Exhibit 10.2
 
FORM OF
 
XOMA LTD.
 
CHANGE OF CONTROL SEVERANCE AGREEMENT

 
This Change of Control Severance Agreement (the “Agreement”) is made and entered
into effective as of _______, 2006 (the “Effective Date”), by and between
___________ (the “Employee”) and XOMA Ltd., a Bermuda company (the “Company”).
 
R E C I T A L S
 
A. It is expected that the Company may from time to time consider the
possibility of a Change of Control (as hereinafter defined). The Board of
Directors of the Company (the “Board”) recognizes that such consideration could
be a distraction to the Employee and could cause the Employee to consider
alternative employment opportunities.
 
B. The Board believes that it is in the best interest of the Company and its
shareholders to provide the Employee with an incentive to continue the
Employee’s employment and to maximize the value of the Company upon a Change of
Control for the benefit of its shareholders.
 
C. In order to provide the Employee with enhanced financial security and
sufficient encouragement to remain with the Company notwithstanding the
possibility of a Change of Control, the Board believes that it is imperative to
provide the Employee with certain severance benefits upon the Employee’s
termination of employment following a Change of Control.
 
D. XOMA (US) LLC, a wholly-owned subsidiary of the Company, and the Employee
have previously entered into an employment agreement effective as of _______,
2006 (the “Existing Agreement”), which provides the Employee with certain
severance benefits upon the Employee’s termination of employment.
 
E. The parties intend that this Agreement shall operate in addition to, and not
in replacement of, the Existing Agreement.
 
AGREEMENT
 
In consideration of the mutual covenants herein contained and the continued
employment of the Employee by the Company, the parties agree as follows:
 
1.  Definition of Terms. The following terms referred to in this Agreement shall
have the following meanings:
 
 
(a)  “Cause” shall mean (i) the Employee has been convicted of any crime or
offense constituting a felony under applicable law, including, without
limitation, any act of dishonesty such as embezzlement, theft or larceny,
(ii) the Employee has acted or refrained from
 

 
 

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acting in respect of any of the duties and responsibilities which have been
assigned to her/him in accordance with this Agreement or the Existing Agreement
and shall fail to desist from such action or inaction within thirty (30) days
after the Employee’s receipt of notice from the Company of such action or
inaction and the Board determines that such action or inaction constituted gross
negligence or a willful act of malfeasance or misfeasance of the Employee in
respect of such duties, or (iii) the Employee has breached any material term of
this Agreement or the Existing Agreement and shall fail to correct such breach
within thirty (30) days after the Employee’s receipt of notice from the Company
of such breach.
 
 
(b)  “Change of Control” shall mean the occurrence of any of the following
events:
 
 
(i)  a merger, amalgamation or acquisition in which the Company is not the
surviving or continuing entity, except for a transaction the principal purpose
of which is to change the jurisdiction of the Company’s organization;
 
 
(ii)  the sale, transfer or other disposition of all or substantially all of the
assets of the Company;
 
 
(iii)  any other reorganization or business combination in which fifty percent
(50%) or more of the Company’s outstanding voting securities are transferred to
different holders in a single transaction or series of related transactions;
 
 
(iv)  any approval by the shareholders of the Company of a plan of complete
liquidation of the Company;
 
 
(v)  any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the total voting power
represented by the Company’s then outstanding voting securities; or
 
 
(vi)  a change in the composition of the Board, as a result of which fewer than
a majority of the directors are Incumbent Directors. “Incumbent Directors” shall
mean directors who (A) are directors of the Company as of the date hereof, (B)
are elected, or nominated for election, to the Board with the affirmative votes
of the directors of the Company as of the date hereof, or (C) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of those directors whose election or nomination was not in connection
with any transaction described in subsections (i) through (v) or in connection
with an actual or threatened proxy contest relating to the election of directors
of the Company.
 
 
(c)  “Change of Control Protection Period” shall mean the period commencing one
(1) month prior to the execution of the definitive agreement for a Change of
Control and eighteen (18) months following the closing of a Change of Control.
 

 
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(d)  “Compensation Continuation Period” shall mean the period of time commencing
with termination of the Employee’s employment as a result of Involuntary
Termination at any time within a Change of Control Protection Period and ending
with the date ______ months following the date of the Employee’s Involuntary
Termination.
 
