Document:

Exhibit 10.1(b) Form Option Agreement (1)

Exhibit 10.1(b)

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL AND STATE AND APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL AND STATE AND APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.
KINDRED BIOSCIENCES, INC. 
2012 EQUITY INCENTIVE PLAN 
NOTICE OF STOCK OPTION GRANT
Kindred Biosciences, Inc. (the “Company”) hereby grants you the following Option to purchase shares of its common stock (“Shares”).  The terms and conditions of this Option are set forth in the Stock Option Agreement and the Kindred Biosciences, Inc. 2012 Equity Incentive Plan (the “Plan”), both of which are attached to and made a part of this document.
	
		
	Date of Grant:
	 

	Name of Optionee:
	 

	Number of Option Shares:
	 

	Exercise Price per Share:
	$____ (The Exercise Price per Share of an Option shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant.  If Optionee is a Ten-Percent Stockholder, the Exercise Price per Share of an ISO must be at least one hundred ten percent (110%) of Fair Market Value.)

	Vesting Start Date:
	 

	Type of Option:
	NSO

	Vesting Schedule:
	Subject to the terms and conditions set forth in the Stock Option Agreement, the Option vests with respect to the first one-fourth (1/4) of the Shares 12 months after the Vesting Start Date, and with respect to an additional one-forty eighth (1/48) every month thereafter until 100% of the Options are vested.

-  .

Exhibit 10.1(b)

By signing this document, you acknowledge receipt of a copy of the Plan, and agree that:  (a) you have carefully read, fully understand and agree to all of the terms and conditions described in the attached Stock Option Agreement, the Plan document and “Notice of Exercise and Common Stock Purchase Agreement” (the “Exercise Notice”); (b) you hereby make the purchaser’s investment representations contained in the Exercise Notice with respect to the grant of this Option; (c) you understand and agree that the Stock Option Agreement, including its cover sheet and attachments, constitutes the entire understanding between you and the Company regarding this Option, and that any prior agreements, commitments or negotiations concerning this Option are replaced and superseded; and (d) you have been given an opportunity to consult your own legal and tax counsel with respect to all matters relating to this Option prior to signing this cover sheet and that you have either consulted such counsel or voluntarily declined to consult such counsel.
	
		
	OPTIONEE
   

   
	KINDRED BIOSCIENCES, INC.

By: Richard Chin 

Its: CEO

KINDRED BIOSCIENCES, INC.
2012 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
KIND OF OPTION.
This Option is intended to be either an incentive stock option intended to meet the requirements of Section 422 of the Internal Revenue Code (an “ISO”) or a non-statutory option (an “NSO”), which is not intended to meet the requirements of an ISO, as indicated in the Notice of Stock Option Grant.  Even if this Option is designated as an ISO, it shall be deemed to be an NSO to the extent required by the $100,000 annual limitation under Section 422(d) of the Code.
VESTING.
Subject to the terms and conditions of the Plan and this Stock Option Agreement (the “Agreement”), your Option and the Shares shall vest in accordance with the schedule set forth in the Notice of Stock Option Grant.  If your Option is granted in consideration of your Service as an Employee or a Consultant, after your Service as an Employee or a Consultant terminates for any reason, vesting of your Shares subject to such Option immediately stops and such Option expires immediately as to the number of Shares that are not vested as of the date your Service as an Employee or a Consultant terminates.  If your Option is granted in consideration of your Service as an Outside Director, after your Service as an Outside Director terminates for any reason, vesting of your Shares subject to such Option immediately stops and such Option expires immediately as to the number of Shares that are not vested as of the date your Service as an Outside Director terminates.
TERM.
Your Option will expire in any event at the close of business at Company headquarters on the date that is ten (10) years after the Date of Grant; provided, however, that if your Option is an ISO it will expire five (5) years after the Date of Grant if you are a Ten-Percent Stockholder of the Company (the “Expiration Date”).  Also, your Option will expire earlier if your Service terminates, as described below.
REGULAR TERMINATION.
		
	(b)
	If your Service terminates for any reason except death or Disability, the vested portion of your Option will expire at the close of business at Company headquarters on the date three (3) months after your termination of Service.  During that three (3) month period, you may exercise the portion of your Option that was vested on your termination date.  Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.

		
	(c)
	If your Option is an ISO and you exercise it more than three months after termination of your Service as an Employee for any reason other than death or Disability expected to result in death or to last for a continuous period of at least twelve (12) months, your Option will cease to be eligible for ISO tax treatment.

		
	(d)
	Your Option will cease to be eligible for ISO tax treatment if you exercise it more than three (3) months after the ninetieth (90th) day of a bona fide leave of absence approved by the Company, unless you return to employment immediately upon termination of such leave or your right to reemployment after your leave was guaranteed by statute or contract.

DEATH.
If you die while in Service with the Company, the vested portion of your Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date of your death.  During that twelve (12) month period, your estate, legatees or heirs may exercise that portion of your Option that was vested on the date of your death.  Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.
DISABILITY.
		
	(e)
	If your Service terminates because of a Disability, the vested portion of your Option will expire at the close of business at Company headquarters on the date twelve (12) months after your termination date.  During that twelve (12) month period, you may exercise that portion of your Option that was vested on the date of your Disability.  “Disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.  Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.

		
	(f)
	If your Option is an ISO and your Disability is not expected to result in death or to last for a continuous period of at least twelve (12) months, your Option will be eligible for ISO tax treatment only if it is exercised within three (3) months following the termination of your Service as an Employee.

EXERCISING YOUR OPTION.
To exercise your Option, you must execute the Notice of Exercise and Common Stock Purchase Agreement (the “Exercise Notice”), attached as Exhibit A.  You must submit this form, together with full payment, to the Company.  Your exercise will be effective when it is received by the Company.  If you exercise your Option prior to vesting as provided in Section 8, you must also sign an Assignment Separate from Certificate attached as Exhibit C.  If someone else wants to exercise your Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
EXERCISE OF OPTION BEFORE VESTING.
If you wish, you may exercise your Option before it is vested (“Early Exercise”).  The Company may in its sole and absolute discretion prohibit you from undertaking an Early Exercise at any time prior to the expiration of six (6) months from the Date of Grant.  Your Option Shares will be subject to a repurchase right which shall lapse according to the same vesting schedule applicable had you not exercised your Option.  The repurchase right allows the Company to repurchase the unvested Shares for the Exercise Price.  If you exercise this Option before it is vested, you should consider making an election under Section 83(b) of the Internal Revenue Code (the “83(b) Election”), a form of which can be found on page E‐3 of Exhibit E. The 83(b) Election must be filed within thirty (30) days after the date you exercise all or any portion of your Option in which you are not vested.
YOU SHOULD CONSULT A TAX AND/OR FINANCIAL ADVISOR BEFORE EXERCISING PRIOR TO VESTING.
PAYMENT FORMS.
When you exercise your Option, you must include payment of the Exercise Price for the Shares you are purchasing in cash or cash equivalents.  Alternatively, you may pay all or part of the Exercise Price by surrendering, or attesting to ownership of, Shares already owned by you, unless such action would cause the Company to recognize any (or additional) compensation expense with respect to the Option for financial reporting purposes.  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 of Option exercise.  To the extent that a public market for the Shares exists and to the extent permitted by applicable law, in each case as determined by the Company, you also may exercise your Option by delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Exercise Price and, if requested, applicable withholding taxes.  The Company will provide the forms necessary to make such a cashless exercise.  The Board may permit such other payment forms as it deems appropriate, subject to applicable laws, regulations and rules. 
TAX WITHHOLDING AND REPORTING.
		
	(g)
	You will not be allowed to exercise this Option unless you pay, or make acceptable arrangements to pay, any taxes required to be withheld as a result of the Option exercise or the sale of Shares acquired upon exercise of this Option.  You hereby authorize withholding from payroll or any other payment due you from the Company or your employer to satisfy any such withholding tax obligation.

		
	(h)
	If you sell or otherwise dispose of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, you shall immediately notify the Company in writing of such disposition.

