Form of Notice of Grant and Stock Option Agreement - (Outside Directors)



 Exhibit 10.3 
 KALOBIOS PHARMACEUTICALS, INC. 2001 STOCK PLAN 
 NOTICE OF STOCK OPTION GRANT 
 You have been granted the following option to purchase shares of the Common Stock of KaloBios Pharmaceuticals, Inc. (the “Company”): 

 

			
	 Name of Optionee:
	  	«Name»
		
	 Total Number of Shares:
	  	«TotalShares»
		
	 Type of Option:
	  	«ISO» Incentive Stock Option (ISO)
		
		  	«NSO» Nonstatutory Stock Option (NSO)
		
	 Exercise Price Per Share:
	  	$«PricePerShare»
		
	 Date of Grant:
	  	«DateGrant»
		
	 Date Exercisable:
	  	This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
		
	 Vesting Commencement Date:
	  	«VestComDate»
		
	 Vesting Schedule:
	  	The Right of Repurchase shall lapse with respect to 1/48th of the Shares subject to this option when the Optionee completes each month of continuous Service after the Vesting
Commencement Date. The Right of Repurchase may lapse on an accelerated basis under Section 7(b) of the Stock Option Agreement.
		
	 Expiration Date:
	  	«ExpDate». This option expires earlier if the Optionee’s Service terminates earlier, as provided in Section 6 of the Stock Option Agreement.


 By your signature and the signature of the Company’s representative below, you and the Company agree that this
option is granted under and governed by the terms and conditions of the 2001 Stock Plan and the Stock Option Agreement, both of which are attached to and made a part of this document. 
 You agree to accept by email all documents relating to the Company, the 2001 Stock Plan or this option and all other documents that the Company is required to deliver to its security holders (including,
without limitation, disclosures that may be required by the Securities and Exchange Commission). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract
with the Company. If the Company posts these documents on a website, it shall notify you by email of their availability. You acknowledge that you may incur costs in connection with electronic delivery, including the cost of accessing the internet
and printing fees, and that an interruption of internet access may interfere with your ability to access the documents. This consent shall remain in effect until this option expires or until you give the Company written notice that it should deliver
paper documents. 
  

							
	OPTIONEE:	 		 	KALOBIOS PHARMACEUTICALS, INC.
			
	 	 		 	By:
                                         
                                         
                                 
			
		 		 	Title:
                                         
                                         
                              








 THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF 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. 
 KALOBIOS PHARMACEUTICALS, INC. 2001
STOCK PLAN: 
 STOCK OPTION AGREEMENT

 SECTION 1. GRANT OF OPTION. 
 (a) Option. On the terms and conditions set forth in the Notice of Stock Option Grant and this Agreement, the Company grants to the Optionee on the Date of Grant the option to purchase at the
Exercise Price the number of Shares set forth in the Notice of Stock Option Grant. The Exercise Price is agreed to be at least 100% of the Fair Market Value per Share on the Date of Grant (110% of Fair Market Value if Section 3(b) of the Plan
applies). This option is intended to be an ISO or an NSO, as provided in the Notice of Stock Option Grant. 
 (b) $100,000
Limitation. Even if this option is designated as an ISO in the Notice of Stock Option Grant, it shall be deemed to be an NSO to the extent (and only to the extent) required by the $100,000 annual limitation under Section 422(d) of the Code.

 (c) Stock Plan and Defined Terms. This option is granted pursuant to the Plan, a copy of which the Optionee
acknowledges having received. The provisions of the Plan are incorporated into this Agreement by this reference. Capitalized terms are defined in Section 14 of this Agreement. 
 SECTION 2. RIGHT TO EXERCISE. 
 (a) Exercisability. Subject to
Subsection (b) below and the other conditions set forth in this Agreement, all or part of this option may be exercised prior to its expiration at the time or times set forth in the Notice of Stock Option Grant. Shares purchased by exercising
this option may be subject to the Right of Repurchase under Section 7. 
 (b) Stockholder Approval. Any other
provision of this Agreement notwithstanding, no portion of this option shall be exercisable at any time prior to the approval of the Plan by the Company’s stockholders. 
 SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION. 
 Except as otherwise
provided in this Agreement, this option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy
or similar process. 







 SECTION 4. EXERCISE PROCEDURES. 