 
(e)  “Code” shall mean the Internal Revenue Code of 1986, as amended.
 
 
(f)  “Involuntary Termination” shall mean (i) the failure of a successor or an
acquiring company to offer the Employee the position held by Employee on the
date of this Agreement (or, if higher, a subsequent position of the Employee)
with the successor or acquiring company following a Change of Control;
(ii) without the Employee’s express written consent, a substantial reduction,
without good business reasons, of the rights, privileges and perquisites
available to the Employee immediately prior to such reduction; (iii) without the
Employee’s express written consent, a material diminution in the authority,
responsibilities, duties or reporting lines held or possessed by the Employee
prior to the Change of Control; (iv) without the Employee’s express written
consent, a reduction by the Company of the Employee’s base salary or target
bonus as in effect immediately prior to such reduction; (v) without the
Employee’s express written consent, a material reduction by the Company in the
kind or level of employee benefits to which the Employee is entitled immediately
prior to such reduction with the result that the Employee’s overall benefits
package is significantly reduced; (vi) without the Employee’s express written
consent, the relocation of the regular offices of the Employee to a facility or
a location more than thirty (30) miles further from the Employee’s current
location (unless such new facility or location is closer to the Employee’s
residence); (vii) any purported termination of the Employee by the Company which
is not effected for Cause or for which the grounds relied upon are not valid; or
(viii) the failure of the Company to obtain the assumption of this Agreement by
any successors contemplated in Section 7 below.
 
 
2.  Term of Agreement. This Agreement shall terminate upon the date that all
obligations of the parties hereto under this Agreement have been satisfied or,
if earlier, on the date, prior to a Change of Control Protection Period, the
Employee is no longer employed by the Company.
 
 
3.  At-Will Employment. The Company and the Employee acknowledge that the
Employee’s employment is and shall continue to be at-will, as defined under
applicable law. If the Employee’s employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement or the Existing Agreement
or as may otherwise be established under the Company’s then existing employee
benefit plans or policies at the time of termination.
 
 
4.  Change of Control and Severance Benefits.
 
 
(a)  Option Acceleration and Extended Exercise Period. If the Employee’s
employment with the Company terminates as a result of an Involuntary Termination
at any time within a Change of Control Protection Period, then the
exercisability of all options granted to the Employee by the Company (including
any such options granted or assumed by the sur-
 

 
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viving or continuing entity of the Change of Control) and still outstanding (the
“Options”) shall automatically be accelerated so that all the Options may be
exercised immediately upon such Involuntary Termination for any or all of the
shares subject thereto and the post-termination exercise period shall be
extended to sixty (60) months or the remainder of the maximum term of the
Options (or such shorter period of time to avoid the application of Section 409A
of the Code). The Options shall continue to be subject to all other terms and
conditions of the Company’s share option plans and the applicable option
agreements between the Employee and the Company.
 
 
(b)  Outplacement Program. If the Employee’s employment with the Company
terminates as a result of an Involuntary Termination at any time within a Change
of Control Protection Period, the Employee will immediately become entitled to
participate in a twelve (12) month executive outplacement program provided by an
executive outplacement service, at the Company’s expense not to exceed fifteen
thousand dollars ($15,000).
 
 
(c)  Termination Following a Change of Control.
 
 
(i)  Cash Severance Payment Upon Involuntary Termination. If the Employee’s
employment with the Company terminates as a result of an Involuntary Termination
at any time within a Change of Control Protection Period, then the Employee
shall be entitled to receive a severance payment equal to the sum of (A) an
amount equal to ____ times the Employee’s annual base salary as in effect
immediately prior to the Involuntary Termination, plus (B) an amount equal to
____ times Employee’s target bonus as in effect for the fiscal year in which the
Involuntary Termination occurs. Such severance payments shall be in lieu of any
other severance payment to which the Employee shall be entitled as a result of
such termination pursuant to this Agreement, any employment agreement with or
offer letter from the Company or any of its affiliates or the Company’s or any
of its affiliate’s then existing severance plans and policies. The severance
payment described in Section 4(c)(i)(A) shall be paid in monthly installments
over ______ months, beginning within thirty (30) days of the termination,
provided, however, if the Employee is employed with another employer at any time
within ______ months following the termination, then, to the extent permitted
under Section 409A of the Code and the final rules and regulations promulgated
thereunder, any remaining unpaid installment payments shall be paid in a lump
sum within 30 days of the receipt by the Company of written notice and
confirmation of such new employment. The severance payment described in Section
4(c)(i)(B) shall be paid in a lump sum within thirty (30) days of the
termination.
 
