Exhibit 10.2

 

[*] indicates that a confidential portion of the text of this agreement has been
omitted. The non-public information has been filed separately with the
Securities and Exchange Commission.

 

Execution Version

 

RESEARCH, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

 

dated as of

 

May 26, 2005

 

by and between

 

CHIRON CORPORATION

 

and

 

XOMA (US) LLC

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

            Page

--------------------------------------------------------------------------------

ARTICLE I      DEFINITIONS      1.1      “Affiliate”    1 1.2      “Annual
Budget Deviation Threshold”    2 1.3      “Antibody”    2 1.4      “Antibody
Display, Panning, Screening and Characterization Technology”    2 1.5     
“Antibody Optimization Technology”    2 1.6      “Antibody Product”    2 1.7
     “Antibody Work by XOMA”    2 1.8      “Appraiser”    2 1.9     
“Arbitration Notice”    2 1.10      “Bacterial Cell Expression Technology”    2
1.11      “BLA”    3 1.12      “Bona Fide Collaboration”    3 1.13      “Call”
   3 1.14      “Cancer”    3 1.15      “Chiron Background IP”    3 1.16     
“Chiron Commercial Chair”    3 1.17      “Chiron Opt-Out IP”    3 1.18     
“Collaboration”    4 1.19      “Collaboration Cost of Goods Sold”    4 1.20     
“Collaboration Gross Margin”    4 1.21      “Collaboration Inventions”    4 1.22
     “Collaboration IP”    4 1.23      “Collaboration Know-How”    4 1.24     
“Collaboration Patent Rights”    5 1.25      “Collaboration Product”    5 1.26
     “Collaboration Target”    5 1.27      “Commercialization”    5 1.28     
“Commercialization Costs”    5 1.29      “Commercially Reasonable and Diligent
Efforts”    6 1.30      “Confidential Information”    7 1.31      “Continuing
Party”    7 1.32      “Control” or “Controlled”    7 1.33      “Core Technology
Improvement”    7 1.34      “Date of this Agreement”    7 1.35      “Detail” and
“Detailing”    7 1.36      “Dismissed Target”    7 1.37      “Drug Safety
Agreement”    7 1.38      “Effective Date”    8 1.39      “Exclusivity Period”
   8

 

-i-

--------------------------------------------------------------------------------

            Page

--------------------------------------------------------------------------------

1.40      “Exploit” and “Exploitation”    8 1.41      “Expression and
Engineering Technologies”    8 1.42      “FDA”    8 1.43      “Field”    8 1.44
     “Financial Hardship”    8 1.45      “FMV”    8 1.46      “FTE”    8 1.47
     “FTE Costs”    8 1.48      “FTE Rates”    8 1.49      “Fully Burdened
Manufacturing Costs”    9 1.50      “GAAP”    10 1.51      “GMP”    10 1.52     
“Go/No Go Decision Point”    10 1.53      “Human Engineering™ Technology”    10
1.54      “Identifying Party”    10 1.55      “IND”    11 1.56     
“IND-Enabling Studies”    11 1.57      “Initial Agreement”    11 1.58     
“Interest Period”    11 1.59      “Interest Rate”    11 1.60      “Inventions”
   11 1.61      “Joint Commercialization Team”    11 1.62      “Joint Patent
Committee”    11 1.63      “Joint Research and Development Committee” and “JRDC”
   11 1.64      “Joint Steering Committee”    11 1.65      “Know-How”    11 1.66
     “Life Cycle Management”    11 1.67      “Losses”    11 1.68      “Material
Budget Deviation”    11 1.69      “Maximum Profit Share Differential”    12 1.70
     “Net Sales”    12 1.71      “Non-Identifying Party”    12 1.72     
“Opt-Out Product”    12 1.73      “Opt-Out Target”    12 1.74      “Opting-Out
Party”    12 1.75      “Parties” and “Party”    12 1.76      “Patent Rights”   
12 1.77      “Phase I Clinical Trial”    13 1.78      “Phase II Clinical Trial”
   13 1.79      “Phase III Clinical Trial”    13 1.80      “Potential Targets”
   13 1.81      “Pre-Tax Profit”    13 1.82      “Project Team”    13 1.83     
“Protein Expression Technology”    13 1.84      “Quality Agreement”    13 1.85
     “R&D Plans and Budgets”    13

 

-ii-

--------------------------------------------------------------------------------

            Page

--------------------------------------------------------------------------------

1.86      “Regulatory Approval”    13 1.87      “Regulatory Approval
Application”    13 1.88      “Regulatory Authority”    14 1.89      “Regulatory
Filing”    14 1.90      “Related Chiron Patent Rights”    14 1.91      “Related
XOMA Patent Rights”    14 1.92      “Requesting Party”    14 1.93      “Research
and Development Costs”    14 1.94      “Responding Party”    15 1.95     
“Target”    15 1.96      “Target Submission”    15 1.97      “Third Party”    15
1.98      “Third Party Technology Agreement”    15 1.99      “United States”   
15 1.100      “Useful Third Party IP”    15 1.101      “Valid Claim”    15 1.102
     “Validated Target”    15 1.103      “XOMA Background IP”    15 1.104     
“XOMA Commercial Lead”    16 1.105      “XOMA Core Technologies”    16 1.106
     “XOMA Opt-Out IP”    16 1.107      “XOMA Profit Share Differential”    16
ARTICLE II      OVERVIEW      2.1      Overview    16 2.2      General
Allocation of Responsibilities    17 2.3      General Financial Terms    17 2.4
     Transparency    17 2.5      Independence    17 ARTICLE III      RESEARCH
AND DEVELOPMENT      3.1      In General    17 3.2      Exclusivity    18 3.3
     Collaboration Targets    19 3.4      Dismissed Targets    21 3.5     
Research and Development Plans and Budgets    21 3.6      Project Teams    22
3.7      Pre-Clinical and Phase I and Phase II Clinical Supplies    24 3.8     
Phase III Clinical Supplies    24 3.9      Opt-Out    24

 

-iii-

--------------------------------------------------------------------------------

            Page

--------------------------------------------------------------------------------

3.10      Applications Outside the Field    29 3.11      Research and
Development Records    29 3.12      Specific Use Capital Equipment    29 ARTICLE
IV      COMMERCIALIZATION      4.1      In General    29 4.2      XOMA Right to
Employ Portion of Sales Force    30 4.3      Joint Commercialization Team    30
4.4      Top Line Sales    31 ARTICLE V      MANAGEMENT OF THE COLLABORATION   
  5.1      Joint Steering Committee    32 5.2      Joint Research and
Development Committee    33 5.3      Joint Patent Committee    34 ARTICLE VI   
  FINANCIAL PROVISIONS      6.1      Initial Payment    35 6.2      Profit and
Cost Sharing    35 6.3      Pre-Tax Profit Adjustment    36 6.4      Line of
Credit    36 6.5      Additional Fees    36 ARTICLE VII      RECORDS, RECORD
KEEPING AND PAYMENT TERMS      7.1      Payment Records; Audits    37 7.2     
Payment Method    37 7.3      Withholding Taxes    37 7.4      Interest on
Payments Past Due    38 ARTICLE VIII      LICENSES AND RIGHTS      8.1     
Collaboration Product Licenses    38 8.2      Opt-Out Product Licenses    40 8.3
     Rights Outside the Field    41

 

-iv-

--------------------------------------------------------------------------------

            Page

--------------------------------------------------------------------------------

ARTICLE IX      ENABLING CHIRON      9.1      In General    42 9.2     
Observation and Training    42 9.3      Expression and Engineering Technologies
   42 9.4      License to Third Party Technology    44 9.5      Limitation    44
ARTICLE X      REGULATORY MATTERS      10.1      INDs    44 10.2      Regulatory
Approval Applications    44 10.3      Further Assistance    44 10.4      Drug
Safety    45 10.5      Quality    45 10.6      XOMA’s Responsibility in Certain
Circumstances    45 ARTICLE XI      CONFIDENTIALITY      11.1     
Confidentiality    45 11.2      Authorized Disclosure    46 11.3      Survival
   46 11.4      Publications    47 11.5      Terms of This Agreement; Press
Release; Publicity    47 ARTICLE XII      INTELLECTUAL PROPERTY      12.1     
Ownership    48 12.2      Disclosure    51 12.3      Patent Prosecution    51
12.4      Enforcement of Patent Rights    53 12.5      Allegations of
Infringement by Third Parties    55 12.6      Third Party Licenses    56 12.7
     Trademarks    56 12.8      Patent Disputes Between the Parties    57

 

-v-

--------------------------------------------------------------------------------

            Page

--------------------------------------------------------------------------------

ARTICLE XIII      REPRESENTATIONS AND WARRANTIES;      DISCLAIMER;
INDEMNIFICATION      13.1      Representations and Warranties of XOMA    57 13.2
     Representations and Warranties of Chiron    57 13.3      No Warranty of
Validity; Non-Infringement    58 13.4      No Other Warranties    58 13.5     
Indemnification    58 ARTICLE XIV      TERM; SURVIVAL      14.1      Term    60
14.2      Material Breach    60 14.3      Opt-Out Royalty Term    61 14.4     
Bankruptcy    61 14.5      Survival    62 ARTICLE XV      MISCELLANEOUS     
15.1      Further Assurances    62 15.2      Change of Control    62 15.3     
No Right to Use Names    64 15.4      Covenants    64 15.5      Notices    65
15.6      Waiver    66 15.7      Limitation of Liability    66 15.8      Entire
Agreement; Amendment    66 15.9      Severability    66 15.10      No Joint
Venture or Partnership; Independent Contractors    66 15.11      Governing Law
   67 15.12      Enforcement    67 15.13      Headings    67 15.14     
Commercially Reasonable Efforts    67 15.15      Construction    67 15.16     
Counterparts    67 15.17      Performance by Affiliates    67 15.18     
Assignment    68 15.19      No Access to Human Engineering™ Data Base    68
15.20      Consents; Agreements    68

 

-vi-

--------------------------------------------------------------------------------

RESEARCH, DEVELOPMENT AND

COMMERCIALIZATION AGREEMENT

 

This Research, Development and Commercialization Agreement (this “Agreement”) is
dated as of the 26th day of May, 2005 (the “Date of this Agreement”), by and
between Chiron Corporation, a Delaware corporation having its principal place of
business at 4650 Horton Street, Emeryville, California 94608 (“Chiron”), and
XOMA (US) LLC, a Delaware limited liability company with offices located at 2910
Seventh Street, Berkeley, California 94710 (“XOMA”). Chiron and XOMA may each be
referred to in this Agreement individually as a “Party” and collectively as the
“Parties”. When used in this Agreement, capitalized terms shall have the
meanings set forth in Article I.

 

RECITALS

 

A. Chiron has developed a large-scale genomics platform focused on generating
novel, functionally validated targets for development of small molecule drugs,
therapeutic antibodies and vaccines.

 

B. XOMA has substantial experience and broad-based capabilities in monoclonal
antibody generation and development, including access to multiple phage display
libraries.

 

C. The Parties have established a collaborative relationship to research,
develop and commercialize antibody products in the field of oncology pursuant to
that certain agreement executed on February 27, 2004 (the “Effective Date”) by
and between the Parties (the “Initial Agreement”).

 

D. The Parties wish to enter into this Agreement to replace the Initial
Agreement to set forth in further detail the terms of the collaborative
relationship between the Parties (the “Collaboration”), without changing the
Effective Date for exclusivity and for various other purposes as set forth in
this Agreement.