(a) Notice of Exercise. The Optionee or the Optionee’s representative may exercise this option by giving written notice to the
Company pursuant to Section 13(c). The notice shall specify the election to exercise this option, the number of Shares for which it is being exercised and the form of payment. The person exercising this option shall sign the notice. In the
event that this option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this option. The Optionee or the Optionee’s
representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the Purchase Price. 
 (b) Issuance of Shares. After receiving a proper notice of exercise, the Company shall cause to be issued one or more certificates evidencing the Shares for which this option has been exercised.
Such Shares shall be registered (i) in the name of the person exercising this option, (ii) in the names of such person and his or her spouse as community property or as joint tenants with the right of survivorship or (iii) with the
Company’s consent, in the name of a revocable trust. In the case of Restricted Shares, the Company shall cause such certificates to be deposited in escrow under Section 7(c). In the case of other Shares, the Company shall cause such
certificates to be delivered to or upon the order of the person exercising this option. 
 (c) Withholding Taxes. In the
event that the Company determines that it is required to withhold any tax as a result of the exercise of this option, the Optionee, as a condition to the exercise of this option, shall make arrangements satisfactory to the Company to enable it to
satisfy all withholding requirements. The Optionee shall also make arrangements satisfactory to the Company to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of Shares purchased by
exercising this option. 
 SECTION 5. PAYMENT FOR STOCK. 
 (a) Cash. All or part of the Purchase Price may be paid in cash or cash equivalents. 
 (b) Surrender of Stock. All or any part of the Purchase Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee. Such Shares shall be
surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date when this option is exercised. The Optionee shall not surrender, or attest to the ownership of, Shares in payment of the Purchase Price
if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this option for financial reporting purposes. 
 (c) Exercise/Sale. If Stock is publicly traded, all or part of the Purchase Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company. 

  
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 (d) Exercise/Pledge. If Stock is publicly traded, all or part of the Purchase Price
and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company. 
 SECTION 6. TERM AND EXPIRATION. 

(a) Basic Term. This option shall in any event expire on the expiration date set forth in the Notice of Stock Option Grant, which
date is 10 years after the Date of Grant (five years after the Date of Grant if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies). 

(b) Termination of Service (Except by Death). If the Optionee’s Service terminates for any reason other than death, then this
option shall expire on the earliest of the following occasions: 
 (i) The expiration date determined pursuant to
Subsection (a) above; 
 (ii) The date three months after the termination of the Optionee’s Service for
any reason other than Disability; or 
 (iii) The date six months after the termination of the Optionee’s
Service by reason of Disability. 
 The Optionee may exercise all or part of this option at any time before its expiration under the preceding
sentence, but only to the extent that this option is exercisable for vested Shares on or before the date when the Optionee’s Service terminates. When the Optionee’s Service terminates, this option shall expire immediately with respect to
the number of Shares for which this option is not yet exercisable and with respect to any Restricted Shares. In the event that the Optionee dies after termination of Service but before the expiration of this option, all or part of this option may be
exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that
this option was exercisable for vested Shares on or before the date when the Optionee’s Service terminated. 
 (c) Death
of the Optionee. If the Optionee dies while in Service, then this option shall expire on the earlier of the following dates: 
 (i) The expiration date determined pursuant to Subsection (a) above; or 
 (ii) The date 12 months after the Optionee’s death. 

  
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 All or part of this option may be exercised at any time before its expiration under the preceding sentence
by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option is exercisable for
vested Shares on or before the Optionee’s death. When the Optionee dies, this option shall expire immediately with respect to the number of Shares for which this option is not yet exercisable and with respect to any Restricted Shares.

 (d) Leaves of Absence. For any purpose under this Agreement, Service shall be deemed to continue while the Optionee is
on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for such purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).

 (e) Notice Concerning ISO Treatment. Even if this option is designated as an ISO in the Notice of Stock Option Grant,
it ceases to qualify for favorable tax treatment as an ISO to the extent that it is exercised: 
 (i) More than
three months after the date when the Optionee ceases to be an Employee for any reason other than death or permanent and total disability (as defined in Section 22(e)(3) of the Code); 

