and
warrants to the Company as follows:

4.1 Purchase for Own Account. This Warrant and the securities to be acquired
upon exercise of this Warrant by Holder will be acquired for investment for
Holder’s account, not as a nominee or agent, and not with a view to the public
resale or distribution within the meaning of the Act and Holder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption. Holder also represents that Holder has
not been formed for the specific purpose of acquiring this Warrant or the
Shares.

4.2 Disclosure of Information. Holder has received or has had full access to all
the information it considers necessary or appropriate to make an informed
investment decision with respect to the acquisition of this Warrant and its
underlying securities. Holder further has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of the
offering of this Warrant and its underlying securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to Holder or to which Holder has access.

4.3 Investment Experience. Holder understands that the purchase of this Warrant
and its underlying securities involves substantial risk. Holder has experience
as an investor in securities of companies in the development stage and
acknowledges that Holder can bear the economic risk of Holder’s investment in
this Warrant and its underlying securities and has such knowledge and experience
in financial or business matters that Holder is capable of evaluating the merits
and risks of its investment in this Warrant and its underlying securities and/or
has a preexisting personal or business relationship with the Company and certain
of its officers, directors or controlling persons of a nature and duration that
enables Holder to be aware of the character, business acumen and financial
circumstances of such persons.

4.4 Accredited Investor Status. Holder is an “accredited investor” within the
meaning of Regulation D promulgated under the Act.

4.5 The Act. Holder understands that this Warrant and the Shares issuable upon
exercise or conversion hereof have not been registered under the Act in reliance
upon a specific exemption therefrom, which exemption depends upon, among other
things, the bona fide nature of Holder’s investment intent as expressed herein.
Holder understands that this Warrant and the Shares issued upon any exercise or
conversion hereof must be held indefinitely unless subsequently registered under
the Act and qualified under applicable state securities laws, or unless
exemption from such registration and qualification are otherwise available.

4.6 Market Stand-Off. Holder hereby agrees that it will not, without the prior
written consent of the managing underwriter, during the period commencing on the
date of the final prospectus relating to the Company’s IPO and ending on the
date specified by the Company and the managing underwriter (such period not to
exceed one hundred eighty (l80) days) (i) lend, offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
(whether such shares or any such securities are then owned by the Holder or are
thereafter acquired), or

 

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(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the common
stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of common stock or such other securities, in cash or
otherwise. Notwithstanding the foregoing, such one hundred eighty (180) day
period may be extended as required to comply with FINRA Rule 2711 (or any
successor rules or amendments thereto). The foregoing provisions of this
Section 4.6 shall apply only to the Company’s IPO of equity securities, shall
not apply to shares of common stock acquired in the IPO or in open market
transactions after the IPO, shall not apply to the sale of any shares to an
underwriter pursuant to an underwriting agreement, and shall only be applicable
to the Holder if all officers and directors and greater than one percent
(1%) stockholders of the Company enter into similar agreements, and shall not be
applicable to any shares of Series E Preferred Stock or shares of common stock
issued or issuable upon conversion of shares of Series E Preferred Stock
following effectiveness of the Re-Sale Form S-1 (as defined in the Rights
Agreement). The underwriters in connection with the Company’s IPO are intended
third party beneficiaries of this Section 4.6 and shall have the right, power
and authority to enforce the provisions hereof as though they were a party
hereto. Any discretionary waiver or termination of the restrictions of any or
all of such agreements by the Company or the underwriters shall apply pro rata
to Holder subject to such agreements, based on the number of shares subject to
such agreements.

ARTICLE 5. MISCELLANEOUS.

5.1 Term. This Warrant is exercisable in whole or in part at any time and from
time to time on or before the Expiration Date. The conditions under which the
Warrant shall automatically convert on the Expiration Date are set forth in
Section 5.9 below.