 
(ii)  Provision of Group Health and Certain Other Benefits. In addition, during
a period of ______ months following the termination of Employee’s employment as
a result of an Involuntary Termination at any time within a Change of Control
Protection Period, (A) the Company shall make available and pay for the full
cost of the coverage (plus an additional amount to pay for the taxes on such
payments, if any, plus any taxes on such additional amount) of the Employee and
Employee’s spouse
 

 
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and eligible dependents under any group health plans of the Company on the date
of such termination of employment at the same level of health (i.e., medical,
vision and dental) coverage and benefits as in effect for the Employee or such
covered dependents on the date immediately preceding the date of the Employee’s
termination; provided, however, that (1) the Employee and Employee’s spouse and
eligible dependents each constitutes a qualified beneficiary, as defined in
Section 4980B(g)(1) of the Internal Revenue Code of 1986, as amended; and
(2) the Employee elects continuation coverage pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), within the time
period prescribed pursuant to COBRA; and (B) if Employee is, at the time of such
termination, an eligible participant in the Company’s mortgage differential
program, the Company shall continue to make mortgage assistance payments to
Employee pursuant to such program as in effect at the time of such termination.
Notwithstanding the foregoing, the payments by the Company for such group health
coverage and/or mortgage assistance, as applicable, shall cease prior to the
expiration of the ______ month period in this Section 4(c)(ii) upon the
employment of the Employment by another employer. Furthermore, if, at the time
of the termination of Employee’s employment as a result of an Involuntary
Termination at any time within a Change of Control Protection Period, Employee
is the obligor of a “forgivable” loan (i.e., a loan which by its terms is to be
considered forgiven by the Company and paid by the obligor in circumstances
other than actual repayment) from the Company, then, notwithstanding any
provisions of such loan to the contrary, such loan shall remain outstanding, and
the forgiveness thereof shall continue, for a period of ______ months following
such termination in accordance with the terms of such loan in effect at the time
of such termination; provided, however, that at the end of such period of ______
months, the outstanding balance of such loan shall be immediately due and
payable, together with any accrued and unpaid interest thereon.
 
 
(iii)  Section 409A of the Code. Notwithstanding the foregoing clauses (i) and
(ii), to the extent any of the severance payments, mortgage assistance payments
or loan forgiveness referred to therein, or any taxes payable on the health
benefits referred to therein, would be deemed made in connection with a
“separation from service” within the meaning of the term in Section
409A(a)(2)(A)(i) of the Code to a “specified employee” within the meaning of the
term in Section 409A(a)(2)(B(i) of the Code, and not exempt from the
requirements of Section 409A of the Code, then such payments or forgiveness, as
the case may be, shall be postponed until six (6) months following the
Employee’s termination from employment as required by Section 409A of the Code,
provided, however, if prior to the expiration of such six-month period, the
Employee dies or becomes “disabled” within the meaning of the term in Section
409A(a)(2)(c) of the Code, or suffers an “unforeseeable emergency” within the
meaning of the term in Section 409A(a)(2)(B)(ii), or there has occurred a
subsequent “change in the ownership or effective control” of the Company or in
the “ownership of a substantial portion of the assets” of the Company within the
meaning of such phrases in Section 409A(a)(2)(A)(v) of the Code, then such
payments or forgiveness, as the case may be, shall commence prior to expiration
of the six month pe-
 

 
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riod according to the original payment schedule for such payments to the extent
permitted by Section 409A of the Code. Thus, for example, if the provision in
the preceding sentence applies, the first six (6) monthly installments of the
severance payments provided for in clause (i) above shall be paid immediately
following the six (6) month period in a lump sum and the seventh (7th) through
______ installments shall be paid according to their original schedule provided
that the Employee does not die, become “disabled,” or suffer an “unforeseeable
emergency,” and there has not occurred a “change in the ownership or effective
control” of the Company or in the “ownership of a substantial portion of the
assets” of the Company during such six-month period.
 