(ii) More than 12 months after the date when the Optionee ceases to be an Employee by reason of permanent and total
disability (as defined in Section 22(e)(3) of the Code); or 
 (iii) More than three months after the date
when the Optionee has been on a leave of absence for 90 days, unless the Optionee’s reemployment rights following such leave were guaranteed by statute or by contract. 
 SECTION 7. RIGHT OF REPURCHASE. 
 (a) Scope of Repurchase Right.
Until they vest in accordance with the Notice of Stock Option Grant and Subsection (b) below, the Shares acquired under this Agreement shall be Restricted Shares and shall be subject to the Company’s Right of Repurchase. The Company,
however, may decline to exercise its Right of Repurchase or may exercise its Right of Repurchase only with respect to a portion of the Restricted Shares. The Company may exercise its Right of Repurchase only during the Repurchase Period following
the termination of the Optionee’s Service. The Right of Repurchase may be exercised automatically under Subsection (d) below. If the Right of Repurchase is exercised, the Company shall pay the Optionee an amount equal to the Exercise Price
for each of the Restricted Shares being repurchased. 
 (b) Lapse of Repurchase Right. The Right of Repurchase shall
lapse with respect to the Restricted Shares in accordance with the vesting schedule set forth in the Notice of Stock Option Grant. In addition, if the Company is subject to a Change in Control before the Optionee’s Service terminates, the Right
of Repurchase shall lapse with respect to 100% of the Restricted Shares. 

  
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 (c) Escrow. Upon issuance, the certificate(s) for Restricted Shares shall be
deposited in escrow with the Company to be held in accordance with the provisions of this Agreement. Any additional or exchanged securities or other property described in Subsection (f) below shall immediately be delivered to the Company to be
held in escrow. All ordinary cash dividends on Restricted Shares (or on other securities held in escrow) shall be paid directly to the Optionee and shall not be held in escrow. Restricted Shares, together with any other assets held in escrow under
this Agreement, shall be (i) surrendered to the Company for repurchase upon exercise of the Right of Repurchase or the Right of First Refusal or (ii) released to the Optionee upon his or her request to the extent that the Shares have
ceased to be Restricted Shares (but not more frequently than once every six months). In any event, all Shares that have ceased to be Restricted Shares, together with any other vested assets held in escrow under this Agreement, shall be released
within 90 days after the earlier of (i) the termination of the Optionee’s Service or (ii) the lapse of the Right of First Refusal. 
 (d) Exercise of Repurchase Right. The Company may exercise its Right of Repurchase for some or all Restricted Shares by giving notice to the holder of the Restricted Shares. The Company may give
notice at any time during the Repurchase Period pursuant to Section 13(c). The Company shall be deemed to have exercised its Right of Repurchase automatically for all Restricted Shares at the close of the Repurchase Period, unless it previously
notified the holder of the Restricted Shares pursuant to Section 13(c) that it will not exercise its Right of Repurchase for some or all of the Restricted Shares or that it will exercise its Right of Repurchase before the close of the
Repurchase Period. During the Repurchase Period, the Company shall pay to the holder of the Restricted Shares the purchase price determined under Subsection (a) above. Payment shall be made in cash or cash equivalents and/or by canceling
indebtedness to the Company incurred by the Optionee in the purchase of the Restricted Shares. The certificate(s) representing the Restricted Shares to be repurchased shall be delivered to the Company properly endorsed for transfer. 

(e) Termination of Rights as Stockholder. If the Right of Repurchase is exercised in accordance with this Section 7 and the
Company makes available the consideration for the Restricted Shares to be repurchased, then the person from whom the Restricted Shares are to be repurchased shall no longer have any rights as a holder of the Restricted Shares (other than the right
to receive payment of such consideration). Such Restricted Shares shall be deemed to have been repurchased pursuant to this Section 7, whether or not the certificate(s) therefor have been delivered to the Company. 

(f) Additional or Exchanged Securities and Property. In the event of a merger or consolidation of the Company with or into another
entity, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a
similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Restricted
Shares shall immediately be subject to the Right of Repurchase. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Restricted Shares. Appropriate adjustments
shall also be made to the price per share to be paid upon the exercise of the Right of Repurchase, provided that the aggregate purchase price 

  
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payable for the Restricted Shares shall remain the same. In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Right of
Repurchase may be exercised by the Company’s successor. 
 (g) Transfer of Restricted Shares. The Optionee shall not
transfer, assign, encumber or otherwise dispose of any Restricted Shares without the Company’s written consent, except as provided in the following sentence. The Optionee may transfer Restricted Shares to one or more members of the
Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form
prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Restricted Shares, then this Agreement shall apply to the Transferee to the same extent as to the Optionee. 

SECTION 8. RIGHT OF FIRST REFUSAL. 
 (a) Right of First Refusal. In the event that the Optionee proposes 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 the Optionee desires to transfer Shares acquired under this Agreement, the Optionee shall 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, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer
will not violate any applicable federal or state securities laws. The Transfer Notice shall be signed both by the Optionee and by the proposed 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 under Subsection (b) below) by delivery of
a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company. The Company’s rights under this Subsection (a) shall be freely assignable, in whole or in part.