5.2 Legends.

(a) This Warrant and the Shares (and the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) shall be imprinted with a
legend in substantially the following form:

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF
ANY STATE AND, EXCEPT PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW, OR UNLESS SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION CAN BE MADE IN COMPLIANCE WITH
RULE 144 OF THE ACT, OR UNLESS, IN THE OPINION OF LEGAL COUNSEL IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE, INCLUDING A MARKET STAND-OFF PERIOD OF UP TO 180
DAYS IN THE EVENT OF A PUBLIC OFFERING, OR FOR A LONGER PERIOD NOT TO EXCEED 34
DAYS IF THE ISSUER’S TRANSFER AGENT IS NOTIFIED BY THE ISSUER OR THE

 

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ISSUER’S COUNSEL THAT THIS MARKET STAND-OFF RESTRICTION HAS BEEN EXTENDED FOR
THE PURPOSE OF COMPLYING WITH FINRA RULE 2711(F)(4).

(b) Notwithstanding the foregoing, neither this Warrant nor any certificate or
instrument evidencing this Warrant or the Shares shall bear, and the Company
hereby agrees to remove, within ten (10) days of any written request (together
with such evidence or documentation described in the following provisions) by
Holder, pursuant to the following provisions of this Section 5.2(b), or not to
affix, as applicable, any restrictive or other legend, notice or provision
restricting the sale or transfer of this Warrant or the Shares, in each case
provided that the Holder has provided reasonable evidence to the Company
(including any customary broker’s or transferring stockholder’s letters but
expressly excluding an opinion of counsel other than with respect to clause
(D) below) that: (A) a transfer of this Warrant or the Shares, as applicable,
has been made pursuant to SEC Rule 144 (assuming the transferor is not an
“affiliate” (as defined in SEC Rule 144) of the Company); (B) the Warrant or the
Shares, as applicable, are then eligible for transfer pursuant to SEC Rule
144(b)(i); (C) a transfer of this Warrant or the Shares has been made for no
consideration to an affiliate of Holder or has otherwise been made to any
affiliate of Holder who is an “accredited investor” as defined in Regulation D
promulgated under the Act, and that is otherwise in compliance with all
applicable securities laws; or (D) in connection with any other sale or
transfer, provided that upon the request of the Company, such Holder provides
the Company with an opinion of counsel to such Holder, in a reasonably
acceptable form to the Company, to the effect that either such sale or transfer
may be made without registration under the applicable requirements of the Act or
that such a legend, notice or provision is not required by, and is not required
in order to establish compliance with any provisions of, the Act. For all
purposes of Section 1.4, the Company shall not be deemed to have delivered to
Holder Shares unless and until the Company shall have fully complied with all of
the terms and conditions of this Section 5.2(b) (if removal has been requested
by the Holder in compliance with this Section 5.2(b)).

5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares
issuable upon exercise of this Warrant (and the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and, subject to
Section 5.2(b), legal opinions reasonably satisfactory to the Company, as
reasonably requested by the Company). The Company shall not require Holder to
provide an opinion of counsel if the transfer is to an Affiliate of Holder.

5.4 Transfer Procedure. Subject to the provisions of Article 5.3 and upon and
effective immediately as of providing Company with written notice substantially
in the form attached as Appendix 2, Holder and any permitted transferee may
transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the Shares issuable directly or indirectly, upon conversion of
the Shares, if any) to any transferee, provided, however, in connection with any
such transfer, Holder or such transferee will give the Company notice of the
portion of the Warrant being transferred with the name, address and taxpayer
identification number of the transferee and Holder or such transferee promptly
thereafter surrenders this Warrant to the Company for reissuance to the
transferee(s) (and Holder if applicable). The Company may refuse to transfer
this Warrant or the Shares to any person who directly competes with the Company,
unless, in either case, the stock of the Company is publicly traded.

 

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5.5 Notices. All notices, requests, documents and other communications
(collectively, “Notices”) from the Company to Holder, or vice versa, shall be in
writing and deemed validly delivered effective as of the earliest to occur of
(a) when actually received, or (b) the third business day after mailing by
first-class registered or certified mail, postage prepaid, or the first business
day after deposit with a reputable overnight courier with all charges paid, in
each case other than actual receipt at such mailing, facsimile or electronic
mail address as may have been furnished to the Company or Holder, as the case
may be. As used in this Warrant, “business days” shall refer to all days other
than any Saturday, Sunday or day on which the Company’s primary depository bank
is closed. All notices to the Holder shall be addressed as follows until the
Company receives notice of a change of address in connection with a transfer or
otherwise:

MidCap Financial SBIC, LP

7255 Woodmont Avenue, Suite 200

Bethesda, Maryland 20814

Attention: Portfolio Management- Life Sciences

Telephone No: (        )         -        

E-Mail: lviera@midcapfinancial.com

Notice to the Company shall be addressed as follows until the Holder receives
notice of a change in address:

KaloBios Pharmaceuticals, Inc.