 
(iv)  Voluntary Resignation or Termination for Cause. If the Employee’s
employment with the Company terminates as a result of the Employee’s voluntary
resignation which is not an Involuntary Termination or if the Employee is
terminated for Cause at any time after a Change of Control, then the Employee
shall not be entitled to receive severance or other benefits hereunder, but may
be eligible for those benefits (if any) as may then be established under the
Company’s then existing severance and benefits plans and policies at the time of
such termination.
 
 
(d)  Disability or Death. If the Employee’s employment with the Company
terminates due to the Employee’s death or disability following a Change of
Control, then the Employee shall not be entitled to receive severance or other
benefits hereunder, except for those (if any) as may be then established under
the Company’s then existing severance and benefits plans and policies at the
time of such disability or death. In the event of the Employee’s death or
disability after the termination of the Employee’s employment with the Company
as a result of an Involuntary Termination within a Change of Control Protection
Period, the Employee’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees shall be
entitled to receive severance or other benefits hereunder.
 
 
(e)  Accrued Wages and Vacation; Expenses. Without regard to the reason for, or
the timing of, the Employee’s termination of employment (and without duplication
of any similar benefits under any employment agreement with the Company or any
of its affiliates): (i) the Company shall pay the Employee any unpaid base
salary due for periods prior to the date of termination; (ii) the Company shall
pay the Employee all of the Employee’s accrued and unused vacation through the
date of termination; and (iii) following submission of proper expense reports by
the Employee, the Company shall reimburse the Employee for all expenses
reasonably and necessarily incurred by the Employee in connection with the
business of the Company prior to the date of termination. These payments shall
be made promptly upon termination and within the period of time mandated by law.
 
 
5.  Conditional Nature of Severance Payments.
 
 
(a)  Non-Compete. The Employee shall not, to the detriment of the Company or any
of its affiliates, disclose or reveal to any unauthorized person any trade
secret or other confidential information relating to the Company or its
affiliates or to any businesses oper-
 

 
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ated by them, and the Employee confirms that such information constitutes the
exclusive property of the Company. The Employee shall not otherwise act or
conduct her/himself to the material detriment of the Company or its affiliates,
or in a manner which is inimical or contrary to the interests thereof, and, for
a period of twenty-four (24) months following the termination of Employee’s
employment as a result of an Involuntary Termination at any time within a Change
of Control Protection Period, shall not, directly or indirectly, engage in or
render any service (whether to a person, firm or business) in direct competition
with the Company; provided, however, that the Employee’s ownership of less than
five percent (5%) of the outstanding stock of a corporation shall not itself be
deemed to constitute such competition. The Employee recognizes that the possible
restrictions on her/his activities which may occur as a result of her/his
performance of her/his obligations under this Section 5(a) are required for the
reasonable protection of the Company and its investments. For purposes hereof,
“in direct competition” means engaged in the research, development and/or
production of biological materials intended for use as therapeutic, prophylactic
or diagnostic products in one or more of the same indications, and that utilize
one or more of the same scientific bases (e.g., in the case of a therapeutic
antibody, targets the same signal initiating pathway), as a product or product
candidate the research, development and/or production of which is an active part
of the Company’s business plan at the time of Employee’s termination.
 
 
(b)  Non-Disparagement. The Employee and the Company agree to refrain from any
defamation, libel or slander of the other and its respective officers,
directors, employees, representatives, investors, shareholders, administrators,
affiliates, divisions, subsidiaries, predecessor and successor corporations and
assigns or tortious interference with the contracts and relationships of the
other and its respective officers, directors, employees, representatives,
investors, shareholders, administrators, affiliates, divisions, subsidiaries,
predecessor and successor corporations and assigns.
 
 
(c)  Understanding of Covenants. The Employee represents that the Employee
(i) is familiar with the foregoing covenants not to compete and not to
disparage, and (ii) is fully aware of the Employee’s obligations hereunder,
including, without limitation, the reasonableness of the length of time, scope
and geographic coverage of the covenant not to compete.
 