 

IN CONSIDERATION of the mutual covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Chiron and XOMA hereby agree as
follows:

 

ARTICLE I

 

DEFINITIONS

 

As used in this Agreement, the following capitalized terms shall have the
following meanings:

 

1.1 “Affiliate” Affiliate shall mean any entity that is controlled by, controls
or is under common control with Chiron or XOMA, as applicable. For such purpose
the term “control” shall mean (a) direct or indirect ownership of more than
fifty percent (50%) of the voting interest in the entity in question, or more
than fifty percent (50%) interest in the income of the entity in question; or
(b) possession, directly or indirectly, of the power to direct or cause the

--------------------------------------------------------------------------------

direction of management or policies of the entity in question (whether through
ownership of securities or other ownership interests, by contract or otherwise).
Notwithstanding the foregoing, “Affiliate” shall not include, in the case of
Chiron, Novartis A.G. or any Affiliate of Novartis A.G. (other than Chiron and
any of its subsidiaries), so long as Novartis A.G. is precluded from electing,
or has not exercised its rights to elect, a majority of the Board of Directors
of Chiron, in accordance with the terms of the Governance Agreement dated as of
November 20, 1994, among Ciba-Geigy Limited, Ciba-Geigy Corporation and Chiron.

 

1.2 “Annual Budget Deviation Threshold” Annual Budget Deviation Threshold shall
have the meaning set forth in Section 3.5(d).

 

1.3 “Antibody” Antibody shall mean any immunoglobulin molecule whether in
monospecific or any other form and shall include, without limitation,
immunoglobulin fragments, such as Fv, Fab, F(ab’) and single-chain antibodies.

 

1.4 “Antibody Display, Panning, Screening and Characterization Technology”
Antibody Display, Panning, Screening and Characterization Technology shall mean
those technologies, and their associated methods of use, that are necessary
and/or useful for the creation of libraries of Antibodies, the isolation,
characterization and/or reformatting of such Antibodies and/or the display,
panning and/or screening of such libraries or individual Antibodies, including,
without limitation, such libraries themselves and any technology associated with
library construction, phage display and/or phage screening.

 

1.5 “Antibody Optimization Technology” Antibody Optimization Technology shall
mean those technologies, and their associated methods of use, necessary and/or
useful for the alteration, optimization and/or improvement of any characteristic
or attribute of an Antibody.

 

1.6 “Antibody Product” Antibody Product shall mean any composition of matter or
article of manufacture consisting essentially of an Antibody alone or integrally
associated with a composition of matter or article of manufacture (including
without limitation conjugates bound to a toxin, label or other moiety) providing
therapeutic, half-life, safety or other advantages to the Antibody. For the
avoidance of doubt, Antibody Product does not include gene therapy products, Fc
fusion proteins lacking antibody variable domains or viral conjugates.

 

1.7 “Antibody Work by XOMA” Antibody Work by XOMA shall have the meaning set
forth in Section 3.2(e)(ii).

 

1.8 “Appraiser” Appraiser shall have the meaning set forth in Section
14.2(c)(ii)(A).

 

1.9 “Arbitration Notice” Arbitration Notice shall have the meaning set forth in
Schedule 5.1(d)(i).

 

1.10 “Bacterial Cell Expression Technology” Bacterial Cell Expression Technology
shall mean the bacterial cell expression technology Controlled by XOMA Ireland
Limited and subsequently licensed to XOMA (with the right to sublicense
hereunder) and shall not include any improvements thereto which constitute
Collaboration Inventions.

 

-2-

--------------------------------------------------------------------------------

1.11 “BLA” BLA shall mean a biologics license application with the FDA as more
fully described at 21 CFR § 601.2, or successor equivalent.

 

1.12 “Bona Fide Collaboration” Bona Fide Collaboration shall mean a bona fide
development and/or commercialization collaboration between a Party and at least
one Third Party in which such Party agrees to bear, and bears, significant
scientific or economic risk.

 

1.13 “Call” Call shall mean a visit by a member of a sales force in the Field.