260 East Grand Avenue

South San Francisco, California 94080

Attention: Chief Financial Officer

Telephone No: (650) 243-3100

E-Mail: jcooper@kalobios.com

With a copy to:

Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP

1200 Seaport Blvd

Redwood City, CA 94063

Attention: Bennett L. Yee

Telephone No: (650) 463-5244

E-Mail: byee@gunder.com

5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.

5.7 Reserved.

5.8 Attorneys’ Fees. In the event of any dispute between the parties concerning
the terms and provisions of this Warrant, the party prevailing in such dispute
shall be entitled to collect from the other party all costs incurred in such
dispute, including reasonable attorneys’ fees and disbursements.

 

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5.9 Automatic Conversion upon Expiration. Unless Holder notifies the Company in
writing to the contrary prior to such automatic conversion, in the event that,
upon the earliest to occur of the Expiration Date or any expiration, involuntary
termination or cancellation of this Warrant, the fair market value of one Share
as determined in accordance with Section 1.3 above is greater than the Warrant
Price in effect on such date, then this Warrant shall automatically be deemed as
of immediately before such date to have been converted pursuant to Section 1.2
above as to all Shares for which it shall not previously have been exercised or
converted, and the Company shall promptly deliver a certificate representing the
Shares issued upon such conversion to the Holder.

5.10 Counterparts. This Warrant may be executed in counterparts, all of which
together shall constitute one and the same agreement.

5.11 Governing Law. This Warrant shall be governed by and construed and
interpreted in accordance with the laws of the State of New York, without
reference to its conflict of law provisions (other than Section 5-1401 of the
General Obligations Law).

5.12 Headings. The various headings in this Warrant are inserted for convenience
only and shall not affect the meaning or interpretation of this Warrant or any
provisions hereof.

5.13 Severability. In the event any one or more of the provisions of this
Warrant shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Warrant shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have executed this Warrant to Purchase Stock by
their duly authorized representatives as of September 5, 2012.

COMPANY

KALOBIOS PHARMACEUTICALS, INC.

 

By:   /s/ Jeffrey H. Cooper Name:   Jeffrey H. Cooper Title:   Chief Financial
Officer

HOLDER

MIDCAP FINANCIAL SBIC, LP

By:   /s/ Josh Groman Name:   Josh Groman Title:   Authorized Signatory

 

WARRANT SIGNATURE PAGE

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APPENDIX 1

NOTICE OF EXERCISE

1. Holder elects to purchase             shares of the Preferred Stock of
KALOBIOS PHARMACEUTICALS, INC. pursuant to the terms of the attached Warrant,
and tenders payment of the purchase price of the shares in full.

[or]

1. Holder elects to convert the attached Warrant into Shares/cash [strike one]
in the manner specified in the Warrant. This conversion is exercised for
                                of the Shares covered by the Warrant.

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing the shares in the
name specified below:

 

  

 

      Holders Name      

 

     

 

      (Address)   

3. By its execution below and for the benefit of the Company, Holder hereby
restates each of the representations and warranties in Article 4 of the Warrant
as the date hereof.

 

HOLDER:

 

By:  

 

Name:  

 

Title:  

 

(Date):  

 

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APPENDIX 2

ASSIGNMENT

For value received, [                                ] hereby sells, assigns and
transfers unto

Name:

Address:

Tax ID:

that certain Warrant to Purchase Stock issued by KALOBIOS PHARMACEUTICALS, INC.
(the “Company”), on September 5, 2012 (the “Warrant”) together with all rights,
title and interest therein.

 

[                                                                      
               ] By:  

 

Name:  

 

Title:  

 

 

Date:  

 

By its execution below, and for the benefit of the Company,
[                                ] makes each of the representations and
warranties set forth in Article 4 of the Warrant and agrees to all other
provisions of the Warrant as of the date hereof.

 

[NAME OF TRANSFEREE] By:  

 

Name:  

 

Title: