EMPLOYMENT AGREEMENT

This Employment Agreement, dated as of June 20, 2013 (the “Agreement”), is made between Kindred Biosciences, Inc. (the “Company” or “Kindred”), and Denise Bevers (“Executive”).

1.    Employment.

(a)    Title and Duties. The Company will employ Executive, and Executive will be employed by the Company, as Chief Operating Office (“COO”), reporting to the CEO of the Company (the “CEO”). Executive will have the responsibilities, duties and authority commensurate with said position.

(b)    Devotion to Duties. For so long as Executive is employed hereunder, Executive will faithfully execute the responsibilities of the COO position, as may be defined by the CEO from time to time.

2.    Term of Employment.

(a)    Term. The Executive’s employment by the Company under this Agreement shall commence on July 1, 2013 (the “Commencement Date”). The Executive is employed on an at-will basis and, subject to the provisions of Section 4, either the Executive or the Company may terminate the employment relationship at any time for any reason. The duration of Executive’s employment is hereafter referred to as the “Term.”

(b)    Termination. Notwithstanding anything else contained in this Agreement, Executive’s employment hereunder will terminate upon the earliest to occur of the following:

(i)    Death. Immediately upon Executive’s death;

(ii)    Disability. Immediately upon Executive’s disability. For purposes of this Agreement, “Disability” shall mean Executive’s inability, in good faith judgment of the Company, to further perform Executive’s duties and responsibilities as contemplated herein because Executive’s physical or mental health has become so impaired as to make such performance impossible or impractical, which inability continues for one hundred twenty (120) days or more within any twelve (12) month period (either consecutively or cumulatively).

(iii)    Termination by the Company.

(A)    If for Cause, then upon written notice to Executive by the Company to Executive that states that Executive’s employment is being terminated for Cause (as defined below) and sets forth the specific alleged Cause for termination and the factual basis supporting the alleged Cause, which termination shall be effective on the date of such notice or such later date as specified in writing by the CEO; or

(C)    If without Cause (i.e., for reasons other than Sections 2(b)(ii)(A) or (B)), then upon written notice by the Company to Executive that Executive’s employment is being terminated without Cause, which termination shall be effective on the date of such notice or such later date as specified in writing by the CEO; or

(iii)    Termination by Executive.

(A)    If for Good Reason (as defined below), then upon written notice by Executive to the Company that states that Executive is terminating Executive’s employment for Good Reason (as defined below) and that sets forth the specific alleged Good Reason for termination and the factual basis supporting the alleged Good Reason, which termination shall be effective thirty (30) days after the date of such notice; provided that if the Company

has cured the circumstances giving rise to the Good Reason by such date, then such termination shall not be effective; or

(B)    If without Good Reason, then upon written notice by Executive to the Company that Executive is terminating Executive’s employment, which termination shall be effective immediately after the date of such notice.

Notwithstanding anything in this Section 2(b), the Company may at any point terminate Executive’s employment for Cause prior to the effective date of any other termination contemplated hereunder if such Cause exists.

(c)    Definition of “Cause”. For purposes of this Agreement, “Cause” shall mean that either Executive has (i) been grossly negligent in the performance of Executive’s duties to the Company; (ii) been convicted of, or pleaded guilty or nolo contendre, to a felony; (iii) committed a criminal act relating to the Executive’s employment or the Company involving, in the good faith judgment of the CEO, fraud, or theft, but excluding any conviction which results solely from Executive’s title or position with the Company and is not based on her personal conduct; (vi) breached any material provision of this Agreement or of any nondisclosure or non-competition agreement (including the Confidentiality, Non-Competition and Intellectual Property Agreement attached here as Exhibit A), between Executive and the Company, as all of the foregoing may be amended prospectively from time to time; (vii) intentionally breached a material provision of any code of conduct or ethics policy in effect at the Company, as all of the foregoing may be amended prospectively from time to time; or (viii) failed to perform any of her material obligations under this Agreement or failed to execute and perform any directions of the CEO.

(d)    Definition of “Good Reason”. For the purposes of this Agreement, “Good Reason” shall mean: without the Executive’s express written consent, a material reduction by the Company in the Executive’s total compensation as in effect on the date hereof or as the same may be increased from time to time.