 

1.14 “Cancer” Cancer shall mean a condition or disease primarily characterized
by uncontrolled growth or spread of abnormal and anaplastic cells, metastases,
neoplasm, malignant tumors and/or invasion by abnormal and anaplastic cells into
tissues regardless of cause. For the avoidance of doubt, Cancer shall not
include inflammation, infection or conditions characterized solely by
hypertrophy or hyperplasticity of normal cells.

 

1.15 “Chiron Background IP” Chiron Background IP shall mean any and all Know-How
and Patent Rights (including, for example, intellectual property relating to
Collaboration Targets) Controlled by Chiron as of the Effective Date (or, in the
case of intellectual property relating to Collaboration Targets accepted for
inclusion in the Collaboration pursuant to Section 3.3(d) after the Effective
Date, as of the date on which each such Collaboration Target is so accepted)
that are [*] for (i) research relating to Collaboration Target(s) or (ii)
research, development, manufacture or Commercialization of Collaboration
Product(s). Chiron Background IP shall also include any and all Know-How and
Patent Rights that are necessary for either of the purposes set forth in clauses
(i) and (ii) of the immediately preceding sentence and that come to be
Controlled by Chiron during the term of this Agreement but not in the course of
the Collaboration, except (x) to the extent the inclusion of such Know-How and
Patent Rights in Chiron Background IP would constitute a breach or violation of
or a default under, or would otherwise be inconsistent with, the terms and
provisions of any license or other agreement giving rise to or governing such
Know-How or Patent Rights, and (y) that, in the event the inclusion of such
Know-How or Patent Rights in Chiron Background IP would subject either or both
of the Parties to additional financial or other adverse obligations to a Third
Party, such Know-How or Patent Rights shall not be so included in Chiron
Background IP unless the Parties so agree (which agreement shall not be
unreasonably withheld). For the avoidance of doubt, the Parties acknowledge
that, to the extent any Chiron Background IP is covered by a license or other
agreement with a Third Party, such Chiron Background IP shall, for all purposes
of this Agreement, be subject to the financial and other obligations,
limitations and restrictions contained in such Third Party license or agreement.
Chiron Background IP shall include, without limitation, those licenses, patents
and patent applications set forth on Schedule 1.15.

 

1.16 “Chiron Commercial Chair” Chiron Commercial Chair shall have the meaning
set forth in Section 4.3(e).

 

1.17 “Chiron Opt-Out IP” Chiron Opt-Out IP shall mean any and all Chiron
Background IP and Collaboration IP Controlled by Chiron, each as (i) existing as
of the date of the applicable opt-out and (ii) necessary or reasonably useful
for research, development, manufacture and Commercialization of the applicable
Opt-Out Target(s) and Opt-Out Product(s) corresponding to the particular Opt-Out
Target(s); provided that, with respect to Chiron Background

 

-3-

--------------------------------------------------------------------------------

IP that falls within the definition thereof by virtue of the second sentence of
such definition, only such Chiron Background IP as is necessary for research,
development, manufacture and Commercialization of the applicable Opt-Out
Target(s) and Opt-Out Product(s) corresponding to the particular Opt-Out
Target(s) shall be included in Chiron Opt-Out IP.

 

1.18 “Collaboration” Collaboration shall have the meaning set forth in the
Recitals.

 

1.19 “Collaboration Cost of Goods Sold” Collaboration Cost of Goods Sold shall
mean the cost calculated using the Fully Burdened Manufacturing Cost and
according to customary practices, including weighted average costing or the use
of pre-determined standards. The Parties agree to decide in good faith upon the
specific procedure for making such calculation at an appropriate time after the
Date of this Agreement and prior to the first commercial sale of the first
Collaboration Product to be so sold.

 

1.20 “Collaboration Gross Margin” Collaboration Gross Margin shall mean Net
Sales of Collaboration Products minus Collaboration Cost of Goods Sold.