RIGHT OF FIRST REFUSAL.
In the event that you propose 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 a “Right of First Refusal” with respect to such Shares in accordance with the provisions of the Exercise Notice.
RESALE RESTRICTIONS/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 U.S. Securities Act of 1933, as amended, including the Company’s initial public offering, you may be prohibited from engaging in any transaction with respect to any of the Company’s common stock without the prior written consent of the Company or its underwriters in accordance with the provisions of the Exercise Notice.
TRANSFER OF OPTION.
Prior to your death, only you may exercise this Option.  This Option and the rights and privileges conferred hereby cannot 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.  For instance, you may not sell this Option or use it as security for a loan.  If you attempt to do any of these things, this Option will immediately become invalid.  You may, however, dispose of this Option in your will.  Regardless of any marital property settlement agreement, the Company is not obligated to honor an Exercise Notice from your spouse or former spouse, nor is the Company obligated to recognize such individual’s interest in your Option in any other way. Notwithstanding the foregoing, however, to the extent permitted by the Board in its sole discretion, an NSO may be transferred by you to a revocable trust or to one or more family members or to a trust established for your benefit and/or one or more of your family members to the extent permitted by the Plan. 
RETENTION RIGHTS.
This Agreement does not give you the right to be retained by the Company in any capacity.  The Company reserves the right to terminate your Service at any time and for any reason without thereby incurring any liability to you.
STOCKHOLDER RIGHTS.
Neither you nor your estate or heirs have any rights as a stockholder of the Company until a certificate for the Shares acquired upon exercise of this Option has been issued.  No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued, except as described in the Plan.
ADJUSTMENTS.
In the event of a stock split, a stock dividend or a similar change in the Company’s Stock, the number of Shares covered by this Option and the Exercise Price per share may be adjusted pursuant to the Plan.  Your Option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity as set forth in the Plan.
LEGENDS.
All certificates representing the Shares issued upon exercise of this Option shall, where applicable, have endorsed thereon the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL, STATE AND FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL, STATE AND FOREIGN SECURITIES LAWS IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF.  SUCH AGREEMENT PROVIDES FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SECURITIES AND CERTAIN REPURCHASE RIGHTS IN FAVOR OF THE COMPANY.  THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.
If the Option is an ISO, then the following legend will be included:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED UPON EXERCISE OF AN INCENTIVE STOCK OPTION, AND THE COMPANY MUST BE NOTIFIED IF THE SHARES SHALL BE TRANSFERRED BEFORE THE LATER OF THE TWO (2) YEAR ANNIVERSARY OF THE DATE OF GRANT OF THE OPTION OR THE ONE (1) YEAR ANNIVERSARY OF THE DATE ON WHICH THE OPTION WAS EXERCISED.  THE REGISTERED HOLDER MAY RECOGNIZE ORDINARY INCOME IF THE SHARES ARE TRANSFERRED BEFORE SUCH DATE.
TAX DISCLAIMER.
You agree that you are responsible for consulting your own tax advisor as to the tax consequences associated with your Option.  The tax rules governing options are complex, change frequently and depend on the individual taxpayer’s situation.  For your information, a memorandum that briefly summarizes current U.S. federal income tax law relating to certain aspects of stock options is attached hereto as Exhibit F.  Please note that this memorandum does not purport to be complete.  Although the Company will make available to you general tax information about stock options, you agree that the Company shall not be held liable or responsible for making such information available to you or for any tax or financial consequences that you may incur in connection with your Option.
In addition, as noted in Exhibit F, options granted at a discount from fair market value may be considered “deferred compensation” subject to adverse tax consequences under new Section 409A of the Internal Revenue Code, which is generally effective January 1, 2005.  The Board has made a good faith determination that the exercise price per share of the Option is not less than the fair market value of the Shares underlying your Option on the Date of Grant.  It is possible, however, that the Internal Revenue Service could later challenge that determination and assert that the fair market value of the Shares underlying your Option was greater on the Date of Grant than the exercise price determined by the Board, which could result in immediate income tax upon the vesting of your Option (whether or not exercised) and a 20% tax penalty (plus applicable state penalties), as well as the loss of incentive stock option status (if applicable).  The Company gives no assurance that such adverse tax consequences will not occur and specifically assumes no responsibility therefor.  By accepting this Option, you acknowledge that any tax liability or other adverse tax consequences to you resulting from the grant of the Option will be the responsibility of, and will be borne entirely by, you.  YOU ARE THEREFORE ENCOURAGED TO CONSULT YOUR OWN TAX ADVISOR BEFORE ACCEPTING THE GRANT OF THIS OPTION.
THE PLAN AND OTHER AGREEMENTS.
The text of the Plan is incorporated in this Agreement by reference.  Certain capitalized terms used in this Agreement are defined in the Plan.  The Notice of Stock Option Grant, this Agreement, including its attachments, and the Plan constitute the entire understanding between you and the Company regarding this Option.  Any prior agreements, commitments or negotiations concerning this Option are superseded.
MISCELLANEOUS PROVISIONS.
		
	(b)
	You understand and acknowledge that: (i) the Plan is entirely discretionary; (ii) the Company and your employer have reserved the right to amend, suspend or terminate the Plan at any time; (iii) the grant of an option does not in any way create any contractual or other right to receive additional grants of options (or benefits in lieu of options) at any time or in any amount; and (iv) all determinations with respect to any additional grants, including (without limitation) the times when options will be granted, the number of Shares offered, the Exercise Price and the vesting schedule, will be at the sole discretion of the Company.

		
	(c)
	The value of this Option shall be an extraordinary item of compensation outside the scope of your employment contract, if any, and shall not be considered a part of your normal or expected compensation for purposes of calculating severance, resignation, redundancy or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

		
	(d)
	You understand and acknowledge that participation in the Plan ceases upon termination of your Service for any reason, except as may explicitly be provided otherwise in the Plan or this Agreement.

		
	(e)
	You hereby authorize and direct your employer to disclose to the Company or any Subsidiary any information regarding your employment, the nature and amount of your compensation and the fact and conditions of your participation in the Plan, as your employer deems necessary or appropriate to facilitate the administration of the Plan.

		
	(f)
	You consent to the collection, use and transfer of personal data as described in this Subsection.  You understand and acknowledge that the Company, your employer and the Company’s other Subsidiaries hold certain personal information regarding you for the purpose of managing and administering the Plan, including (without limitation) your name, home address, telephone number, date of birth, social insurance number, salary, nationality, job title, any Shares or directorships held in the Company and details of all options or any other entitlements to Shares awarded, canceled, exercised, vested, unvested or outstanding in the your favor (the “Data”).  You further understand and acknowledge that the Company and/or its Subsidiaries will transfer Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan and that the Company and/or any Subsidiary may each further transfer Data to any third party assisting the Company in the implementation, administration and management of the Plan.  You understand and acknowledge that the recipients of Data may be located in the United States or elsewhere.  You authorize such recipients to receive, possess, use, retain and transfer Data, in electronic or other form, for the purpose of administering your participation in the Plan, including a transfer to any broker or other third party with whom you elect to deposit Shares acquired under the Plan of such Data as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf.  You may, at any time, view the Data, require any necessary modifications of Data or withdraw the consents set forth in this Subsection by contacting the Human Resources Department of the Company in writing.

APPLICABLE LAW.
This Agreement will be interpreted and enforced under the laws of the State of California (without regard to their choice of law provisions).

EXHIBIT A
KINDRED BIOSCIENCES, INC. 2012 EQUITY INCENTIVE PLAN 
NOTICE OF EXERCISE AND COMMON STOCK PURCHASE AGREEMENT
THIS AGREEMENT is dated as of ___________, ____, between Kindred Biosciences, Inc. (the “Company”), and ___________ (“Purchaser”).
W I T N E S S E T H:
WHEREAS, the Company granted Purchaser a stock option on ___________ (the “Date of Grant”) pursuant to a stock option agreement (the “Option Agreement”) under which Purchaser has the right to purchase up to ________ shares of the Company’s common stock (the “Option Shares”); and
WHEREAS, the Option is exercisable with respect to certain of the Option Shares as of the date hereof; and
WHEREAS, pursuant to the Option Agreement, Purchaser desires to purchase shares of the Company as herein described, on the terms and conditions set forth in this Agreement, the Option Agreement and the Kindred Biosciences, Inc. 2012 Equity Incentive Plan (the “Plan”).  Certain capitalized terms used in this Agreement are defined in the Plan.
NOW, THEREFORE, it is agreed between the parties as follows:
PURCHASE OF SHARES.
		
	(g)
	Pursuant to the terms of the Option Agreement, Purchaser hereby agrees to purchase from the Company and the Company agrees to sell and issue to Purchaser _________ shares of the Company’s common stock (the “Common Stock”) for the Exercise Price per share specified in the Notice of Stock Option Grant payable by personal check, cashier’s check, money order or otherwise as permitted by the Option Agreement.  Payment shall be delivered at the Closing, as such term is defined below.

		
	(h)
	The closing (the “Closing”) under this Agreement shall occur at the offices of the Company as of the date hereof, or such other time and place as may be designated by the Company (the “Closing Date”).

REPURCHASE RIGHT.
All shares of Common Stock purchased by Purchaser pursuant to this Agreement that have not vested under the terms of the Option Agreement, together with any shares of Common Stock issued as a dividend or other distribution on, in exchange for or upon the conversion of such unvested Stock (collectively, the “Subject Shares”) shall be subject to the following right of repurchase by the Company (the “Repurchase Right”).    
EXERCISE OF REPURCHASE RIGHT.
Upon termination of Purchaser’s Services to the Company (the “Termination Date”), the Company shall have the right to purchase from Purchaser all Subject Shares as of the Termination Date.  The Company shall be deemed to have exercised its Repurchase Right automatically for all Subject Shares as of the Termination Date, unless within ninety (90) days thereafter, the Company notifies the holder of the Subject Shares pursuant to Section 16 that it will not exercise its Repurchase Rights as to some or all of the Subject Shares.  
The repurchase price per share shall be the lower of (i) the Exercise Price per share paid by Purchaser for such shares pursuant to this Agreement and (ii) the Fair Market Value per share on the Termination Date.  The Repurchase Right shall lapse with respect to the Subject Shares in accordance with the vesting schedule in the Option Agreement.  
The certificate(s) representing the shares to be repurchased shall be delivered to the Company properly endorsed for transfer.  The Company shall, concurrently with the receipt of such certificate(s), pay to Purchaser the repurchase price determined according to Section 2, above.  The repurchase price shall be paid, at the option of the Company, by cancellation of all or a portion of outstanding indebtedness, if any, or in cash or both. 
WAIVER, ASSIGNMENT, EXPIRATION OF REPURCHASE RIGHT.
If the Company determines not to exercise the Repurchase Right as to all or a portion of the Subject Shares, the Company may, in the discretion of its Board of Directors, assign the Repurchase Right to any other holder or holders of preferred or common stock of the Company in such proportions as such Board of Directors may determine.  In the event of such an assignment, the Board may require that the assignee pay to the Company in cash an amount equal to the fair market value of the Repurchase Right.  The Company shall promptly, prior to expiration of the ninety (90) day period referred to in Section 3 above, notify Purchaser of the number of Subject Shares subject to the Repurchase Right assigned to such stockholders and shall notify both Purchaser and the assignees of the time, place and date for settlement of such purchase, which must be made within ninety (90) days from the Termination Date.  In the event that the Company and/or such assignees elect not to exercise the Repurchase Right as to all or part of the Subject Shares, the Repurchase Right shall expire as to all shares which the Company and/or such assignees have elected not to purchase.
ESCROW OF SHARES.
		