 
6.  Golden Parachute Excise Tax. In the event that the benefits provided for in
this Agreement or otherwise payable to the Employee constitute “parachute
payments” within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the “Code”) that are subject to the excise tax imposed by
Section 4999 of the Code (the “Excise Tax”), then the Employee shall receive
(i) a one-time payment from the Company sufficient to pay such excise tax (the
“Excise Tax Gross-Up”), and (ii) an additional one-time payment from the Company
sufficient to pay the additional excise tax and federal, state and local income
and employment taxes arising from the Excise Tax Gross-Up made by the Company to
the Employee pursuant to this Section 6 (the “Additional Gross-Up”). Unless the
Company and the Employee otherwise agree in writing, the determination of the
Employee’s excise tax liability and the amount required to be paid under this
Section 6 shall be made in writing in good faith by the accounting firm serving
as the Company’s inde-
 

 
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pendent public accountants immediately prior to the Change of Control (the
“Accountants”). In the event that the Excise Tax incurred by the Employee is
determined by the Internal Revenue Service to be greater or lesser than the
amount so determined by the Accountants, the Company and the Employee agree to
promptly make such additional payment, including interest and any tax penalties,
to the other party as the Accountants reasonably determine is appropriate. For
purposes of making the calculations required by this Section 6, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on interpretations concerning the application of the Code for which
there is a “substantial authority” tax reporting position. The Company and the
Employee shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Section 6. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 6.
 
 
7.  Successors.
 
 
(a)  Company’s Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, amalgamation, consolidation,
liquidation or otherwise) to all or substantially all of the Company’s business
and/or assets shall assume the Company’s obligations under this Agreement and
agree expressly to perform the Company’s obligations under this Agreement in the
same manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. For all purposes under this
Agreement, the term “Company” shall include any successor to the Company’s
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
 
 
(b)  Employee’s Successors. Without the written consent of the Company, the
Employee shall not assign or transfer this Agreement or any right or obligation
under this Agreement to any other person or entity. Notwithstanding the
foregoing, the terms of this Agreement and all rights of the Employee hereunder
shall inure to the benefit of, and be enforceable by, the Employee’s personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
 
 
8.  Notices.
 
 
(a)  General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to the Employee at the home address that the Employee
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
 
 
(b)  Notice of Termination. Any termination by the Company for Cause or by the
Employee as a result of a voluntary resignation or an Involuntary Termination
shall be communicated by a notice of termination to the other party hereto given
in accordance with this
 

 
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Section 8. Such notice shall indicate the specific termination provision in this
Agreement relied upon, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination under the provision so
indicated. The failure by the Employee to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall not
waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing the Employee’s rights
hereunder.
 
 
9.  Execution of Release Agreement Upon Termination. As a condition of entering
into this Agreement and receiving the benefits under Section 4, the Employee
agrees to execute and not revoke a release of claims agreement substantially in
the form attached hereto as Exhibit A upon the termination of the Employee’s
employment with the Company. Such release shall not, however, apply to the
rights and claims of the Employee under this Agreement, any indemnification
agreement between the Employee and the Company (or its successor or acquirer),
the bye-laws of the Company (or its successor or acquirer), the share award
agreements between the Employee and the Company (or its successor or acquirer),
or any employee benefit plan of which the Employee is a participant and under
which all benefits due under such plan have not yet been paid or provided.
 
 
10.  Arbitration.
 
 
(a)  Any dispute or controversy arising out of, relating to, or in connection
with this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof, shall be settled by binding arbitration to be
held in San Francisco or Alameda County, California, in accordance with the
National Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association (the “Rules”). The cost of the arbitration
shall be borne in full by the Company (or its successor or acquirer) but each of
the Employee and the Company (or its successor or acquirer) shall bear his, her
or its own legal fees and other cost in such arbitration subject to a possible
award of attorneys fees and costs by the arbitrator as provided in the
arbitration ruling. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator’s decision in any court having jurisdiction.
 
 
(b)  The arbitrator(s) shall apply California law to the merits of any dispute
or claim, without reference to conflicts of law rules. The arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law. The Employee hereby consents to the
personal jurisdiction of the state and federal courts located in California for
any action or proceeding arising from or relating to this Agreement or relating
to any arbitration in which the parties are participants.
 
