Exhibit 10.7


 





INCENTIVE STOCK OPTION AGREEMENT


 


PHASERX, INC.


2016 LONG-TERM INCENTIVE PLAN


 


1.          Grant
of Option. Pursuant to the PhaseRx, Inc. 2016 Long-Term Incentive Plan (the “Plan”), as adopted by
PhaseRx, Inc., a Delaware corporation (the “Company”), the Company grants to


 


_________________________


(the “Participant”)


 


who is an Employee of the Company, an option
(the “Option” or “Stock Option”) to purchase a total of _________________
(____________) full shares of Common Stock of the Company (the “Optioned Shares”) at an “Option
Price” equal to $_________ per share (being the Fair Market Value per share of the Common Stock on the Date of Grant
or 110% of such Fair Market Value, in the case of a ten percent (10%) or more stockholder as provided in Section 422 of the Code),
in the amounts, during the periods and upon the terms and conditions set forth in this Incentive Stock Option Agreement (the “Agreement”).


 


The “Date
of Grant” of this Stock Option is ______________ 20____. The “Option Period” shall
commence on the Date of Grant and shall expire on the date immediately preceding the tenth (10th) anniversary of the
Date of Grant (or the date immediately preceding the fifth (5th) anniversary of the Date of Grant, in the case of a
ten percent (10%) or more stockholder as provided in Section 422 of the Code) unless terminated earlier in accordance with Section
4 below. The Stock Option is intended to be an Incentive Stock Option.


 


2.           Subject
to Plan. The Stock Option and its exercise are subject to the terms and conditions of the Plan, and the terms of the Plan shall
control to the extent not otherwise inconsistent with the provisions of this Agreement. The capitalized terms used herein that
are defined in the Plan shall have the same meanings assigned to them in the Plan. The Stock Option is subject to any rules promulgated
pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing. In addition, if the Plan previously
has not been approved by the Company’s stockholders, the Stock Option is granted subject to such stockholder approval.


 


3.           Vesting;
Time of Exercise. Except as specifically provided in this Agreement and subject to certain restrictions and conditions set
forth in the Plan, the Optioned Shares shall be vested and the Stock Option shall be exercisable as follows:


 


a.           One
forty-eighth (1/48) of the total Optioned Shares shall vest on the one-month anniversary of the Date of Grant, provided the Participant
is employed by the Company or a Subsidiary on that date.


 


b.           An
additional one forty-eighth (1/48) of the total Optioned Shares shall vest on each monthly anniversary of the Date of Grant thereafter,
provided the Participant is employed by the Company or a Subsidiary on that date.


 


In the event that a Change in Control occurs,
(i) fifty percent (50%) of the total Optioned Shares not previously vested shall become vested and exercisable upon the effective
date of the Change in Control and (ii) any remaining Optioned Shares not previously vested shall become fully vested and exercisable
on the date of the Participant’s Termination of Service by the Company without Cause (as defined herein) if such Termination
of Service occurs on or before the first anniversary of the Change in Control’s effective date.


 




     


     


    

  


4.           Term;
Forfeiture.


 


a.           Except
as otherwise provided in this Agreement, to the extent the unexercised portion of the Stock Option relates to Optioned Shares which
are not vested on the date of the Participant’s Termination of Service, the Stock Option will be terminated on that date.
The unexercised portion of the Stock Option that relates to Optioned Shares which are vested will terminate at the first of the
following to occur:


 


i.          5
p.m. on the date the Option Period terminates;


 


ii.         5
p.m. on the date which is twelve (12) months following the date of the Participant’s Termination of Service due to death
or Total and Permanent Disability;


 


iii.         immediately
upon the Participant’s Termination of Service by the Company for Cause;


 


iv.         5
p.m. on the date which is three (3) months following the date of the Participant’s Termination of Service for any reason
not otherwise specified in this Section 4.a.; and


 


v.          5
p.m. on the date the Company causes any portion of the Stock Option to be forfeited pursuant to Section 7 hereof.