	(i)
	To ensure that Purchaser’s unvested Shares are delivered to the Company upon its exercise of its Repurchase Right, Purchaser agrees at the Closing under this Agreement, to deliver to and deposit with the escrow agent (the “Escrow Agent”) named in the Joint Escrow Instructions attached as Exhibit B, the certificate(s) evidencing the unvested Shares and an Assignment Separate from Certificate executed by Purchaser (with date and number of shares in blank) in the form attached as Exhibit C.  The certificate(s) evidencing the unvested Shares and the Assignment Separate from Certificate shall be delivered to the Escrow Agent and held under the Joint Escrow Instructions, which shall be delivered to the Escrow Agent at the Closing under this Agreement.

		
	(j)
	Within thirty (30) days after the last day of each successive completed calendar quarter after the Closing Date, if Purchaser so requests, the Escrow Agent shall deliver to Purchaser certificates representing so many shares of Common Stock as are no longer subject to the Repurchase Right (less such shares as have been previously delivered).  Ninety (90) days after the Termination Date, the Company shall direct the Escrow Agent to deliver to Purchaser a certificate or certificates representing the number of shares not repurchased by the Company or its assignees pursuant to exercise of the Repurchase Right (less such shares as have been previously delivered).

ADJUSTMENT OF SHARES.
Subject to the provisions of the Certificate of Incorporation of the Company, if (a) there is any stock dividend or liquidating dividend of cash and/or property, stock split or other change in the character or amount of any of the outstanding securities of the Company, or (b) there is any consolidation, merger or sale of all or substantially all of the assets of the Company, then, in such event, any and all new, substituted or additional securities or other cash or property to which Purchaser is entitled by reason of Purchaser’s ownership of the shares shall be immediately subject to the Repurchase Right and the Right of First Refusal, as defined below, with the same force and effect as the shares subject to the Repurchase Right and the Right of First Refusal.  While the total repurchase price shall remain the same after each such event, the repurchase price per share upon exercise of the Repurchase Right shall be appropriately and equitably adjusted as determined by the Board of Directors of the Company.  Appropriate adjustments shall also be made to the number and/or class of shares subject to the Repurchase Right and the Right of First Refusal to reflect the exchange or distribution of such securities.  In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Repurchase Right and Right of First Refusal may be exercised by the Company’s successor.
THE COMPANY’S RIGHT OF FIRST REFUSAL.
Before any shares of Common Stock registered in the name of Purchaser may be sold or transferred, such shares shall first be offered to the Company as follows (the “Right of First Refusal”):
		
	(k)
	Purchaser shall promptly deliver a notice (“Notice”) to the Company stating: (i) Purchaser’s bona fide intention to sell or transfer such shares; (ii) the number of such shares to be sold or transferred, and the basic terms and conditions of such sale or transfer; (iii) the price for which Purchaser proposes to sell or transfer such shares; (iv) the name of the proposed purchaser or transferee; and (v) proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable U.S. federal, state or foreign securities laws.  The Notice shall be signed by both Purchaser and the proposed purchaser or transferee and must constitute a binding commitment subject to the Company’s Right of First Refusal as set forth herein.

		
	(l)
	Within thirty (30) days after receipt of the Notice, the Company may elect to purchase all or any portion of the shares to which the Notice refers, at the price per share specified in the Notice.  If the Company elects not to purchase all or any portion of the shares, the Company may assign its right to purchase all or any portion of the shares.  The assignees may elect within thirty (30) days after receipt by the Company of the Notice to purchase all or any portion of the shares to which the Notice refers, at the price per share specified in the Notice.  An election to purchase shall be made by written notice to Purchaser.  Payment for shares purchased pursuant to this Section 7 shall be made within thirty (30) days after receipt of the Notice by the Company and, at the option of the Company, may be made by cancellation of all or a portion of outstanding indebtedness, if any, or in cash or both.

		
	(m)
	If all or any portion of the shares to which the Notice refers are not elected to be purchased, as provided in Section 7(b), Purchaser may sell those shares to any person named in the Notice at the price specified in the Notice, provided that such sale or transfer is consummated within sixty (60) days of the date of said Notice to the Company, and provided, further, that any such sale is made in compliance with applicable U.S. federal, state and foreign securities laws and not in violation of any other contractual restrictions to which Purchaser is bound.  The third-party purchaser shall be bound by, and shall acquire the shares of stock subject to, the provisions of this Agreement, including the Company’s Right of First Refusal.

		
	(n)
	Any proposed transfer on terms and conditions different from those set forth in the Notice, as well as any subsequent proposed transfer shall again be subject to the Company’s Right of First Refusal and shall require compliance with the procedures described in this Section 7.

		
	(o)
	Purchaser agrees to cooperate affirmatively with the Company, to the extent reasonably requested by the Company, to enforce rights and obligations pursuant to this Agreement.

		
	(p)
	Notwithstanding the above, neither the Company nor any assignee of the Company under this Section 7 shall have any right under this Section 7 at any time subsequent to the closing of a public offering of the common stock of the Company pursuant to a registration statement declared effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”).

		
	(q)
	This Section 7 shall not apply to (i) a transfer by will or intestate succession, or (ii) a transfer to one or more members of Purchaser’s Immediate Family (defined below) or to a trust established by Purchaser for the benefit of Purchaser and/or one or more members of Purchaser’s Immediate Family, provided that the transferee agrees in writing on a form prescribed by the Company to be bound by all of the provisions of this Agreement to the same extent as they apply to Purchaser.  The transferee shall execute a copy of the attached Exhibit D and file the same with the Secretary of the Company.

PURCHASER’S RIGHTS AFTER EXERCISE OF REPURCHASE RIGHT OR RIGHT OF FIRST REFUSAL.
If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Common Stock to be repurchased in accordance with the provisions of Sections 2 and 7 of this Agreement, then from and after such time the person from whom such shares are to be repurchased 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 repurchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.
TRANSFER BY PURCHASER TO CERTAIN PEOPLE.
		
	(r)
	Notwithstanding anything herein to the contrary, Purchaser may not transfer, assign, encumber or otherwise dispose of any Subject Shares without the Company’s written consent, except that Purchaser may transfer Subject Shares to one or more members of Purchaser’s Immediate Family (as defined below), or to a trust established by Purchaser for the benefit of Purchaser and/or one or more members of Purchaser’s Immediate Family, provided that the transferee agrees in writing on a form prescribed by the Company to be bound by all of the provisions of this Agreement to the same extent as they apply to Purchaser.  The transferee shall execute a copy of Exhibit D and file the same with the Secretary of the Company.

		
	(s)
	For purposes of this Agreement, Immediate Family means 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.

LEGEND OF SHARES.
All certificates representing the Common Stock purchased under this Agreement shall, where applicable, have endorsed thereon the following legends and any other legends required by applicable securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL AND STATE AND APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL AND STATE AND APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF.  SUCH AGREEMENT PROVIDES FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SECURITIES AND CERTAIN REPURCHASE RIGHTS IN FAVOR OF THE COMPANY.  THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.
If the Option is an ISO, then the following legend will be included:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED UPON EXERCISE OF AN INCENTIVE STOCK OPTION, AND THE COMPANY MUST BE NOTIFIED IF THE SHARES SHALL BE TRANSFERRED BEFORE THE LATER OF THE TWO (2) YEAR ANNIVERSARY OF THE DATE OF GRANT OF THE OPTION OR THE ONE (1) YEAR ANNIVERSARY OF THE DATE ON WHICH THE OPTION WAS EXERCISED.  THE REGISTERED HOLDER MAY RECOGNIZE ORDINARY INCOME IF THE SHARES ARE TRANSFERRED BEFORE SUCH DATE.  
PURCHASER’S INVESTMENT REPRESENTATIONS.
		
	(t)
	This Agreement is made with Purchaser in reliance upon Purchaser’s representation to the Company, which by Purchaser’s acceptance hereof Purchaser confirms, that the Common Stock which Purchaser will receive will be acquired with Purchaser’s own funds for investment for an indefinite period for Purchaser’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting participation in, or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of Purchaser’s property shall at all times be within Purchaser’s control.  By executing this Agreement, Purchaser further represents that Purchaser does not have any contract, understanding or agreement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any of the Common Stock.

		
	(u)
	Purchaser understands that the Common Stock will not be registered or qualified under applicable U.S. federal, state or foreign securities laws on the ground that the sale provided for in this Agreement is exempt from registration or qualification under applicable U.S. federal, state or foreign securities laws and that the Company’s reliance on such exemption is predicated on Purchaser’s representations set forth herein.