(e)    Definition of “Change in Control”. “Change in Control” of Kindred Biosciences, Inc. as used in this Agreement shall mean the following, but only to the extent it is interpreted in a manner consistent with the meaning of “a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” under Section 409A of Internal Revenue Code of 1986, as amended (“Code Section 409A”), and any successor statute, regulation and guidance thereto, and limited to the extent necessary so that it will not cause adverse tax consequences with respect to Code Section 409A: (i) a merger or consolidation of the Company whether or not approved by the CEO of Directors, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (ii) the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

3.    Compensation.

(a)    Base Salary. While Executive is employed hereunder, the Company will pay Executive a base salary at the gross annualized rate of $195,000 (the “Base Salary”), paid in accordance with the Company’s usual payroll practices. The Base Salary will increase to $225,000 automatically upon Financing Event (defined below) with proceeds of at least $20,000,000 (cumulative), unless the Base Salary at that time is greater than $225,000. The Base Salary will be subject to review annually and may be adjusted upwards in the discretion of the CEO and the Board of Directors. The Company will deduct from each such installment any amounts required to be deducted or withheld under applicable law or under any employee benefit plan in which Executive participates.

(b)    Annual Bonus. Executive may be eligible to earn an Annual Bonus relating to each fiscal year, based on the achievement of individual and Company written goals established on an annual basis by the CEO. If the Executive meets the applicable goals, then the Executive may be awarded a bonus for that year up to 25% of her then-current Base Salary. Such bonus is wholly discretionary, and is dependent on several factors including the performance of the company. The Executive is not entitled to a bonus solely as result of meeting her goals.

(c)    Equity Compensation.

(i)    At the first board meeting after July 1, 2013, the Company will grant to Executive options of the Company’s common stock equivalent in number to 2% of the outstanding shares which options will vest in annual increments over the four (4) year period following the date of grant, with vesting to begin on the one (1) year anniversary of the Commencement Date, with 25% of the total number of shares vesting and 1/48th of the total number of shares vesting monthly thereafter until fully vested.

(ii)     On an annual basis, the Company will grant to the Executive options of the Company’s common stock in the following amount: 1) if the annual salary at the time of grant is less than $200,000 then equivalent in number to 0.5% of the outstanding shares, 2) if the annual salary at the time of grant is greater than or equal to $200,000 then equivalent in number to 0.3% of the outstanding shares. The options will vest in annual increments over the four (4) year period following the date of grant, with vesting to begin on the one (1) year anniversary of the grant date, with 25% of the total number of shares vesting and 1/48th of the total number of shares vesting monthly thereafter until fully vested.

(d)    Fringe Benefits. In addition to any benefits provided by this Agreement, Executive shall be entitled to participate in all benefits maintained by the Company from time to time. Executive understands that, except when prohibited by applicable law, the Company's benefit plans and fringe benefits may be amended, enlarged, diminished or terminated prospectively by the Company from time to time.

(e)    Vacation. Executive will be entitled to accrue up to twenty vacation days per year that Executive remains employed by the Company. Executive’s vacation may be carried over from one calendar year to the next in accordance with Company policy.

(f)    Reimbursement of Expenses. The Company will promptly reimburse Executive for all ordinary and reasonable out-of-pocket business expenses that are incurred by Executive in furtherance of the Company’s business.

(g)     Relocation . As a condition of his employment hereunder, Executive is expected to relocate to San Francisco if the CEO deems such relocation to be necessary to meet business needs. The Company shall reimburse Executive for up to $100,000 in Relocation Expenses relating to such relocation. For purposes hereof, “Relocation Expenses” shall mean reasonable expenses incurred by Executive related to costs of looking for a new primary residence, costs associated with the sale of Executive’s old residence and the purchase of Executive’s new residence (but excluding taxes or the actual purchase price of such residence), and the physical movement of all goods and vehicles that are in Executive’s California home. The foregoing notwithstanding, if within one (1) year of the relocation date, Executive’s employment with the Company is terminated either by the Company for Cause or voluntarily by Executive in the absence of a Good Reason, then Executive shall repay to the Company the amount of the actually-reimbursed Relocation Expenses multiplied by a fraction, the numerator of which equals the number of days from the effective date of such termination to the first anniversary of Executive’s relocation date and the denominator of which will be 365 (and the Company may withhold such amount from any payments otherwise due to Executive).

(h)     Definition of “Financing Event.” For purposes of this Agreement, “Financing Event” shall mean equity financing by the Company, in which the equity is purchased by investors. Cumulative amount of proceeds shall mean the total amount of equity purchased by investors since the founding of the company.

4.    Severance Compensation.

(a)    Definition of Accrued Obligations. For purposes of this Agreement, “Accrued Obligations” means (i) the portion of Executive’s Base Salary that has accrued prior to any termination of Executive’s employment with the Company and has not yet been paid; (ii) to the extent required by law and the Company’s policy, an amount equal to the value of Executive’s accrued unused vacation days; and (iii) the amount of any expenses properly incurred by Executive on behalf of the Company prior to any such termination and not yet reimbursed. Executive's entitlement to any other compensation or benefit under any plan or policy of the Company, including but not limited to applicable option plans, shall be governed by and determined in accordance with the terms of such plans or policies, except as otherwise specified in this Agreement.

