FORM OF NOTICE OF GRANT OF STOCK AND STOCK OPTION AGREEMENT

EXHIBIT 10.2

Grant No.                             

Notice of Grant of Stock Option

(2002 Outside Directors Stock Option Plan)

PDL BioPharma, Inc., a Delaware corporation (the “ Company ”), has granted                              (the “ Optionee ”) an option (the “ Option ”) to purchase shares of Stock pursuant to the Company’s 2002 Outside Directors Stock Option Plan (the “ Plan ”), as follows:

By their signatures below, the parties hereto agree that the Option is governed by the terms and conditions of the Stock Option Agreement attached to and made a part of this document. The Optionee acknowledges receipt of a copy of the Stock Option Agreement, represents that the Optionee is familiar with its provisions, and hereby accepts the Option subject to all of its terms and conditions. Capitalized terms used without definition in this Notice have the meanings ascribed to them in the Plan.

ATTACHMENTS :

Stock Option Agreement (Outside Director)

Exercise Notice

Grant No.                             

Stock Option Agreement (Outside Director)

PDL BioPharma, Inc., a Delaware corporation (the “ Company ”), has granted to the individual (the “ Optionee ”) named in the Notice of Grant of Stock Option (the “ Notice ”) to which this Stock Option Agreement (Outside Director) (this “ Option Agreement ”) is attached an option (the “ Option ”) to purchase certain shares of Stock upon the terms and conditions set forth in this Option Agreement and the Notice. The Option has been granted pursuant to the Company’s 2002 Outside Directors Stock Option Plan (the “ Plan ”). By signing the Notice, the Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement and accepts the Option subject to all of the terms and provisions hereof. The Optionee agrees to accept as final and binding all decisions or interpretations of the Board upon any questions arising under the Notice, this Option Agreement or the Plan.

1. Definitions and Construction .

1.1 Definitions. Whenever used herein, capitalized terms shall have the meanings as set forth below:

(a) “ Board ” means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, “ Board ” also means such Committee(s).

(b) “ Change in Control ” means the occurrence of any of the following:

(i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing forty percent (40%) or more of (i) the outstanding shares of common stock of the Company or (ii) the total combined voting power of the Company’s then-outstanding securities entitled to vote generally in the election of directors;

(ii) the Company is party to a merger or consolidation which results in the holders of the voting securities of the Company outstanding immediately prior thereto failing to retain immediately after such merger or consolidation direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the securities entitled to vote generally in the election of directors of the Company or the surviving entity outstanding immediately after such merger or consolidation; or

(iii) the sale or disposition of all or substantially all of the Company’s assets or consummation of any transaction having similar effect (other than a sale or disposition to one or more subsidiaries of the Company).

(c) “ Code ” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

Grant No.                             

(d) “ Committee ” means the committee of the Board, if any, duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law.

(e) “ Company ” means PDL BioPharma, Inc., a Delaware corporation, or any successor corporation thereto.

(f) “ Director ” means a member of the Board.

(g) “ Disability ” means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code.

(h) “ Employee ” means any person treated as an employee in the records of the Company or any Parent Corporation or Subsidiary Corporation.

(i) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(j) “ Fair Market Value ” means, as of any date, the value of a share of Stock or other property as determined by the Board, in its discretion, subject to the following:

(i) If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing sale price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Board deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its discretion.

(ii) If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse.

(k) “ Parent Corporation ” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.

(l) “ Securities Act ” means the Securities Act of 1933, as amended.

Grant No.                             

(m) “ Service ” means the Optionee’s service with the Company as a Director. The Optionee’s Service shall be deemed to have terminated if the Optionee ceases to be a Director, even if the Optionee continues or commences to render service to the Company or to a Parent Corporation or Subsidiary Corporation in a capacity other than as a Director. The Optionee’s Service with the Company shall not be deemed to have terminated if the Optionee takes any bona fide leave of absence approved by the Company. Notwithstanding the foregoing, unless otherwise required by law, the Company may provide that an approved leave of absence shall not be treated as Service for purposes of determining vesting under the Option Agreement. Subject to the foregoing, the Company, in its discretion, shall determine whether the Optionee’s Service has terminated and the effective date of such termination.

(n) “ Stock ” means the common stock of the Company, as adjusted from time to time in accordance with Section 9.

(o) “ Subsidiary Corporation ” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.

1.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

2. Tax Status of Option . This Option is intended to be a Nonstatutory Stock Option and shall not be treated as an “incentive stock option” within the meaning of Section 422(b) of the Code.

3. Administration . All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. The Chief Executive Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein.

4. Exercise of the Option .

4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable prior to the termination of the Option (as provided in Section 6) in an amount not to exceed that portion of the Number of Option Shares (as adjusted pursuant to Section 9) which have become Vested Shares less the number of shares previously acquired upon exercise of the Option.

4.2 Method of Exercise. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and

Grant No.                             

must be delivered to the Chief Financial Officer, Controller or Stock Administrator of the Company, or other authorized representative of the Company, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price (as set forth in the Notice) for the number of shares of Stock being purchased and the tax withholding obligations, if any, as provided in Section 4.4. The Option shall be deemed to be exercised upon receipt by the Company of such written notice, the aggregate Exercise Price, and tax withholding obligations, if any.

4.3 Payment of Exercise Price.

(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Optionee having a Fair Market Value not less than the Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(b)(ii), or (iv) by any combination of the foregoing.

(b) Limitation on Forms of Consideration .

(i) Tender of Stock. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of shares of Stock. The Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.

(ii) Cashless Exercise. A “ Cashless Exercise ” means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to decline to approve