 

1.21 “Collaboration Inventions” Collaboration Inventions shall mean any and all
Inventions Controlled by a Party and made, conceived, reduced to practice or
otherwise acquired or licensed, either alone or jointly with another, during the
term of this Agreement and arising out of the activities of the Parties under
the Collaboration and pursuant to R&D Plans and Budgets. For the avoidance of
doubt, (i) any and all such Inventions which constitute an improvement to either
Chiron Background IP or XOMA Background IP or an improvement to the Expression
and Engineering Technologies made, conceived, reduced to practice or otherwise
acquired or licensed during the term of this Agreement and in the course of the
Collaboration shall be deemed to be Collaboration Inventions and (ii) Expression
and Engineering Technologies as such technologies existed prior to the Effective
Date shall not be Collaboration Inventions. Notwithstanding the foregoing, the
Parties acknowledge that, to the extent any Collaboration Invention is covered
by a license or other agreement with a Third Party, such Collaboration Invention
shall, for all purposes of this Agreement, be subject to the financial and other
obligations, limitations and restrictions contained in such Third Party license
or agreement.

 

1.22 “Collaboration IP” Collaboration IP shall mean any and all Collaboration
Know-How and any and all Collaboration Patent Rights.

 

1.23 “Collaboration Know-How” Collaboration Know-How shall mean any and all
Know-How Controlled by a Party and made, conceived, reduced to practice or
otherwise acquired or licensed, either alone or jointly with others, during the
term of this Agreement and arising out of the activities of the Parties under
the Collaboration and pursuant to R&D Plans and Budgets that is necessary or
useful in the research, development, manufacture or Commercialization of a
Collaboration Product. For the avoidance of doubt, (i) any and all such Know-How
which constitutes an improvement to either Chiron Background IP or XOMA
Background IP or an improvement to the Expression and Engineering Technologies
made, conceived, reduced to practice or otherwise acquired or licensed during
the term of this Agreement and in the course of the Collaboration shall be
deemed to be Collaboration Know-How and (ii) Expression and Engineering
Technologies as such technologies existed prior to the Effective Date shall not
be

 

-4-

--------------------------------------------------------------------------------

Collaboration Know-How. Notwithstanding the foregoing, the Parties acknowledge
that, to the extent any Collaboration Know-How is covered by a license or other
agreement with a Third Party, such Collaboration Know-How shall, for all
purposes of this Agreement, be subject to the financial and other obligations,
limitations and restrictions contained in such Third Party license or agreement.

 

1.24 “Collaboration Patent Rights” Collaboration Patent Rights shall mean Patent
Rights claiming or covering Collaboration Inventions.

 

1.25 “Collaboration Product” Collaboration Product shall mean any Antibody
Product that binds to a Collaboration Target and is generated or otherwise
created, or acquired from a Third Party, by either Party pursuant to the
Collaboration. Collaboration Products shall not include any Opt-Out Products.

 

1.26 “Collaboration Target” Collaboration Target shall mean: (a) the four
Targets in the Collaboration as of the Date of this Agreement as set forth on
Schedule 3.3(b); and (b) any Validated Target later accepted into the
Collaboration pursuant to Section 3.3(d). Collaboration Targets shall not
include any Opt-Out Targets.

 

1.27 “Commercialization” Commercialization shall mean any and all activities
constituting marketing, promoting, detailing, offering for sale, selling, and
supporting Collaboration Products pursuant to the terms of this Agreement
including, but not limited to, advertising, education, planning, medical
affairs, post-approval clinical trials, Life Cycle Management and regulatory
activities, including for example adverse event reporting and recalls.

 

1.28 “Commercialization Costs” Commercialization Costs shall mean the fairly
allocable costs of a Party and its Affiliates, on a consolidated basis, of
performing such Party’s sales and marketing obligations under this Agreement as
determined in accordance with GAAP, including depreciation or amortization of
capital expenditures related thereto, but excluding general and administrative
expenses; provided that in no event shall any expense be double-counted or
included in Commercialization Costs if such expense has already been accounted
for elsewhere, as follows:

 

(a) External marketing costs — Direct services expenses including reasonable
out-of-pocket payments to Third Parties for services for product advertising,
promotional expenses, and market research:

 

(i) Advertising, including agency fees, and development and space charges.