		
	(v)
	Purchaser agrees that in no event shall Purchaser make a disposition of any of the Common Stock (including a disposition under Section 9 of this Agreement), unless and until: (i) Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition; and (ii) Purchaser shall have furnished the Company with an opinion of counsel satisfactory to the Company to the effect that (A) such disposition will not require registration or qualification of such Common Stock under applicable U.S. federal, state or foreign securities laws or (B) appropriate action necessary for compliance with the U.S. federal, state or foreign securities laws has been taken; or (iii) the Company shall have waived, expressly and in writing, its rights under clauses (i) and (ii) of this Subsection.

		
	(w)
	With respect to a transaction occurring prior to such date as the Plan and Common Stock thereunder are covered by a valid Form S-8 or similar U.S. federal registration statement, this Subsection shall apply unless the transaction is covered by the exemption in California Corporations Code Section 25102(o) or a similar broad-based exemption.  In connection with the investment representations made herein, Purchaser represents that Purchaser is able to fend for himself or herself in the transactions contemplated by this Agreement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of Purchaser’s investment, has the ability to bear the economic risks of Purchaser’s investment and has been furnished with and has had access to such information as would be made available in the form of a registration statement together with such additional information as is necessary to verify the accuracy of the information supplied and to have all questions answered by the Company.

		
	(x)
	Purchaser understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the U.S. Securities Exchange Act of 1934, as amended, or if a registration statement covering the Common Stock (or a filing pursuant to the exemption from registration under Regulation A of the Securities Act) under the Securities Act is not in effect when Purchaser desires to sell the Common Stock, Purchaser may be required to hold the Common Stock for an indeterminate period.  Purchaser also acknowledges that Purchaser understands that any sale of the Common Stock which might be made by Purchaser in reliance upon Rule 144 under the Securities Act may be made only in limited amounts in accordance with the terms and conditions of that Rule.

NO DUTY TO TRANSFER IN VIOLATION OF THIS AGREEMENT.
The Company shall not be required (a) to transfer on its books any shares of Common Stock of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred.
RIGHTS OF PURCHASER.
		
	(y)
	Except as otherwise provided herein, Purchaser shall, during the term of this Agreement, exercise all rights and privileges of a stockholder of the Company with respect to the Common Stock.

		
	(z)
	Nothing in this Agreement shall be construed as a right by Purchaser to be retained by the Company, or a parent or subsidiary of the Company in any capacity.  The Company reserves the right to terminate Purchaser’s Service at any time and for any reason without thereby incurring any liability to Purchaser.

RESALE RESTRICTIONS/MARKET STAND-OFF.
Purchaser hereby agrees that 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, Purchaser shall not, directly or indirectly, engage in any transaction prohibited by the underwriter, or sell, make any short sale of, contract to sell, transfer the economic risk of ownership in, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or agree to engage in any of the foregoing transactions with respect to any Common Stock without the prior written consent of the Company or its underwriters, for such period of time after the effective date of such registration statement as may be requested by the Company or such underwriters.  Such period of time shall not exceed one hundred eighty (180) days; provided, however, that if either (a) during the last seventeen (17) days of such one hundred eighty (180) day period, the Company issues an earnings release or material news or a material event relating to the Company occurs or (b) prior to the expiration of such one hundred eighty (180) day period, the Company announces that it will release earnings results during the sixteen (16) day period beginning on the last day of the one hundred eighty (180) day period, then the restrictions imposed during such one hundred eighty (180) day period shall continue to apply until the expiration of the eighteen (18) day period beginning on the issuance of the earnings release or the occurrence of the material news or material event; and provided, further, that in the event the Company or the underwriter requests that the one hundred eighty (180) day period be extended or modified pursuant to then-applicable law, rules, regulations or trading policies, the restrictions imposed during the one hundred eighty (180) day period shall continue to apply to the extent requested by the Company or the underwriter to comply with such law, rules, regulations or trading policies.  Purchaser hereby agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto.  To enforce the provisions of this Section, the Company may impose stop-transfer instructions with respect to the Common Stock until the end of the applicable stand-off period.
OTHER NECESSARY ACTIONS.
The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.
NOTICE.
Any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon the earliest of personal delivery, receipt or the third full day following deposit in the United States Post Office with postage and fees prepaid, addressed to the other party hereto at the address last known or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Purchaser and Purchaser’s heirs, executors, administrators, successors and assigns.  The failure of the Company in any instance to exercise the Repurchase Right or Right of First Refusal described herein shall not constitute a waiver of any other Repurchase Right or Right of First Refusal that may subsequently arise under the provisions of this Agreement.  No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of a like or different nature.
APPLICABLE LAW.
This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, as such laws are applied to contracts entered into and performed in such state.
NO STATE QUALIFICATION.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE.  THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
NO ORAL MODIFICATION.
No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.
ENTIRE AGREEMENT.
This Agreement, the Option Agreement and the Plan constitute the entire complete and final agreement between the parties hereto with regard to the subject matter hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
	
		
	KINDRED BIOSCIENCES, INC.

By: ______________________________

Its: ______________________________
	______________ (PURCHASER)

_________________________________
Signature

EXHIBIT B
JOINT ESCROW INSTRUCTIONS
_________, ____
To Secretary
Kindred Biosciences, Inc.
____________________
____________________

Dear Sir or Madam:
As Escrow Agent for Kindred Biosciences, Inc. (the “Company”), and _________________ (the “Purchaser”), you are authorized and directed to hold the Assignment Separate from Certificate form(s) executed by Purchaser and the certificate(s) of stock representing Purchaser’s unvested shares purchased in accordance with the terms of the notice of exercise and common stock purchase agreement (the “Agreement”) and stock option agreement (the “Option Agreement”) entered into between the Company and Purchaser, in accordance with the following instructions:
i.In the event that the Company elects to exercise the Repurchase Right as described in Section 2 of the Agreement, Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated, and to promptly deliver the stock certificates.
ii.At the closing, you are directed: (a) to date the Assignment Separate from Certificate form(s) necessary for the transfer in question; (b) to fill in the number of shares being transferred; and (c) to deliver the form(s), together with the certificate or certificates evidencing the shares to be transferred, to the Company.  The Company shall simultaneously deliver to you the repurchase price for the number of shares being purchased pursuant to the exercise of the Repurchase Right.
iii.Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares to be held by you under this letter and any additions and substitutions to the shares as defined in the Agreement.  Purchaser irrevocably appoints you as his or her attorney‐in‐fact and agent for the term of this escrow to execute, with respect to the shares of stock, all documents necessary or appropriate to make such securities negotiable and to complete any transaction contemplated by these Joint Escrow Instructions.  Subject to the provisions of this Section 3, Purchaser shall exercise all rights and privileges, including but not limited to, the right to vote and to receive dividends (if any), of a stockholder of the Company while the shares are held by you.
iv.In accordance with the terms of Section 5 of the Agreement, you may, from time to time, deliver to Purchaser a certificate or certificates representing shares that are no longer subject to the Repurchase Right.
v.This escrow shall terminate upon the release of all shares held under the terms and provisions hereof.
vi.If at the time of termination of this escrow you should have in your possession any documents, securities or other property belonging to Purchaser, you shall deliver them to Purchaser and shall be discharged from all further obligations under these Joint Escrow Instructions.
vii.Your duties under these Joint Escrow Instructions may be altered, amended, modified or revoked only by a writing signed by all of the parties.
viii.You shall be obligated to perform the duties described in these Joint Escrow Instructions and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties.  You shall not be personally liable for any act or omission as Escrow Agent or as attorney-in-fact of Purchaser while acting in good faith and in the exercise of your own good judgment, and any act or omission by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.
ix.You are expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are expressly authorized to comply with and obey orders, judgments or decrees of any court.  In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties under these Joint Escrow Instructions or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
x.You shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for under these Joint Escrow Instructions.
xi.You shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.
xii.You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations under these Joint Escrow Instructions and may rely upon the advice of such counsel.
xiii.Your responsibilities as Escrow Agent under these Joint Escrow Instructions shall terminate if you shall cease to be employed by the Company or if you shall resign by written notice to each party.  In the event of any such termination, the Company shall appoint any officer of the Company as successor Escrow Agent.
xiv.If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations under these Joint Escrow Instructions, the parties shall furnish such instruments.
xv.It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you under these Joint Escrow Instructions, you are authorized and directed to retain in your possession without liability to anyone all or any part of the securities until the dispute is settled either by mutual written agreement of the parties or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected.  You are under no duty whatsoever to institute or defend against any such proceedings.
xvi.Any notice required or permitted under these Joint Escrow Instructions shall be given in writing and will be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties.
xvii.By signing these Joint Escrow Instructions, you become a party only for the purpose of these Joint Escrow Instructions; you do not become a party to the Agreement.
xviii.This instrument shall be governed by and construed in accordance with the laws of the State of California.
xix.This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
Very truly yours,

KINDRED BIOSCIENCES, INC.

By: ______________________________________

Its: ______________________________________

ESCROW AGENT:    _____________ (PURCHASER)

____________________________________
Signature        Signature

INSTRUCTIONS:  YOU MUST SIGN THIS LETTER IF YOU ARE EXERCISING PRIOR TO VESTING (“EARLY EXERCISE”).  IF YOU ARE NOT EARLY EXERCISING, DO NOT COMPLETE THIS FORM.
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ______________ sells, assigns and transfers to Kindred Biosciences, Inc. (the “Company”) or its assignee ________________________________ [print the number of shares] (________ [# of shares]) shares of the Common Stock of the Company (the “Shares”), standing in his or her name on the books of the Company represented by Certificate No. ___________ and irrevocably constitutes and appoints the Secretary of the Company as Attorney to transfer the Shares on the books of the Company with full power of substitution in the premises.
Dated:  ____________________, ____.
    