 


b.           For
purposes of this Agreement, “Cause” means the Participant’s Termination of Service by the Company
because of: (i) the Participant’s conviction of, or plea of nolo contendere to, a felony or crime involving moral turpitude
or (ii) the Participant’s breach of fiduciary duty which involves personal profit. Notwithstanding the foregoing, in the
case of any Participant who has entered into an employment agreement with the Company or any Subsidiary that contains the definition
of “cause” (or any similar definition), then during the term of such employment agreement the definition contained
in such employment agreement shall be the applicable definition of “cause” under the Agreement as to such Participant
if such employment agreement expressly so provides.


 


5.          Who
May Exercise. Subject to the terms and conditions set forth in Sections 3 and 4 above, during the lifetime of the Participant,
the Stock Option may be exercised only by the Participant, or by the Participant’s guardian or personal or legal representative.
If the Participant’s Termination of Service is due to his death prior to the dates specified in Section 4.a. hereof,
and the Participant has not exercised the Stock Option as to the maximum number of vested Optioned Shares as set forth in Section 3
hereof as of the date of death, the following persons may exercise the exercisable portion of the Stock Option on behalf of the
Participant at any time prior to the earliest of the dates specified in Section 4.a. hereof: the personal representative
of his estate, or the person who acquired the right to exercise the Stock Option by bequest or inheritance or by reason of the
death of the Participant; provided that the Stock Option shall remain subject to the other terms of this Agreement, the Plan, and
Applicable Laws, rules, and regulations.


 


6.          No
Fractional Shares. The Stock Option may be exercised only with respect to full shares, and no fractional share of stock shall
be issued.


 




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7.          Manner
of Exercise. Subject to such administrative regulations as the Committee may from time to time adopt, the Stock Option may
be exercised by the delivery of written notice to the Committee (the “Exercise Notice”) setting forth
the number of shares of Common Stock with respect to which the Stock Option is to be exercised, the date of exercise thereof (the
“Exercise Date”), and whether the Optioned Shares to be exercised will be considered as deemed granted
under an Incentive Stock Option as provided in Section 11. On the Exercise Date, the Participant shall deliver to the Company
consideration with a value equal to the total Option Price of the shares to be purchased, payable as follows: (a) cash, check,
bank draft, or money order payable to the order of the Company, (b) if the Company, in its sole discretion, so consents in writing,
Common Stock (including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair Market Value on the
Exercise Date, (c) if the Company, in its sole discretion, so consents in writing, by delivery (including by FAX) to the Company
or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant
to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise
of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or
loan proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the
Committee in its sole discretion. In the event that shares of Restricted Stock are tendered as consideration for the exercise of
a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option equal to the number of shares of
Restricted Stock used as consideration therefor shall be subject to the same restrictions and provisions as the Restricted Stock
so tendered.


 


Upon payment of all
amounts due from the Participant, the Company shall cause the Common Stock then being purchased to be registered in the Participant’s
name (or the person exercising the Participant’s Stock Option in the event of his death), but shall not issue certificates
for such Common Stock unless the Participant or such other person requests delivery of certificates for such Common Stock in accordance
with Section 8.3(c) of the Plan. The obligation of the Company to register shares of Common Stock shall, however, be subject to
the condition that, if at any time the Company shall determine in its discretion that the listing, registration, or qualification
of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state or federal
law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the
Stock Option or the issuance or purchase of shares of Common Stock thereunder, then the Stock Option may not be exercised in whole
or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of
any conditions not reasonably acceptable to the Committee.


 


If the Participant
fails to pay for any of the Optioned Shares specified in such notice within three (3) business days of the date in the Exercise
Notice or fails to accept delivery thereof, then the Exercise Notice shall be null and void and the Company will have no obligation
to deliver any shares of Common Stock to the Participant in connection with such Exercise Notice.