 

(ii) Collaboration Product promotion and merchandising expenses, including
direct mail, grants, honoraria, consultants, symposia, speaker programs,
indigent programs, sales aids, reminder items, samples, launch meetings, public
affairs programs and post-approval clinical trials.

 

(iii) Marketing research, including trademark development.

 

-5-

--------------------------------------------------------------------------------

(b) Selling service costs — Direct services expenses including reasonable
out-of-pocket payments to Third Parties and all out-of-pocket employee expenses
for sales calls and presentations to the customer classes consistent with a plan
and budget for Commercialization, as approved in accordance with Section 4.3,
including all costs directly incurred by the sales force including:

 

(i) Salary including bonuses and employee benefit expenses of employees who
directly make the sales calls on behalf of a Collaboration Product as well as
other expenses related to such persons, allocated based on the percentage of
time/effort spent on Collaboration Products such as:

 

(1) travel, meals and entertainment costs;

 

(2) small office equipment including computers, telecommunications and other
non-capitalizable small equipment costs;

 

(3) lease costs for regional sales offices and automobiles;

 

(4) business development expenses for the purpose of establishing new
distributors;

 

(5) sales meeting costs;

 

(6) insurance on automobiles and sales offices; and

 

(7) depreciation on fixed assets employed in the direct selling of Collaboration
Products.

 

(ii) Fairly allocable direct and indirect costs of sales personnel involved in
supervisory roles on behalf of the Collaboration Products.

 

(c) Internal marketing costs — Fairly allocable direct and indirect costs of
those employees in the following functions who work directly on the
Collaboration Products, based on the percentage of time spent on Collaboration
Products:

 

(i) product management;

 

(ii) market research;

 

(iii) medical affairs; and

 

(iv) customer technical service/support.

 

1.29 “Commercially Reasonable and Diligent Efforts” Commercially Reasonable and
Diligent Efforts shall mean those efforts and resources normally used by a Party
with respect to a Target, Antibody or Antibody Product (or another comparable
product if no such Antibody Product exists) owned by it or to which it has
rights, which is of similar market potential at a similar stage in its
development or product life, taking into account, without

 

-6-

--------------------------------------------------------------------------------

limitation, issues of safety and efficacy, the product profile, the proprietary
position of the product and the regulatory environment and status of the Target,
Antibody or Antibody Product. Notwithstanding the foregoing, to the extent that
the performance of a Party’s responsibilities hereunder is adversely affected by
the other Party’s failure to perform its responsibilities hereunder, such Party
shall not be deemed to have failed to use Commercially Reasonable and Diligent
Efforts in performing such responsibilities.

 

1.30 “Confidential Information” Confidential Information shall mean all
Know-How, Inventions, technical, marketing, financial or other similar
information, including without limitation proprietary information and biological
and other tangible materials (whether or not patentable). Materials, know-how or
other information that is orally, electronically or visually disclosed by a
Party, or is disclosed in writing without an appropriate letter, stamp or
legend, shall constitute Confidential Information if such information is of the
type that should reasonably have been considered confidential by the receiving
Party at the time of disclosure, given the circumstances surrounding the
disclosure of such materials, know-how or other information.

 

1.31 “Continuing Party” Continuing Party shall have the meaning set forth in
Section 3.9(b).

 

1.32 “Control” or “Controlled” Control or Controlled shall mean, with respect to
any Know-How or Patent Rights, possession of the ability (whether arising by
ownership or license) to grant rights, ownership, access, a license or a
sublicense (as applicable) to such intellectual property as provided for herein
without violating the terms of any written agreement with a Third Party entered
into prior to the time such Party would be first required hereunder to grant the
other Party such access, license or sublicense.

 

1.33 “Core Technology Improvement” Core Technology Improvement shall have the
meaning set forth in Section 12.1(a)(iii).

 

1.34 “Date of this Agreement” Date of this Agreement shall have the meaning set
forth in the introductory paragraph of this Agreement.