Printed Name

    
(Signature)

Spousal Consent (if applicable)

___________________ (Purchaser’s spouse) indicates by the execution of this Assignment his or her consent to be bound by the terms herein as to his or her interests, whether as community property or otherwise, if any, in the Shares.

    
Printed Name

    
Signature

INSTRUCTIONS:  YOU MUST SIGN THIS FORM IF YOU ARE EXERCISING PRIOR TO VESTING (“EARLY EXERCISE”).  IF YOU ARE NOT EARLY EXERCISING, DO NOT COMPLETE THIS FORM.  PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE.  THE PURPOSE OF THIS ASSIGNMENT IS TO ENABLE THE COMPANY TO EXERCISE ITS “REPURCHASE RIGHT” SET FORTH IN THE NOTICE OF EXERCISE AND COMMON STOCK PURCHASE AGREEMENT WITHOUT REQUIRING ADDITIONAL SIGNATURES.

EXHIBIT D
ACKNOWLEDGMENT OF AND AGREEMENT TO BE BOUND 
BY THE NOTICE OF EXERCISE AND COMMON STOCK PURCHASE AGREEMENT OF 
KINDRED BIOSCIENCES, INC.
The undersigned, as transferee of shares of Kindred Biosciences, Inc. hereby acknowledges that he or she has read and reviewed the terms of the Notice of Exercise and Common Stock Purchase Agreement of Kindred Biosciences, Inc. and hereby agrees to be bound by the terms and conditions thereof, as if the undersigned had executed said Agreement as an original party thereto.
Dated:  ____________________, ____.

    
(Signature of Transferee)

    
(Printed Name of Transferee)

EXHIBIT E
STEP-BY-STEP INSTRUCTIONS TO 
MAKE A SECTION 83(b) ELECTION
WORD OF CAUTION: IF YOU CHOOSE TO FILE A SECTION 83(b) ELECTION, YOU MUST FILE YOUR SECTION 83(b) ELECTION FORM WITH THE IRS NO LATER THAN 30 DAYS FOLLOWING THE DATE ON WHICH YOU SIGN THE NOTICE OF EXERCISE (EXHIBIT A) AND PAY THE EXERCISE PRICE.  THE 30-DAY DEADLINE IS ABSOLUTE AND CANNOT BE WAIVED UNDER ANY CIRCUMSTANCES.  ALSO, ONCE FILED, YOUR SECTION 83(b) ELECTION FORM MAY NOT BE REVOKED, EXCEPT WITH THE CONSENT OF THE IRS (WHICH CONSENT IS GENERALLY DENIED).
THESE INSTRUCTIONS ARE DISTRIBUTED MERELY FOR CONVENIENCE IN THE EVENT YOU CHOOSE TO FILE AN 83(b) ELECTION.  THEY SHOULD NOT BE RELIED UPON BY ANY PERSON IN DECIDING WHETHER OR WHEN TO EXERCISE AN OPTION OR TO MAKE AN 83(b) ELECTION.  EACH PERSON SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THESE MATTERS.
		
	Step 1.
	Complete and execute the 83(b) Form found on page E-4 of this Exhibit E (the “83(b) Form”).  Do not fill in the blank in paragraph 6, which relates to the fair market value of the property at the time of transfer.  Submit the 83(b) Form to the Company and ask that the Company insert the per share fair market value of the shares in paragraph 6 of the 83(b) Form.

		
	Step 2.
	Make four copies of the executed and completed 83(b) Form.

		
	Step 3.
	Mail: (a) the cover letter on page E-3; (b) the original executed 83(b) Form on page E-4; and (c) if you are exercising an ISO, the Special Election Form on page E-5 to the Internal Revenue Service Center where you file your U.S. federal income tax return.

PLEASE NOTE THAT IF YOU ARE EXERCISING AN ISO FOR UNVESTED SHARES, AN 83(b) ELECTION WILL NOT BE EFFECTIVE TO LIMIT THE AMOUNT OF ORDINARY INCOME THAT YOU MAY BE REQUIRED TO RECOGNIZE ON A DISQUALIFYING DISPOSITION, ACCORDING TO U.S. TREASURY REGULATIONS.  PLEASE SEE SUMMARY OF U.S. FEDERAL TAX INFORMATION AT EXHIBIT F AND CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE EARLY EXERCISE OF AN ISO.
The tax, if any, arising out of your election does not have to be paid until you file your tax return for the taxable year in which you purchased your option shares (except to the extent that withholding taxes or estimated taxes are payable).  The forms must be filed no later than 30 days following the date on which you sign the Notice of Exercise (Exhibit A) and pay the exercise price.  The 30‐day deadline is absolute and cannot be waived under any circumstances.  The filing is deemed to be made on the date that the forms are mailed from the post office, i.e., the postmark date.  Mail the forms by registered or certified mail, return receipt requested, so that you have proof that you filed the forms within the 30-day period.  If you miss the deadline, you will be taxed on your option shares as they vest based on the value of the shares at that time.  Your 83(b) filing with the Internal Revenue Service is deemed to cause a similar election with the California Franchise Tax Board for California income tax purposes.  If you do not reside in California, you should seek local tax advice on whether you must make a separate filing with your state of residence.
		
	Step 4.
	Mail or submit a copy of the filing with the Company on the same day that you file the 83(b) Form, and make sure that you retain copies of the forms for your records and for filing with your tax returns (see Step 5).

		
	Step 5.
	File copies of the forms with your U.S. federal tax (and state tax, if appropriate) returns for the taxable year in which you purchased your option shares.

  
[Optionee’s Name Address]
[Date]
VIA CERTIFIED MAIL

Return Receipt Requested
Receipt [enter receipt # here]

Internal Revenue Service Center
[Appropriate IRS center address]
Re:  Election Under Section 83(b) of the Internal Revenue Code
Ladies and Gentlemen:
Enclosed please find an executed form of election under Section 83(b) of the Internal Revenue Code of 1986 relating to the issuance of __________ shares of Kindred Biosciences, Inc. Common Stock.
Also enclosed is a copy of the 83(b) election and a stamped, self‐addressed envelope.  Please acknowledge receipt of these materials by stamping the enclosed copy of the 83(b) election with the date of receipt and returning it to me.
Thank you for your attention to this matter.
Very truly yours,

Name
Enclosures
cc:  Kindred Biosciences, Inc. w/ encs.
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code of 1986, pursuant to Treasury Regulation section 1.83‐2.
1.  The taxpayer who performed the services is:
Name of Optionee: 
Optionee’s Address: _____________
Optionee’s Social Security Number: _____________
2.  The property with respect to which the election is being made is _____________ shares of common stock of Kindred Biosciences, Inc., a Delaware corporation (the “Company”).
3.  The property was transferred on _______________, 200__.  (Date of Exercise)
4.  The taxable year in which the election is being made is the calendar year 200__.
5.  If for any reason the taxpayer’s service with the issuer is terminated, the property is subject to a repurchase right pursuant to which the issuer has the right to acquire the property at the original purchase price without interest.  The issuer’s repurchase right lapses in a series of installments over a _______ year period.
6.  The Fair Market Value of the property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $_______ per share.
7.  The amount paid for such property is $____________.
8.  A copy of this statement was furnished to the Company for whom the taxpayer rendered the service underlying the transfer of property.
9.  This statement is executed as of ___________________, 200__.

___________________________________
                Spouse (if any)        Name:  

SPECIAL ELECTION PURSUANT TO SECTION 83(b) 
OF THE INTERNAL REVENUE CODE WITH RESPECT TO PROPERTY 
ACQUIRED UPON EXERCISE OF AN INCENTIVE STOCK OPTION
The property described in the above Section 83(b) election is comprised of shares of common stock acquired pursuant to the exercise of an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).  Accordingly, it is the intent of the Taxpayer to utilize this election to have the alternative minimum taxable income attributable to the purchased shares measured by the amount by which the fair market value of such shares at the time of their transfer to the Taxpayer exceeds the purchase price paid for the shares.  In the absence of this election, such alternative minimum taxable income would be measured by the spread between the fair market value of the purchased shares and the purchase price which exists on the various lapse dates in effect for the forfeiture restrictions applicable to such shares.  
This election is intended to be effective to the full extent permitted under the Code

-  .HCR3 AM4 EXH 4.4

EXHIBIT 4.4

FORM OF ESCROW AGREEMENT

UMB BANK, N.A.
1010 Grand Boulevard
Kansas City, Missouri 64106

Re:    Griffin-American Healthcare REIT III, Inc.  

Ladies and Gentlemen:

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC., a Maryland corporation (the “Company”), will issue in a public offering (the “Offering”) shares of its common stock (the “Stock”) pursuant to a registration statement on Form S-11 filed by the Company with the Securities and Exchange Commission.  GRIFFIN CAPITAL SECURITIES, INC., a California corporation (the “Dealer Manager”), will act as dealer manager for the offering of the Stock.  The Company is entering into this Escrow Agreement (the “Agreement”) to set forth the terms on which UMB Bank, N.A. (the “Escrow Agent”) will, except as otherwise provided herein, hold and disburse the proceeds from subscriptions for the purchase of the Stock in the Offering until such time as (i) in the case of subscriptions received from all nonaffiliates of the Company, other than from residents of Washington and Pennsylvania, the Company has received subscriptions for Stock resulting in a total of $2,000,000 in shares of common stock sold in the Offering (the “Required Capital”); (ii) in the case of subscriptions received from residents of Washington (“Washington Subscribers”), the Company has received subscriptions for Stock from nonaffiliates of the Company resulting in a total of $20,000,000 in shares of Stock sold in the Offering (the “Washington Required Capital”); and (iii) in the case of subscriptions received from residents of Pennsylvania (“Pennsylvania Subscribers”), the Company has received subscriptions for Stock from nonaffiliates of the Company resulting in a total of $87,500,000 in shares of Stock sold in the Offering (the “Pennsylvania Required Capital”).