(b)    Termination By the Company for Cause, By the Executive Without Good Reason, or as a Result of Executive’s Disability or Death. If Executive’s employment hereunder is terminated either by the Company for Cause, or by Executive without Good Reason, the Company will pay the Accrued Obligations to Executive within 7 days following the effective date of such termination and shall have no further obligations to Executive.

(c)    Termination By the Company Without Cause, By Executive With Good Reason. If Executive’s employment hereunder is terminated by the Company without Cause, by Executive with Good Reason, or if Executive’s employment terminates as a result of the Executive’s disability or death, then:

(i)    The Company will pay the Accrued Obligations to Executive promptly following the effective date of such termination;

(ii)    The Company will pay Executive a total amount equal to six (6) months of Executive’s then current Base Salary, less applicable taxes and deductions; such payment to be made within 7 days of termination.

(iii)    The Company will continue to provide medical insurance coverage for Executive and Executive’s family at no cost to Executive for eighteen (18) months; provided, that the Company shall have no obligation to provide such coverage if Executive fails to elect COBRA benefits in a timely fashion or if Executive becomes eligible for medical coverage with another employer; and

(d)    Termination Following A Change In Control. If Executive’s employment is terminated within the twelve (12) month period following a Change in Control by the Company, then the Executive shall be entitled to receive the payments and benefits set forth in Section 4(c) above, and

(i)     Any options or restricted stock previously awarded to Executive shall vest and be immediately exercisable by the Executive.

(e)    Release of Claims/COO Resignation. The Company shall not be obligated to provide Executive any of the benefits or equity acceleration set forth in Section 4(c) until Executive has (i) executed a separation agreement in a form mutually acceptable to the Company and the Executive, which shall include a releases of claims between the Company and the Executive, including provisions regarding mutual non-disparagement and confidentiality; and (ii) resigned from the CEO, if so requested pursuant to Section 2(g).

(f)    No Other Payments or Benefits Owing. The payments and benefits set forth in this Section 4 shall be the sole amounts owing to Executive as separation pay upon termination of Executive’s employment. Executive shall not be eligible for any other payments, including but not limited to additional Base Salary payments, bonuses, commissions, or other forms of compensation or benefits, except as may otherwise be set

forth in this Agreement or other Company plan documents with respect to plans in which Executive is a participant.

5.    Confidentiality and Competition. Executive agrees to the Confidentiality and Intellectual Property Agreement attached hereto as Exhibit B.

6.    Property and Records. Upon termination of Executive’s employment, Executive will deliver to the Company any property of the Company which may be in Executive’s possession.

7.    General.

(a)    Notices. Except as otherwise specifically provided herein, any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notices to Executive shall be sent to the last known address in the Company's records or such other address as Executive may specify in writing. Notices to the Company shall be sent to the Company's Chairman or to such other Company representative as the Company may specify in writing.

(b)    Entire Agreement/Modification. This Agreement, together with the Confidentiality, Non-Competition and Intellectual Property Agreement attached hereto and the other agreements specifically referred to herein, embodies the entire agreement and understanding between the parties hereto and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement (or in a subsequent written modification or amendment executed by the parties hereto) will affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.

(c)    Waivers and Consents. The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent will be deemed to be or will constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent will be effective only in the specific instance and for the purpose for which it was given, and will not constitute a continuing waiver or consent.

(d)    Assignment and Binding Effect. The Company may assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of the Company’s business or that aspect of the Company’s business in which Executive is principally involved. Executive may not assign Executive’s rights and obligations under this Agreement without the prior written consent of the Company. This Agreement shall be binding upon Executive, Executive’s heirs, executors and administrators and the Company, and its successors and assigns, and shall inure to the benefit of Executive, Executive’s heirs, executors and administrators and the Company, and its successors and assigns.

(e)    Indemnification. The Company shall indemnify Executive to the fullest extent permitted by law against any expenses, judgments, fines, penalties and amounts paid in settlement in connection with any Company related proceeding in which Executive is involved.

(f)    Governing Law/Jury Waiver. This Agreement and the rights and obligations of the parties hereunder will be construed in accordance with and governed by the law of the state of California, without giving effect to conflict of law principles. Both you and the Company hereby waive your right to jury trial with respect to any claims related to this Agreement or to your employment with the Company.

(g)    Severability. The parties intend this Agreement to be enforced as written. However, should any provisions of this Agreement be held by a court of law to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby.

10.    Counterparts. This Agreement may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. For all purposes a signature by fax shall be treated as an original.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

DENISE BEVERS                Kindred Biosciences, Inc.

            

____/s/ Denise Bevers_________________        By:_____/s/ Richard Chin__________________

Signature                    Name:    Richard Chin

    Title: CEO

 

Exhibit A