 
(c)  The Employee understands that nothing in this Section 10 modifies the
Employee’s at-will employment status. Either the Employee or the Company can
terminate the employment relationship at any time, with or without cause.
 
 
(d)  THE EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. THE EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF,
RELATING TO, OR IN
 

 
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CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION,
PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION TO THE EXTENT
PERMITTED BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF THE
EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES
RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT
LIMITED TO, THE FOLLOWING CLAIMS:
 
 
(i)  ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF
CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND
FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR
INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND
DEFAMATION.
 
 
(ii)  ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL
STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF
1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF
1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT,
THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et
seq;
 
 
(iii)  ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING
TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
 
 
11.  Miscellaneous Provisions.
 
 
(a)  Mitigation. The Employee shall not be required to mitigate the amount of
any payment contemplated by this Agreement, nor shall any such payment be
reduced by any earnings that the Employee may receive from any other source.
However, the Employee shall not be entitled to receive the health coverage and
benefits contemplated by this Agreement in the event that the Employee receives
similar health coverage and benefits as a result of new employment during the
Compensation Continuation Period.
 
 
(b)  Waiver. No provision of this Agreement may be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
 

 
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(c)  Integration. This Agreement represents the entire agreement and
understanding between the parties with respect to the subject matter herein but
shall not supersede any employment agreement between the Company or any of its
affiliates and the Employee, any indemnification agreement between the Employee
and the Company (or its successor or acquirer), the share award agreements
between the Employee and the Company (or its successor or acquirer), or any
employee benefit plan of which the Employee is a participant and under which all
benefits due under such plan have not yet been paid or provided.
 
 
(d)  Choice of Law. The validity, interpretation, construction and performance
of this Agreement shall be governed by the internal substantive laws, but not
the conflicts of law rules, of the State of California.
 
 
(e)  Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
 
 
(f)  Tax Withholdings. All payments made pursuant to this Agreement shall be
subject to withholding of applicable income and employment taxes.
 
 
(g)  Compliance with Section 409A of the Code. Any payments under this Agreement
which would be subject to Section 409A of the Code shall be administered in
compliance with the requirements of Section 409A of the Code.
 
 
(h)  Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together will constitute one and
the same instrument.
 
 

 

 
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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer, as of the day and year first
above written.
 
COMPANY:                                                                            
XOMA LTD.

 
By:  _____________________________________________
                                                                                 Name
                                                                                
[Independent Director or CEO]
 

 
EMPLOYEE:                                                                            
_________________________________________________
Name

 

 
 

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EXHIBIT A
 
FORM RELEASE OF CLAIMS AGREEMENT
 
 
This Release of Claims Agreement (this “Agreement”) is made and entered into by
and between XOMA Ltd. (the “Company”) and ________ (the “Employee”).
 
WHEREAS, the Employee was employed by the Company; and
 
WHEREAS, the Company and the Employee have entered into a Change of Control
Severance Agreement effective as of ________, 2006 (the “Severance Agreement”).
 
NOW THEREFORE, in consideration of the mutual promises made herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Employee (collectively referred to as the
“Parties”) desiring to be legally bound do hereby agree as follows:
 
1.  Termination. The Employee’s employment with the Company terminated on
___________, 20__.
 
2.  Consideration. Subject to and in consideration of the Employee’s release of
claims as provided herein, the Company has agreed to pay the Employee certain
benefits and the Employee has agreed to provide certain benefits to the Company,
both as set forth in the Severance Agreement.
 