The Company hereby appoints UMB Bank, N.A. as Escrow Agent for purposes of holding the proceeds from the subscriptions for the Stock, on the terms and conditions hereinafter set forth: 

1.    Until such time as the Company has received subscriptions for Stock resulting in total minimum capital raised equal to the Required Capital and such funds are disbursed from the Escrow Account (as defined below) in accordance with paragraph 3(a) hereof, persons subscribing to purchase the Stock (the “Subscribers”) will be instructed by the Dealer Manager or any soliciting dealers to remit the purchase price in the form of checks, drafts, wires, Automated Clearing House (ACH) or money orders (hereinafter, the “instrument of payment”), payable to the order of “UMB Bank, N.A., Agent for Griffin-American Healthcare REIT III, Inc.”  After subscriptions are received resulting in total minimum capital raised equal to the Required Capital and such funds are disbursed from the Escrow Account in accordance with paragraph 3(a) hereof, subscriptions shall continue to be so submitted and paid for by delivering a check for the full purchase price made payable to “Griffin-American Healthcare REIT III, Inc.”; provided, however, that Washington Subscribers and Pennsylvania Subscribers shall continue to make checks payable to the order of “UMB Bank, N.A., Agent for Griffin-American Healthcare REIT III, Inc.” until subscriptions are received resulting in total minimum capital raised equal to the Washington Required Capital or the Pennsylvania Required Capital, as applicable, and such funds are disbursed from the Escrow Account (as defined below), as applicable, in accordance with paragraph 3(a) hereof.  Within one (1) business day after receipt of an instrument of payment from the Offering, (a) the Dealer Manager, the Company or their respective agents will send to the Escrow Agent a copy of the relevant part of each Subscriber’s subscription agreement showing the Subscriber’s name, address, tax identification number (Substitute IRS Form W-9), number of shares purchased, and purchase price remitted, and (b) the Escrow Agent will deposit the instrument of payment from such Subscribers using the Escrow Agent’s electronic facilities, into an interest-bearing deposit account entitled 

1

“Escrow Account for the Benefit of Subscribers for Common Stock of Griffin-American Healthcare REIT III, Inc.” (the “Escrow Account”), until such Escrow Account has closed pursuant to paragraph 3(a) hereof; provided, however, that instruments of payment received from Washington Subscribers and Pennsylvania Subscribers (as identified as such by the Company) shall be accounted for separately until the Escrow Account has closed pursuant to paragraph 3(a) hereof.  The Escrow Account will be established and maintained in such a way as to permit the interest income calculations described in paragraph 7.  The Company shall, and shall cause its agents to, cooperate with the Escrow Agent in separately accounting for Washington and Pennsylvania subscription proceeds in the Escrow Account and the Escrow Agent shall be entitled to rely upon information provided by the Company or its agents in this regard.

2.    The Escrow Agent agrees to promptly process for collection the instrument of payment upon deposit into the Escrow Account. Deposits shall be held in the Escrow Account until such funds are disbursed in accordance with paragraph 3 hereof. Prior to disbursement of the funds deposited in the Escrow Account such funds shall not be subject to claims by creditors of the Escrow Agent, the Company, the Dealer Manager, any soliciting dealer or any of their respective affiliates. If the instrument of payment is returned to the Escrow Agent for nonpayment prior to receipt of the Required Capital or, in connection with subscriptions from Washington Subscribers, the Washington Required Capital, or, in connection with subscriptions from Pennsylvania Subscribers, the Pennsylvania Required Capital, the Escrow Agent shall promptly notify the Dealer Manager and the Company in writing via mail, email or facsimile of such nonpayment, and is authorized to debit the Escrow Account in the amount of such returned payment as well as any interest earned on the amount of such payment. 

3.    (a)    Subject to the provisions of subparagraphs 3(b)-3(f) below,

(i)    Once the collected funds in the Escrow Account are an amount equal to or greater than the Required Capital, the Escrow Agent shall, upon receiving written instruction from the Dealer Manager or the Company, (A) disburse to the Company, by check or wire transfer, the funds in the Escrow Account representing the gross purchase price for the Stock, and (B) within five business days after the first business day of the succeeding month, disburse to the Subscribers or the Company, as applicable, any interest thereon pursuant to the provisions of subparagraph 3(f).  After such time the Escrow Account shall remain open and the Dealer Manager or Company shall continue to cause subscriptions for the Stock (other than subscriptions received from Washington Subscribers and Pennsylvania Subscribers that are subject to subparagraphs 3(a)(ii) and 3(a)(iii) below) to be deposited therein until the Company informs the Escrow Agent in writing to close the Escrow Account.  For purposes of this Agreement, the term “collected funds” shall mean all funds received by the Escrow Agent that have cleared normal banking channels and are in the form of cash or cash equivalent.  After the satisfaction of the aforementioned provisions of this paragraph 3(a)(i), in the event the Company receives subscriptions made payable to the Escrow Agent (other than subscriptions received from Washington Subscribers and Pennsylvania Subscribers), subscription proceeds may continue to be received in this account generally, but to the extent such proceeds shall not be subject to escrow due to the satisfaction of the aforementioned provisions of this paragraph 3(a)(i), such proceeds are not subject to this Agreement and at the instruction of the Dealer Manager or the Company to the Escrow Agent shall be transferred from the Escrow Account to the Company.

(ii)    Regardless of any release of funds from the Escrow Account, the Company, the Dealer Manager and soliciting dealers shall continue to forward instruments of payment received from Washington Subscribers for deposit into the Escrow Account to the Escrow Agent until such time as the Dealer Manager or the Company notifies the Escrow Agent in writing that total subscription proceeds equal or exceed the Washington Required Capital.  Upon the receipt by the Escrow Agent of such notice, the Escrow Agent shall (A) disburse to the Company, by check or wire transfer, the funds in the Escrow Account representing the gross purchase price for the Stock, and (B) within five business days after the first business day of the succeeding month, disburse to the Washington Subscribers or the Company, as applicable, any interest thereon pursuant to the provisions of subparagraph 3(f).  Thereafter any instruments of payment received by the Escrow Agent from Washington Subscribers shall not be subject to this Escrow Agreement and shall be deposited directly into the Escrow Account (or to the Company, if it has closed the Escrow Account, as instructed in writing by the Company pursuant to subparagraph 3(a)(i) above).

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(iii)    Regardless of any release of funds from the Escrow Account, the Company, the Dealer Manager and soliciting dealers shall continue to forward instruments of payment received from Pennsylvania Subscribers for deposit into the Escrow Account to the Escrow Agent until such time as the Dealer Manager or the Company notifies the Escrow Agent in writing that total subscription proceeds equal or exceed the Pennsylvania Required Capital.  Upon the receipt by the Escrow Agent of such notice, the Escrow Agent shall (A) disburse to the Company, by check, ACH or wire transfer, the funds in the Escrow Account representing the gross purchase price for the Stock, and (B) within five business days after the first business day of the succeeding month, disburse to the Pennsylvania Subscribers or the Company, as applicable, any interest thereon pursuant to the provisions of subparagraph 3(f).  Thereafter any instruments of payment received by the Escrow Agent from Pennsylvania Subscribers shall not be subject to this Escrow Agreement and shall be deposited directly into the Escrow Account (or to the Company, if it has closed the Escrow Account, as instructed in writing by the Company pursuant to subparagraph 3(a)(i) above).

(b)    Within four business days of the close of business on the date that is one year following commencement of the Offering (the Company will notify the Escrow Agent of the commencement of the Offering) (the “Expiration Date”), the Escrow Agent shall promptly notify the Company if it is not in receipt of evidence of deposits for the purchase of Stock providing for aggregate offering proceeds that equal or exceed the Required Capital (from all sources but exclusive of any funds received from subscriptions for Stock from entities which the Company has notified the Escrow Agent are affiliated with the Company).  Within ten days following the date of such notice, the Escrow Agent shall promptly return directly to each Subscriber the collected funds deposited in the Escrow Account on behalf of such Subscriber, or shall return the instrument of payment delivered, but not yet processed for collection prior to such time, in either case, together with interest income (which interest shall be paid within five business days after the first business day of the succeeding month) in the amounts calculated pursuant to paragraph 7 for each Subscriber at the address provided by the Dealer Manager or the Company to the Escrow Agent, which the Escrow Agent shall be entitled to rely upon.  However, the Escrow Agent shall not be required to remit any payments until the Escrow Agent has collected funds represented by such payments. 