 


8.          Nonassignability.
The Stock Option is not assignable or transferable by the Participant except by will or by the laws of descent and distribution.


 




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9.          Rights
as Stockholder. The Participant will have no rights as a stockholder with respect to any of the Optioned Shares until the registration
of such shares in the Participant’s name. The Optioned Shares shall be subject to the terms and conditions of this Agreement.
Except as otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other rights for which
the record date is prior to the issuance of such certificate or certificates. The Participant, by his or her execution of this
Agreement, agrees to execute any documents requested by the Company in connection with the issuance of the shares of Common Stock.


 


10.         Adjustment
of Number of Optioned Shares and Related Matters. The number of shares of Common Stock covered by the Stock Option, and the
Option Prices thereof, shall be subject to adjustment in accordance with Articles 11 – 13 of the Plan.


 


11.         Incentive
Stock Option. Subject to the provisions of the Plan, the Stock Option is intended to be an Incentive Stock Option. To the extent
the number of Optioned Shares exceeds the limit set forth in Section 6.3 of the Plan, such Optioned Shares shall be deemed
granted pursuant to a Nonqualified Stock Option. Unless otherwise indicated by the Participant in the notice of exercise pursuant
to Section 7, upon any exercise of this Stock Option, the number of exercised Optioned Shares that shall be deemed to be
exercised pursuant to an Incentive Stock Option shall equal the total number of Optioned Shares so exercised multiplied by a fraction,
(i) the numerator of which is the number of unexercised Optioned Shares that could then be exercised pursuant to an Incentive Stock
Option, and (ii) the denominator of which is the then total number of unexercised Optioned Shares.


 


12.         Disqualifying
Disposition. In the event that Common Stock acquired upon exercise of this Stock Option is disposed of by the Participant in
a “Disqualifying Disposition,” such Participant shall notify the Company in writing within thirty (30) days after such
disposition of the date and terms of such disposition. For purposes hereof, “Disqualifying Disposition”
shall mean a disposition of Common Stock that is acquired upon the exercise of this Stock Option (and that is not deemed granted
pursuant to a Nonqualified Stock Option under Section 11) prior to the expiration of either two (2) years from the Date
of Grant of this Stock Option or one (1) year from the transfer of shares to the Participant pursuant to the exercise of the Stock
Option.


 


13.         Voting.
The Participant, as record holder of some or all of the Optioned Shares following exercise of this Stock Option, has the exclusive
right to vote, or consent with respect to, such Optioned Shares until such time as the Optioned Shares are transferred in accordance
with this Agreement; provided, however, that this Section shall not create any voting right where the holders of
such Optioned Shares otherwise have no such right.


 


14.         Specific
Performance. The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently
agree that this Agreement shall be enforceable by specific performance. The remedy of specific performance shall be cumulative
of all of the rights and remedies at law or in equity of the parties under this Agreement.


 


15.         Participant’s
Representations. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he will not exercise the
Stock Option granted hereby, and that the Company will not be obligated to issue any shares to the Participant hereunder, if the
exercise thereof or the issuance of such shares shall constitute a violation by the Participant or the Company of any provision
of any law or regulation of any governmental authority. Any determination in this connection by the Company shall be final, binding,
and conclusive. The obligations of the Company and the rights of the Participant are subject to all Applicable Laws, rules, and
regulations. The Participant agrees and covenants not to sue any Person other than the Company over any Claims.


 




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16.         Investment
Representation. Unless the shares of Common Stock are issued to the Participant in a transaction registered under applicable
federal and state securities laws, by his execution hereof, the Participant represents and warrants to the Company that all Common
Stock which may be purchased hereunder will be acquired by the Participant for investment purposes for his own account and not
with any intent for resale or distribution in violation of federal or state securities laws. Unless the Common Stock is issued
to him in a transaction registered under the applicable federal and state securities laws, all certificates issued with respect
to the Common Stock shall bear an appropriate restrictive investment legend and shall be held indefinitely, unless they are subsequently
registered under the applicable federal and state securities laws or the Participant obtains an opinion of counsel, in form and
substance satisfactory to the Company and its counsel, that such registration is not required.