 (b) Transfer of Shares. If the Company fails to exercise its Right of First Refusal within 30 days after the date when
it received the Transfer Notice, the Optionee may, not later than 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, provided that any such sale is made in compliance with applicable federal and state securities laws and not in violation of any other contractual restrictions to which the Optionee is bound. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in Subsection
(a) 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 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 cash


  
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or cash equivalents paid at the time of transfer, the Company shall have the option of paying for the Shares with cash or cash equivalents equal to the present value of the consideration
described in the Transfer Notice. 
 (c) Additional or Exchanged Securities and Property. In the event of a merger or
consolidation of the Company with or into another entity, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an
adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged
for, or distributed with respect to, any Shares subject to this Section 8 shall immediately be subject to the Right of First Refusal. Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made
to the number and/or class of the Shares subject to this Section 8. 
 (d) Termination of Right of First Refusal.
Any other provision of this Section 8 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Optionee desires to transfer Shares, the Company shall have no Right of First Refusal, and the
Optionee shall have no obligation to comply with the procedures prescribed by Subsections (a) and (b) above. 
 (e)
Permitted Transfers. This Section 8 shall not apply to (i) a transfer by beneficiary designation, will or intestate succession or (ii) a transfer to one or more members of the Optionee’s Immediate Family or to a trust
established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all
provisions of this Agreement. If the Optionee transfers any Shares acquired under this Agreement, either under this Subsection (e) or after the Company has failed to exercise the Right of First Refusal, then this Agreement shall apply to the
Transferee to the same extent as to the Optionee. 
 (f) Termination of Rights as Stockholder. If the Company makes
available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be purchased in accordance with this Section 8, then after such time the person from whom such Shares are to be
purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Shares shall be deemed to have been purchased in accordance with the
applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement. 
 SECTION 9.
LEGALITY OF INITIAL ISSUANCE. 
 No Shares shall be issued upon the exercise of this option unless and until the Company has
determined that: 

  
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 (a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration requirements thereof; 
 (b) Any
applicable listing requirement of any stock exchange or other securities market on which Stock is listed has been satisfied; and 
 (c) Any other applicable provision of federal, state or foreign law has been satisfied. 

SECTION 10. NO REGISTRATION RIGHTS. 
 The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative
action in order to cause the sale of Shares under this Agreement to comply with any law. 
 SECTION 11. RESTRICTIONS ON TRANSFER.

 (a) Securities Law Restrictions. Regardless of whether the offering and sale of Shares under the Plan have been
registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of
appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws
of any state or any other law. 
 (b) Market Stand-Off. In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, the Optionee or a Transferee shall not directly or indirectly sell, make any short
sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing
transactions with respect to, any Shares acquired under this Agreement without the prior written consent of the Company or its underwriters. Such restriction (the “Market Stand-Off”) shall be in effect for such period of time following the
date of the final prospectus for the offering as may be requested by the Company or such underwriters. In no event, however, shall such period exceed 180 days. The Market Stand-Off shall in any event terminate two years after the date of the
Company’s initial public offering. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding
securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become
convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable
stand-off period. The Company’s underwriters shall be beneficiaries of the agreement set forth in this Subsection (b). This 

  
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Subsection (b) shall not apply to Shares registered in the public offering under the Securities Act, and the Optionee or a Transferee shall be subject to this Subsection (b) only if the
directors and officers of the Company are subject to similar arrangements. 
 (c) Investment Intent at Grant. The
Optionee represents and agrees that the Shares to be acquired upon exercising this option will be acquired for investment, and not with a view to the sale or distribution thereof. 

(d) Investment Intent at Exercise. In the event that the sale of Shares under the Plan is not registered under the Securities Act
but an exemption is available which requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Shares being acquired upon exercising 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. 

(e) Legends. All certificates evidencing Shares purchased under this Agreement shall bear the following legend: 

“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE
WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE
SHARES AND CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.” 

All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other
restrictive legends as are required or deemed advisable under the provisions of any applicable law): 
 “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.” 
 (f) Removal of Legends. If, in the opinion of
the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing
the same number of Shares but without such legend. 

  
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 (g) Administration. Any determination by the Company and its counsel in connection
with any of the matters set forth in this Section 11 shall be conclusive and binding on the Optionee and all other persons. 
 SECTION
12. ADJUSTMENT OF SHARES. 
 In the event of any transaction described in Section 8(a) of the Plan, the terms of this
option (including, without limitation, the number and kind of Shares subject to this option and the Exercise Price) shall be adjusted as set forth in Section 8(a) of the Plan. In the event that the Company is a party to a merger or
consolidation, this option shall be subject to the agreement of merger or consolidation, as provided in Section 8(b) of the Plan. 