(c)    Notwithstanding subparagraphs 3(a) and 3(b) above, if on or before the close of business on such date that is 120 days after a Pennsylvania Subscriber’s subscription for Stock received by the Company (with respect to each Pennsylvania Subscriber, the “Initial Escrow Period”) (such subscription date shall be promptly provided to the Escrow Agent by the Company after each subscription for Stock received by the Company from a Pennsylvania Subscriber), the Escrow Agent is not in receipt of instruments of payment dated not later than that date from nonaffiliated sources in an amount that, when added to the total subscription proceeds as of such date, equals or exceeds the Pennsylvania Required Capital, the Company or the Dealer Manager shall send to the applicable Pennsylvania Subscriber within ten (10) calendar days after the end of such Pennsylvania Subscriber’s Initial Escrow Period a notification in the form of Exhibit C.  If, pursuant to such notification, the applicable Pennsylvania Subscriber requests the return of his or her subscription funds within ten (10) calendar days after receipt of the notification (the “Request Period”), the Company or the Dealer Manager shall notify the Escrow Agent of such request by the close of business on the next business day after receipt of the request from such Pennsylvania Subscriber.  Within fifteen (15) calendar days after receipt of notice of such request from the Company or the Dealer Manager, the Escrow Agent shall deliver directly to the applicable Pennsylvania Subscriber the collected funds from instruments of payment deposited in the Escrow Account on behalf of such Pennsylvania Subscriber, together with interest income in the amount calculated pursuant to paragraph 7.  However, the Escrow Agent shall not be required to remit such payments until the Escrow Agent has collected funds represented by such payments.

(d)    The subscription funds of each Pennsylvania Subscriber who does not request the return of their subscription funds within the Request Period shall remain in the Escrow Account for successive 120-day escrow periods (with respect to each Pennsylvania Subscriber, a “Successive Escrow Period”), each commencing automatically upon the termination of the respective Pennsylvania Subscriber’s Initial Escrow Period or prior Successive Escrow Period, as applicable, and the Company and the Escrow Agent shall follow the notification and payment procedure set forth in paragraph 3(c) above with respect to the Initial Escrow Period for each 

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Pennsylvania Subscriber’s Successive Escrow Period until the occurrence of the earliest of (i) such time as the Dealer Manager or the Company notifies the Escrow Agent in writing pursuant to paragraph 3(a)(iv) that total subscription proceeds equal or exceed the Pennsylvania Required Capital and the disbursement of the Escrow Account on the terms specified herein, or (ii) all funds held in the Escrow Account having been returned to the Pennsylvania Subscribers in accordance with the provisions hereof.

(e)     If the Company rejects any subscription for which the Escrow Agent has collected funds, the Escrow Agent shall, upon the written request of the Dealer Manager or the Company, promptly issue a refund to the rejected Subscriber at the address provided by the Dealer Manager or the Company, which the Escrow Agent shall be entitled to rely upon.  If the Company rejects any subscription for which the Escrow Agent has not yet collected funds but has submitted the Subscriber’s check for collection, the Escrow Agent shall promptly return the funds in the amount of the Subscriber’s check to the rejected Subscriber, at the address provided by the Dealer Manager or the Company or their respective agents, which the Escrow Agent shall be entitled to rely upon, after such funds have been collected.   

(f)    At any time after funds are disbursed upon the Company’s acceptance of subscriptions pursuant to subparagraph 3(a) above on the fifth business day following the first business day of the next succeeding month following the date of such acceptance, the Escrow Agent shall promptly provide directly to each Subscriber the amount of the interest payable to the Subscribers.  However, the Escrow Agent shall not be required to remit any payments until the Escrow Agent has collected funds represented by such payments.

In the event that the instrument of payment is returned for nonpayment, the Escrow Agent is authorized to debit the Escrow Account in accordance with paragraph 2 hereof.

4.    The Escrow Agent shall provide the Dealer Manager and the Company with electronic access to view the account balance and account activity in the Escrow Account and shall provide the Company printed monthly statements (or more frequently as reasonably requested by the Company) on the account balance of the Escrow Account and the activity in such accounts since the last report.  

5.    Prior to the disbursement of funds deposited in the Escrow Account, in accordance with the provisions of paragraph 3 hereof, the Escrow Agent shall invest all of the funds deposited as well as earnings and interest derived therefrom in the Escrow Account in the “Short-Term Investments” specified below at the written direction of the Company, unless the costs to the Company for the making of such investment are reasonably expected to exceed the anticipated interest earnings from such investment in which case the funds and interest thereon shall remain in the respective escrow account until the balance in the escrow account reaches the minimum amount necessary for the anticipated interest earnings from such investment to exceed the costs to the Company for the making of such investment, as determined by the Company based upon applicable interest rates. In the absence of written direction of the Company, the Escrow Agent is hereby directed to invest all funds deposited in the Escrow Account in UMB Money Market Special, a bank money-market account.
 
“Short-Term Investments” include obligations of, or obligations guaranteed by, the United States government or bank money-market accounts or certificates of deposit of national or state banks that have deposits insured by the Federal Deposit Insurance Corporation (including certificates of deposit of any bank acting as a depository or custodian for any such funds) which mature on or before the Expiration Date, unless such instrument cannot be readily sold or otherwise disposed of for cash by the Expiration Date without any dissipation of the offering proceeds invested.  Without limiting the generality of the foregoing, Exhibit A hereto sets forth specific Short-Term Investments that shall be deemed permissible investments hereunder.

The following securities are not permissible investments: 

(a)    money market funds; 
(b)    corporate equity or debt securities; 
(c)    repurchase agreements; 

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(d)    bankers’ acceptances; 
(e)    commercial paper; and 
(f)    municipal securities. 

It is hereby expressly agreed and stipulated by the parties hereto that the Escrow Agent shall not be required to exercise any discretion hereunder and shall have no investment or management responsibility and, accordingly, shall have no duty to, or liability for its failure to, provide investment recommendations or investment advice to the parties hereto.  It is the intention of the parties hereto that the Escrow Agent shall never be required to use, advance or risk its own funds or otherwise incur financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder.

6.    The Escrow Agent is entitled to rely upon written instructions received from the Company or the Dealer Manager or their respective agents, unless the Escrow Agent has actual knowledge that such instructions are not valid or genuine; provided that, if in the Escrow Agent’s opinion, any instructions from the Company or the Dealer Manager or their respective agents are unclear, the Escrow Agent may request clarification from the Company or the Dealer Manager or their respective agents, as applicable, prior to taking any action, and if such instructions continue to be unclear, the Escrow Agent may rely upon written instructions from the Company’s legal counsel in distributing or continuing to hold any funds.  However, the Escrow Agent shall not be required to disburse any funds attributable to the instrument of payment that have not been processed for collection, until such funds are collected and then shall disburse such funds in compliance with the disbursement instructions from the Company or the Dealer Manager or their respective agents.

7.    If the Offering terminates prior to receipt of the Required Capital or, with respect to Washington Subscribers and Pennsylvania Subscribers, the Washington Required Capital or the Pennsylvania Required Capital, as applicable, interest income earned on subscription proceeds deposited in the Escrow Account (the “Escrow Income”) shall be remitted to Subscribers to the address provided by the Dealer Manager or the Company to the Escrow Agent, which the Escrow Agent shall be entitled to rely upon in accordance with paragraph 3 and without any deductions for escrow expenses.  The Company shall reimburse the Escrow Agent for all escrow expenses.  If the Escrow Agent remits interest income pursuant to this Agreement, the Escrow Agent shall be responsible for any necessary federal tax reporting associated with such income; provided, however, that the Escrow Agent shall not be responsible for any other tax reporting associated with this Agreement.  The Escrow Agent shall remit all such Escrow Income in accordance with paragraph 3.  If the Company chooses to leave the Escrow Account open after receiving the Required Capital then it shall make regular acceptances of subscriptions therein, but no less frequently than monthly, and the Escrow Income from the last such acceptance shall be calculated and remitted to the Subscribers or the Company, as applicable, pursuant to the provisions of paragraph 3(f).

8.    The Escrow Agent shall receive compensation from the Company as set forth in Exhibit B attached hereto, which such Exhibit B is hereby incorporated by reference. 

9.    In performing any of its duties hereunder, the Escrow Agent shall not incur any liability to anyone for any damages, losses, or expenses, except for willful misconduct, breach of trust, or gross negligence.  Accordingly, the Escrow Agent shall not incur any such liability with respect to any action taken or omitted (a) in good faith upon advice of the Escrow Agent’s counsel given with respect to any questions relating to the Escrow Agent duties and responsibilities under this Agreement, or (b) in reliance upon any instrument, including any written instrument or instruction provided for in this Agreement, not only as to its due execution and validity and effectiveness of its provisions but also as to the truth and accuracy of information contained therein, which the Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by a proper person or persons and to conform to the provisions of this Agreement. 

10.    The Company and the Dealer Manager hereby agree to indemnify and hold the Escrow Agent harmless against any and all losses, claims, damages, liabilities, and expenses, including reasonable attorneys’ fees and disbursements, that may be imposed on or incurred by the Escrow Agent in connection with acceptance of 

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appointment as the Escrow Agent hereunder, or the performance of the duties hereunder, including any litigation arising from this Agreement or involving the subject matter hereof, except where such losses, claims, damages, liabilities, and expenses result from willful misconduct, breach of trust, or gross negligence on the part of the Escrow Agent.  Venue for any action or litigation arising between or among the Company and/or Dealer Manager on one hand and the Escrow Agent on the other hand involving the subject matter hereof shall lie exclusively in Orange County, California.

11.    In the event of a dispute between the parties hereto sufficient in the Escrow Agent’s discretion to justify doing so, the Escrow Agent shall be entitled to tender into the registry or custody of any court of competent jurisdiction all money or property in its hands under this Agreement, together with such legal pleadings as deemed appropriate, and thereupon be discharged from all further duties and liabilities under this Agreement. In the event of any uncertainty as to the duties hereunder, the Escrow Agent may refuse to act under the provisions of this Agreement pending order of a court of competent jurisdiction and shall have no liability to the Company or to any other person as a result of such action.  Any such legal action may be brought in such court, as the Escrow Agent shall determine to have jurisdiction thereof.  The filing of any such legal proceedings shall not deprive the Escrow Agent of its compensation earned prior to such filing. 