 


17.         Participant’s
Acknowledgments. The Participant acknowledges that a copy of the Plan has been made available for his or her review by the
Company, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Stock Option
subject to all the terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and final all
decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement.


 


18.         Law
Governing. This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware
(excluding any conflict of laws rule or principle of Delaware law that might refer the governance, construction, or interpretation
of this Agreement to the laws of another state).


 


19.         No
Right to Continue Employment. Nothing herein shall be construed to confer upon the Participant the right to continue in the
employment of the Company or interfere with or restrict in any way the right of the Company to discharge the Participant at any
time (subject to any contract rights of the Participant).


 


20.         Legal
Construction. In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement
shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the
invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement that
is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable
term, provision, or agreement had never been contained herein.


 


21.         Covenants
and Agreements as Independent Agreements. Each of the covenants and agreements that is set forth in this Agreement shall be
construed as a covenant and agreement independent of any other provision of this Agreement. The existence of any claim or cause
of action of the Participant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense
to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.


 


22.         Entire
Agreement. This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral
or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between
the parties with respect to the said subject matter. All prior negotiations and agreements between the parties with respect to
the subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements,
promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are
not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement
or the Plan shall not be valid or binding or of any force or effect.


 




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23.         Parties
Bound. The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure
to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors
and assigns, subject to the limitation on assignment expressly set forth herein.


 


24.         Modification.
No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in
writing and signed by the parties. Notwithstanding the preceding sentence, the Company may amend the Plan to the extent permitted
by the Plan.


 


25.         Headings.
The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive
matters to be considered in construing the terms and provisions of this Agreement.


 


26.         Gender
and Number. Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in
the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.


 


27.         Notice.
Any notice required or permitted to be delivered hereunder shall be deemed to be delivered only when actually received by the Company
or by the Participant, as the case may be, at the addresses set forth below, or at such other addresses as they have theretofore
specified by written notice delivered in accordance herewith:


 


a.           Notice
to the Company shall be addressed and delivered as follows:


 


PhaseRx, Inc.


410 W. Harrison Street,
Suite 300


Seattle, WA 98119


Attn:                            


Facsimile:                            


 


b.           Notice
to the Participant shall be addressed and delivered as set forth on the signature page.


 


28.         Tax
Requirements. The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences
of this Agreement. The Company or, if applicable, any Subsidiary (for purposes of this Section 28, the term “Company”
shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form
in connection with the Plan, any federal, state, local, or other taxes required by law to be withheld in connection with this Award.
The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to
pay the Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s income
arising with respect to this Award. Such payments shall be required to be made when requested by the Company and may be required
to be made prior to the delivery of any certificate representing shares of Common Stock. Such payment may be made by (i) the delivery
of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required
tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, the actual delivery
by the exercising Participant to the Company of shares of Common Stock, which shares so delivered have an aggregate Fair Market
Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding payment;
(iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of shares to
be delivered upon the exercise of the Stock Option, which shares so withheld have an aggregate Fair Market Value that equals (but
does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may, in its
sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant.


 




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29.         Clawback.
The Participant acknowledges and agrees that any compensation paid to the Participant by the Company, pursuant to this Agreement
or otherwise, shall be subject to recovery by the Company in accordance with the Company’s clawback policy applicable to
employees of the Company, if any, as amended from time to time.


 


* * * * * * * *


 


[Remainder of Page Intentionally Left
Blank


Signature Page Follows.]


 




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IN WITNESS WHEREOF,
the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his consent
and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof.


 


	 
	PHASERX:	 
	 	 	 
	 	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 
	 	 	 
	 	PARTICIPANT:	 
	 	 	 
	 	Signature	 
	 	 	 
	 	Name:	 
	 	Address:	 
	 	 	 


 






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