3.  Release of Claims. The Employee agrees that the foregoing consideration
represents settlement in full of all currently outstanding obligations owed to
the Employee by the Company. The Employee, on the Employee’s own behalf and the
Employee’s respective heirs, family members, executors and assigns, hereby fully
and forever releases the Company and its past, present and future officers,
agents, directors, employees, investors, shareholders, administrators,
affiliates, divisions, subsidiaries, parents, predecessor and successor
corporations, and assigns, from, and agrees not to sue or otherwise institute or
cause to be instituted any legal or administrative proceedings concerning any
claim, duty, obligation or cause of action relating to any matters of any kind,
whether presently known or unknown, suspected or unsuspected, that the Employee
may possess arising from any omissions, acts or facts that have occurred up
until and including the Effective Date (as defined below) of this Agreement
including, without limitation:
 
(a)  any and all claims relating to or arising from the Employee’s employment
relationship with the Company and the termination of that relationship;
 
(b)  any and all claims relating to, or arising from, the Employee’s right to
purchase, or actual purchase of shares of the Company, including, without
limitation, any claims for fraud, misrepresentation, breach of fiduciary duty,
breach of duty under applicable state corporate law and securities fraud under
any state or federal law;

 
 

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(c)  any and all claims for wrongful discharge of employment, termination in
violation of public policy, discrimination, breach of contract (both express and
implied), breach of a covenant of good faith and fair dealing (both express and
implied), promissory estoppel, negligent or intentional infliction of emotional
distress, negligent or intentional misrepresentation, negligent or intentional
interference with contract or prospective economic advantage, unfair business
practices, defamation, libel, slander, negligence, personal injury, assault,
battery, invasion of privacy, false imprisonment and conversion;
 
(d)  any and all claims for violation of any federal, state or municipal
statute, including, but not limited to, Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of
1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act,
the Employee Retirement Income Security Act of 1974, The Worker Adjustment and
Retraining Notification Act, the California Fair Employment and Housing Act, and
Labor Code Section 201, et seq. and Section 970, et seq. and all amendments to
each such Act as well as the regulations issued thereunder;
 
(e)  any and all claims for violation of the federal or any state constitution;
 
(f)  any and all claims arising out of any other laws and regulations relating
to employment or employment discrimination; and
 
(g)  any and all claims for attorneys’ fees and costs.
 
The Employee agrees that the release set forth in this Section 4 shall be and
remain in effect in all respects as a complete general release as to the matters
released. Notwithstanding the foregoing, this release does not extend to any
obligations now or subsequently incurred under this Agreement, the Severance
Agreement, the Indemnification Agreement between the Employee and the Company
(or its successor or acquirer), the outstanding share award agreements between
the Employee and the Company (or its successor or acquirer), or any employee
benefit plan of which the Employee is a participant and under which all benefits
due under such plan have not yet been paid or provided.
 
4.  Acknowledgment of Waiver of Claims under ADEA. The Employee acknowledges
that the Employee is waiving and releasing any rights the Employee may have
under the Age Discrimination in Employment Act of 1967 (“ADEA”) and that this
waiver and release is knowing and voluntary. The Employee and the Company agree
that this waiver and release does not apply to any rights or claims that may
arise under the ADEA after the Effective Date of this Agreement. The Employee
acknowledges that the consideration given for this waiver and release agreement
is in addition to anything of value to which the Employee was already entitled.
The Employee further acknowledges that the Employee has been advised by this
writing that (a) the Employee should consult with an attorney prior to executing
this Agreement; (b) the Employee has at least twenty-one (21) days within which
to consider this Agreement; (c) the Employee has seven (7) days following the
execution of this Agreement by the Parties to revoke the Agreement; and (d) this
Agreement shall not be effective until the revocation period has expired. Any
revocation should be in writing and delivered to the Company by the close of
business on the seventh (7th) day from the date that the Employee signs this
Agreement.

 
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5.  Civil Code Section 1542. The Employee represents that the Employee is not
aware of any claims against the Company other than the claims that are released
by this Agreement. The Employee acknowledges that the Employee has been advised
by legal counsel and is familiar with the provisions of California Civil Code
Section 1542, which provides as follows:
 
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HER OR HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HER OR HIM MUST HAVE MATERIALLY AFFECTED HER OR HIS SETTLEMENT WITH
THE DEBTOR.
 
The Employee, being aware of said code section, agrees to expressly waive any
rights the Employee may have thereunder, as well as under any other statute or
common law principles of similar effect.
 
6.  No Pending or Future Lawsuits. The Employee represents that the Employee has
no lawsuits, claims or actions pending in the Employee’s name, or on behalf of
any other person or entity, against the Company or any other person or entity
referred to herein. The Employee also represents that the Employee does not
intend to bring any claims on the Employee’s own behalf or on behalf of any
other person or entity against the Company or any other person or entity
referred to herein except, if necessary, with respect to the agreements listed
in the last sentence of Section 4 of this Agreement.
 