12.    All communications and notices required or permitted by this Agreement shall be in writing and shall be deemed to have been given when delivered personally or by messenger or by overnight delivery service or when received via telecopy or other electronic transmission, in all cases addressed to the person for whom it is intended at such person’s address set forth below or to such other address as a party shall have designated by notice in writing to the other party in the manner provided by this paragraph: 

(a)    if to the Company: 

18191 Von Karman Avenue, Suite 300
Irvine, California  92612
Attention:  Jeffrey T. Hanson

(b)    if to the Dealer Manager: 

Griffin Capital Securities, Inc.
18191 Von Karman Avenue, Suite 300
Irvine, California  92612
Attention: Charles Huang

(c)    if to the Escrow Agent: 
        
UMB Bank, N.A.
Corporate Trust & Escrow Services
1010 Grand Boulevard, 4th Floor
Kansas City, Missouri 64106
Attention: Lara Stevens

Each party hereto may, from time to time, change the address to which notices to it are to be delivered or mailed hereunder by notice in accordance herewith to the other parties. 

13.    This Agreement shall be governed by the laws of the State of California as to both interpretation and performance without regard to the conflict of laws rules thereof. 

14.    The provisions of this Agreement shall be binding upon the legal representatives, successors, and assigns of the parties hereto. 

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15.    The Company and the Dealer Manager hereby acknowledge that UMB Bank, N.A. is serving as Escrow Agent only for the limited purposes herein set forth, and hereby agree that they will not represent or imply that, by serving as Escrow Agent hereunder or otherwise, the Escrow Agent has investigated the desirability or advisability of investment in the Company or has approved, endorsed, or passed upon the merits of the Stock or the Company, nor shall they use the name of the Escrow Agent in any manner whatsoever in connection with the offer or sale of the Stock other than by acknowledgment that it has agreed to serve as Escrow Agent for the limited purposes herein set forth. 

16.    This Agreement and any amendment hereto may be executed by the parties hereto in one or more counterparts, each of which shall be deemed to be an original. 

17.    In the event that the Dealer Manager receives the instrument of payment after the Required Capital, the Washington Required Capital or the Pennsylvania Required Capital, as applicable, has been received and the proceeds of the Escrow Account have been distributed to the Company, the Escrow Agent is hereby authorized to deposit such instrument of payment within one (1) business day to any deposit account as directed by the Company.  The application of said funds into a deposit account or to forward such funds directly to the Company, in either case directed by the Company, shall be a full acquittance to the Escrow Agent, who shall not be responsible for the application of said funds thereafter. 

18.    The Escrow Agent shall be bound only by the terms of this Agreement and shall not be bound by or incur any liability with respect to any other agreements or understanding between any other parties, whether or not the Escrow Agent has knowledge of any such agreements or understandings. 

19.    Indemnification provisions set forth herein shall survive the termination of this Agreement. 

20.In the event that any part of this Agreement is declared by any court or other judicial or administrative body to be null, void, or unenforceable, said provision shall survive to the extent it is not so declared, and all of the other provisions of this Agreement shall remain in full force and effect.

21.    Unless otherwise provided in this Agreement, final termination of this Agreement shall occur on the date that all funds held in the Escrow Account are distributed either (a) to the Company or to Subscribers and the Company has informed the Escrow Agent in writing to close the Escrow Account pursuant to paragraph 3 hereof or (b) to a successor escrow agent upon written instructions from the Company. 

22.    Neither the Escrow Agent, nor its agents, shall have responsibility for accepting, rejecting, or approving subscriptions.  The Escrow Agent, or its agent, shall complete an OFAC search, in compliance with its policy and procedures, of each subscription check and shall inform the Company if a subscription check fails the OFAC search.  The Dealer Manager shall provide a copy of each subscription check in order that the Escrow Agent, or its agent, may perform such OFAC search.

23.    This Agreement shall not be modified, revoked, released, or terminated unless reduced to writing and signed by all parties hereto, subject to the following paragraph. 

If, at any time, any attempt is made to modify this Agreement in a manner that would increase the duties and responsibilities of the Escrow Agent or to modify this Agreement in any manner which the Escrow Agent shall deem undesirable, or at any other time, the Escrow Agent may resign by providing written notice to the Company and until (a) the acceptance by a successor escrow agent as shall be appointed by the Company; or (b) thirty (30) days after such written notice has been given, whichever occurs sooner, the Escrow Agent’s only remaining obligation shall be to perform its duties hereunder in accordance with the terms of the Agreement. 

24.    The Escrow Agent may resign at any time from its obligations under this Agreement by providing written notice to the Company.  Such resignation shall be effective on the date specified in such notice, which shall be 

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not less than thirty (30) days after such written notice has been given.  The Escrow Agent shall have no responsibility for the appointment of a successor escrow agent. 

25.    The Escrow Agent may be removed for cause by the Company by written notice to the Escrow Agent effective on the date specified in such written notice.  The removal of the Escrow Agent shall not deprive the Escrow Agent of its compensation earned prior to such removal. 

26.    The Company shall provide to Escrow Agent any documentation and information reasonably requested by the Escrow Agent for it to comply with the USA PATRIOT Act of 2001, as amended from time to time.

27.    If any state securities administrator requires the Company to cause the Escrow Agent to notify such administrator when the Escrow Agent releases the funds in the Escrow Account to the Company, the Company shall notify the Escrow Agent of such requirement, and provide the Escrow Agent with the contact information for such administrator.  The Escrow Agent agrees to notify such administrator in writing when the Escrow Agent releases such funds to the Company.  The Escrow Agent agrees to permit state securities administrators to inspect the Escrow Agent’s records related to the Escrow Account at any reasonable time at the location where the records are located, and to copy any records that are inspected.

28.     The parties hereto agree that the transactions described herein may be conducted and related documents may be stored by electronic means.  Copies, telecopies, facsimiles, electronic files and other reproductions of original executed documents shall be deemed to be authentic and valid counterparts of such original documents for all purposes, including the filing of any claim, action or suit in the appropriate court of law.

[Signature page follows]

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Agreed to as of the ____ day of ______, 2013.

GRIFFIN-AMERICAN HEALTHCARE REIT III, INC., 
a Maryland corporation

By:                          
Name:                          
Title:                          

GRIFFIN CAPITAL SECURITIES, INC.,
a California corporation 

By:                          
Name:                          
Title:                          

The terms and conditions contained above are hereby accepted and agreed to by: 

UMB Bank, N.A., as Escrow Agent

By:            
Name:  Lara Stevens
Title:  Vice President

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EXHIBIT A

PERMISSIBLE ESCROW INVESTMENTS

		
	(i)
	Bank accounts;

		
	(ii)
	Bank money-market accounts;

		
	(iii)
	Short time certificates of deposit issued by a bank; and

		
	(iv)
	Short-term securities issued or guaranteed by the U.S. government

EXHIBIT B

ESCROW FEES AND EXPENSES

Acceptance Fee 
Review document, establish accounts, and            $1,750
Set up recon file/feeds with Transfer Agent

Quarterly Fee 
Escrow Agent                            $500
Expense Reimbursement                     $350 (est)
(described in #4 below)

Transactional Fees
Outgoing Wire Transfer                        $15 each
BAI File to DST                        $2.50 per Bus Day
Wire Ripping to DST                        $10 per Bus Day
Web Exchange (online) Access                    $60 per month
Overnight Delivery/Mailings                    $16.50 each
IRS Tax Reporting (if required)                    $10 per 1099

		
	1.
	Acceptance fee will be payable at the initiation of the escrow.  

		
	2.
	Quarterly and Transactional fees will be billed quarterly in arrears.  

		
	3.
	Fees specified are for the regular, routine services contemplated by the Escrow Agreement, and any additional or extraordinary services, including, but not limited to disbursements involving a dispute or arbitration, or administration while a dispute, controversy or adverse claim is in existence, will be charged based upon time required at the then standard hourly rate. 

		
	4.
	All expenses related to the administration of the escrow account, such as overhead expenses, travel, postage, shipping, courier, telephone, facsimile, supplies, legal fees, accounting fees, etc., will be reimbursable. 

EXHIBIT C

FORM OF NOTICE TO PENNSYLVANIA SUBSCRIBERS  

Name:                            
Address:                             

Dear             :
You submitted a subscription to purchase shares of Griffin-American Healthcare REIT III, Inc. (the “Company”).  Your subscription is currently being held in escrow because the guidelines of the Pennsylvania Securities Commission do not permit the Company to accept subscriptions from Pennsylvania residents until an aggregate of $87,500,000 of gross offering proceeds have been received by the Company.  Until this minimum amount of offering proceeds is received by the Company, we are required to offer to return your money every 120 days.  
If you wish to continue your subscription in escrow until the Pennsylvania minimum subscription amount is received, no further action is required.  Thank you for your continued confidence. 
If you wish to terminate your subscription for the Company’s common stock and have your subscription returned, please so indicate below, sign, date, and return to Griffin-American Healthcare REIT II, Inc., c/o DST Systems, Inc., 430 W. 7th Street, Kansas City, MO 64105 or by fax to (___) ________. 

*     *    *

I am a resident of Pennsylvania and I hereby terminate my prior subscription to purchase shares of common stock of Griffin-American Healthcare REIT III, Inc. and request the return of my subscription funds.  

Signature:                            

Name:                              
        (please print)

Date:                              

C-1

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