EX-10.3



 Exhibit 10.3 
 FIVE PRIME THERAPEUTICS, INC. 
 2002 EQUITY INCENTIVE PLAN 

STOCK OPTION AGREEMENT 

(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK
OPTION) 
 Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this
Stock Option Agreement, Five Prime Therapeutics, Inc. (the “Company”) has granted you an option under its 2002 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in
your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan. 

The details of your option are as follows: 

1.        VESTING. Subject to the limitations contained
herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. 
 2.        NUMBER OF SHARES AND EXERCISE PRICE. The number of shares
of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments. 

3.        EXERCISE PRIOR TO
VESTING (“EARLY EXERCISE”). If permitted in your Grant Notice (i.e., the “Exercise Schedule” indicates that “Early Exercise” of your option is permitted) and subject to
the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your
option; provided, however, that: 
 (a)        a partial
exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock; 

(b)        any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Company’s form of Early Exercise Stock Purchase Agreement; 

(c)        you shall enter into the Company’s form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and 
 (d)        if your option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the
shares of Common Stock with respect to which your option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred
thousand dollars ($100,000), your option(s) or portions thereof 

  
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that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. 

4.        METHOD OF PAYMENT.
Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may
include one or more of the following: 
 (a)        In the
Company’s sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds. 
 (b)        Provided that
at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the
Company’s reported earnings (generally six (6) months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at
Fair Market Value on the date of exercise. “Delivery” for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of
Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement
restricting the redemption of the Company’s stock. 

(c)        Pursuant to the following deferred payment alternative:

    (i)        Not less than one hundred
percent (100%) of the aggregate exercise price, plus accrued interest, shall be due four (4) years from date of exercise or, at the Company’s election, upon termination of your Continuous Service. 

   (ii)        Interest shall be compounded at least
annually and shall be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment
arrangement and (2) the treatment of the Option as a variable award for financial accounting purposes. 

   (iii)        At any time that the Company is
incorporated in Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall be made in cash and not by deferred payment. 

   (iv)        In order to elect the deferred payment
alternative, you must, as a part of your written notice of exercise, give notice of the election of this payment alternative and, in order to secure the payment of the deferred exercise price to the Company hereunder, if the Company so requests, you
must tender to the Company a promissory note and a pledge 

  
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agreement covering the purchased shares of Common Stock, both in form and substance satisfactory to the Company, or such other or additional documentation as the Company may request. 

5.        WHOLE SHARES. You may exercise
your option only for whole shares of Common Stock. 

6.        SECURITIES LAW
COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares
of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with other applicable laws
and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations. 

7.        TERM. You may not exercise your option before the
commencement or after the expiration of its term. The term of your option commences on the Date of Grant and expires upon the earliest of the following: 
   (a)        three (3) months after the termination of your Continuous Service for any reason other than your Disability or death, provided
that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in Section 6, your option shall not expire until the earlier of the Expiration Date or until it shall have been
exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; 

  (b)        twelve (12) months after the termination of
your Continuous Service due to your Disability; 

  (c)        eighteen (18) months after your death if you
die either during your Continuous Service or within three (3) months after your Continuous Service terminates; 
   (d)        the Expiration Date indicated in your Grant Notice; or 

  (e)        the day before the tenth (10th) anniversary
of the Date of Grant. 
 If your option is an Incentive Stock Option, note that to obtain the federal income tax
advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option’s exercise, you must be an
employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will
necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three
(3) months after the date your employment with the Company or an Affiliate terminates. 

  
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 8.        EXERCISE.

   (a)        You may exercise the vested portion of
your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require. 
   (b)        By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of
Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise. 
   (c)        If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within
fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of your option. 

  (d)        By exercising your option you agree that you shall
not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company
held by you, for a period of time specified by the managing underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of a registration statement of the Company filed under the Securities Act (the “Lock Up
Period”); provided, however, that nothing contained in this section shall prevent the exercise of a repurchase option, if any, in favor of the Company during the Lock Up Period. You further agree to execute and deliver such other
agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to your shares of Common Stock until the end of such period. The underwriters of the Company’s stock are intended third party beneficiaries of this Section 8(d) and shall have the right, power and
authority to enforce the provisions hereof as though they were a party hereto. 

9.        TRANSFERABILITY. Your option is not transferable,
except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise your option. 

10.      RIGHT OF FIRST
REFUSAL. Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Company’s bylaws in effect at such time the Company elects to exercise its
right; provided, however, that if your option is an Incentive Stock Option and the right of first refusal described 

  
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in the Company’s bylaws in effect at the time the Company elects to exercise its right is more beneficial to you than the right of first refusal described in the Company’s bylaws on the
Date of Grant, then the right of first refusal described in the Company’s bylaws on the Date of Grant shall apply. The Company’s right of first refusal shall expire on the Listing Date. For purposes of this Agreement, Listing Date shall
mean the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on a national securities exchange or on the National Market System of the Nasdaq Stock Market (or any successor to that entity).

 11.      RIGHT OF
REPURCHASE. To the extent provided in the Company’s bylaws in effect at such time the Company elects to exercise its right, the Company shall have the right to repurchase all or any part of the shares of Common Stock you
acquire pursuant to the exercise of your option. 

12.      OPTION NOT A
SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company
or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any
relationship that you might have as a Director or Consultant for the Company or an Affiliate. 

13.      WITHHOLDING OBLIGATIONS. 

  (a)        At the time you exercise your option, in whole or
in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “cashless
exercise” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of
the Company or an Affiliate, if any, which arise in connection with the exercise of your option. 

  (b)        Upon your request and subject to approval by the
Company, in its sole discretion, and compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award
accounting). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper
and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax
withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option


  
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that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility. 

(c)        You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares
of Common Stock or release such shares of Common Stock from any escrow provided for herein unless such obligations are satisfied. 
 14.      NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. 

15.      GOVERNING PLAN DOCUMENT. Your
option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control. 

  
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