7.  Confidentiality. The Employee agrees to use the Employee’s best efforts to
maintain in confidence the existence of this Agreement, the contents and terms
of this Agreement, and the consideration for this Agreement (hereinafter
collectively referred to as “Release Information”). The Employee agrees to take
every reasonable precaution to prevent disclosure of any Release Information to
third parties and agrees that there will be no publicity, directly or
indirectly, concerning any Release Information. The Employee agrees to take
every precaution to disclose Release Information only to those attorneys,
accountants, governmental entities and family members who have a reasonable need
to know of such Release Information.
 
8.  No Adverse Cooperation. The Employee agrees the Employee will not act in any
manner that might damage the business of the Company. The Employee agrees that
the Employee will not counsel or assist any attorneys or their clients in the
presentation or prosecution of any disputes, differences, grievances, claims,
charges or complaints by any third party against the Company and/or any officer,
director, employee, agent, representative, shareholder or attorney of the
Company, unless compelled under a subpoena or other court order to do so.
 
9.  Costs. The Parties shall each bear their own costs, expert fees, attorneys’
fees and other fees incurred in connection with this Agreement.
 
10.  Authority. The Company represents and warrants that the undersigned has the
authority to act on behalf of the Company and to bind the Company and all who
may claim through it to the terms and conditions of this Agreement. The Employee
represents and warrants that the

 
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Employee has the capacity to act on the Employee’s own behalf and on behalf of
all who might claim through the Employee to bind them to the terms and
conditions of this Agreement.
 
11.  No Representations. The Employee represents that the Employee has had the
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied upon any representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.
 
12.  Severability. In the event that any provision hereof becomes or is declared
by a court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision.
 
13.  Entire Agreement. This Agreement and the Severance Agreement and the
agreements and plans referenced therein represent the entire agreement and
understanding between the Company and the Employee concerning the Employee’s
separation from the Company, and supersede and replace any and all prior
agreements and understandings concerning the Employee’s relationship with the
Company and the Employee’s compensation by the Company. This Agreement may only
be amended in writing signed by the Employee and an executive officer of the
Company.
 
14.  Governing Law. This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules, of the State of California.
 
15.  Effective Date. This Agreement is effective eight (8) days after it has
been signed by the Parties (the “Effective Date”) unless it is revoked by the
Employee within seven (7) days of the execution of this Agreement by the
Employee.
 
16.  Counterparts. This Agreement may be executed in counterparts, and each
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
 
17.  Voluntary Execution of Agreement. This Agreement is executed voluntarily
and without any duress or undue influence on the part or behalf of the Parties
hereto, with the full intent of releasing all claims. The Parties acknowledge
that:
 
(a)  they have read this Agreement;
 
(b)  they have been represented in the preparation, negotiation and execution of
this Agreement by legal counsel of their own choice or that they have
voluntarily declined to seek such counsel;
 
(c)  they understand the terms and consequences of this Agreement and of the
releases it contains; and
 
(d)  they are fully aware of the legal and binding effect of this Agreement.

 
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IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective
dates set forth below.
 
XOMA LTD.

 
By:  __________________________________________
 
Title:  _________________________________________
 
Date:  _________________________________________
 

 
EMPLOYEE
 
 
______________________________________________
Name
 
Date:  _________________________________________
 

 
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Terms of Individual Executive Officer Change of Control and Severance Agreements
(to be read in conjunction with Form of Change of Control and Severance
Agreement)
 

 
Name
 
Paragraph 1(d)
 
Paragraph 4(c)(i)
 
Paragraph 4(c)(ii)
 
John L. Castello
 
24 months
 
2.0
 
24 months
 
24 months
 
Patrick J. Scannon, MD, PhD
 
18 months
 
1.5
 
18 months
 
18 months
 
Christopher J. Margolin
 
18 months
 
1.5
 
18 months
 
18 months
 
J. David Boyle II
 
18 months
 
1.5
 
18 months
 
18 months

 
 
 
 
 
-6-