SECTION 13. MISCELLANEOUS PROVISIONS. 
 (a) Rights as a Stockholder. Neither the Optionee nor the Optionee’s representative shall have any rights as a stockholder with respect to any Shares subject to this option until the Optionee
or the Optionee’s representative becomes entitled to receive such Shares by filing a notice of exercise and paying the Purchase Price pursuant to Sections 4 and 5. 
 (b) No Retention Rights. Nothing in this option or in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Optionee) or of the Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason,
with or without cause. 
 (c) Notice. Any notice required by the terms of this Agreement shall be given in writing. It
shall be deemed effective upon (i) personal delivery, (ii) deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid or (iii) deposit with Federal Express Corporation, with shipping
charges prepaid. Notice shall be addressed to the Company at its principal executive office and to the Optionee at the address that he or she most recently provided to the Company in accordance with this Subsection (c). 

(d) Entire Agreement. The Notice of Stock Option Grant, this Agreement and the Plan constitute the entire contract between the
parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) which relate to the subject matter hereof. 

(e) Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as
such laws are applied to contracts entered into and performed in such State. 
 SECTION 14. DEFINITIONS. 

(a) “Agreement” shall mean this Stock Option Agreement. 

(b) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time or, if a
Committee has been appointed, such Committee. 

  
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 (c) “Change in Control” shall mean: 

(i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity; or 

(ii) The sale, 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 transaction. 
 (d) “Code” shall mean the Internal Revenue Code of 1986, as amended. 
 (e) “Committee” shall mean a committee of the Board of Directors, as described in Section 2 of the Plan. 
 (f) “Company” shall mean KaloBios Pharmaceuticals, Inc., a Delaware corporation. 
 (g) “Consultant” shall mean a person who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

 (h) “Date of Grant” shall mean the date specified in the Notice of Stock Option Grant, which date shall be
the later of (i) the date on which the Board of Directors resolved to grant this option or (ii) the first day of the Optionee’s Service. 
 (i) “Disability” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. 

(j) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.

 (k) “Exercise Price” shall mean the amount for which one Share may be purchased upon exercise of this
option, as specified in the Notice of Stock Option Grant. 
 (l) “Fair Market Value” shall mean the fair market
value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons. 

  
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 (m) “Immediate Family” shall mean any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include adoptive relationships. 
 (n) “ISO” shall mean an employee incentive stock option described in Section 422(b) of the Code. 
 (o) “Notice of Stock Option Grant” shall mean the document so entitled to which this Agreement is attached. 
 (p) “NSO” shall mean a stock option not described in Sections 422(b) or 423(b) of the Code. 
 (q) “Optionee” shall mean the person named in the Notice of Stock Option Grant. 
 (r) “Outside Director” shall mean a member of the Board of Directors who is not an Employee. 
 (s) “Parent” shall mean 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 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 
 (t) “Plan” shall mean the KaloBios Pharmaceuticals, Inc. 2001 Stock Plan, as in effect on the Date of Grant. 
 (u) “Purchase Price” shall mean the Exercise Price multiplied by the number of Shares with respect to which this option is being exercised. 

(v) “Repurchase Period” shall mean a period of 90 consecutive days commencing on the date when the Optionee’s
Service terminates for any reason, including (without limitation) death or disability. 
 (w) “Restricted
Share” shall mean a Share that is subject to the Right of Repurchase. 
 (x) “Right of First Refusal”
shall mean the Company’s right of first refusal described in Section 8. 
 (y) “Right of Repurchase”
shall mean the Company’s right of repurchase described in Section 7. 
 (z) “Securities Act” shall
mean the Securities Act of 1933, as amended. 
 (aa) “Service” shall mean service as an Employee, Outside
Director or Consultant. 

  
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 (bb) “Share” shall mean one share of Stock, as adjusted in accordance with
Section 8 of the Plan (if applicable). 
 (cc) “Stock” shall mean the Common Stock of the Company, with a
par value of $0.001 per Share. 
 (dd) “Subsidiary” shall mean 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 50% or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. 
 (ee) “Transferee” shall mean any person to whom the Optionee has directly
or indirectly transferred any Share acquired under this Agreement. 
 (ff) “Transfer Notice” shall mean the
notice of a proposed transfer of Shares described in Section 8. 

  
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