 

1.35 “Detail” and “Detailing” Detail shall mean a Call during which a product
presentation of a Collaboration Product is made in a face-to-face meeting in an
individual or group practice setting between a professional sales representative
and a physician (or other such customer who may need to have an understanding of
a Collaboration Product) in which one or more key product messages are verbally
presented in a balanced manner. For avoidance of doubt, Detail does not include
a reminder or sample drop. For further avoidance of doubt, Detail does not
include any other sales and marketing activities. Detailing shall mean the act
of presenting a Detail.

 

1.36 “Dismissed Target” Dismissed Target shall have the meaning set forth in
Section 3.4(a).

 

1.37 “Drug Safety Agreement” Drug Safety Agreement shall have the meaning set
forth in Section 10.4.

 

-7-

--------------------------------------------------------------------------------

1.38 “Effective Date” Effective Date shall have the meaning set forth in the
Recitals.

 

1.39 “Exclusivity Period” Exclusivity Period shall mean the period described in
Section 3.2(b).

 

1.40 “Exploit” and “Exploitation” Exploit shall mean to sell or otherwise
transfer for value, or grant a license under, a particular asset to a Third
Party, but shall not include the use of such asset by either Party on its own
behalf or in the context of a Bona Fide Collaboration. Exploitation shall mean
the act of Exploiting.

 

1.41 “Expression and Engineering Technologies” Expression and Engineering
Technologies shall mean (a) the Bacterial Cell Expression Technology and (b) the
Human Engineering™ Technology.

 

1.42 “FDA” FDA shall mean the United States Food and Drug Administration and any
successor agency.

 

1.43 “Field” Field shall have the meaning set forth in Section 2.1.

 

1.44 “Financial Hardship” Financial Hardship shall have the meaning set forth in
Section 3.9(a).

 

1.45 “FMV” FMV shall have the meaning set forth in Section 14.2(c).

 

1.46 “FTE” FTE shall mean the amount of time an individual actually devotes to
working on Collaboration activities chargeable by either Party under this
Agreement, expressed on a monthly percent effort basis, using average monthly
working hours ([*]) as the denominator. The numerator (actual hours worked)
shall be adjusted on a pro-rata basis such that exempt employees are in no case
allocating more than 100% of their time to Collaboration, non-Collaboration,
administrative and paid-time-off activities. The numerator shall exclude
paid-time-off and administrative and other non-allocable activities unless
specifically agreed by the Parties in determining the applicable FTE Rate on a
function-by-function basis per Section 1.48.

 

1.47 “FTE Costs” FTE Costs shall mean FTE Rates multiplied by FTEs.

 

1.48 “FTE Rates” FTE Rates shall mean the agreed upon cost per FTE by functional
area and are intended to embody costs (i) directly attributed to such Party’s
supervisory functions, service functions, occupancy costs, and its payroll,
information systems, or purchasing functions, all of which are in direct support
of the development, manufacture, use and sale of an applicable Collaboration
Product, and (ii) allocated to departments based on space occupied or headcount
or other activity-based methods; but shall not include any costs attributable to
general corporate activities including, by way of example only, executive
management, investor relations, human relations, business development, legal
affairs, finance and employee costs associated with stock option plans and other
equity incentive plans as permitted by applicable accounting rules. FTE Rates
shall be adjusted annually (beginning in January 2005) for inflation using the
latest available United States Producer Price Index for Pharmaceutical
Preparations, unadjusted (WPU0638), as a simple percentage. In addition, the
Joint Steering Committee shall

 

-8-

--------------------------------------------------------------------------------

discuss and approve, as needed, further adjustments to common FTE Rates every
[*] years on a prospective basis beginning January 2007. The FTE Rates for 2004
(on a per annum basis) are:

 

Functional Area

--------------------------------------------------------------------------------

   Annual FTE Rate

--------------------------------------------------------------------------------

 

Research

   $ [ *]

Pre-Clinical

   $ [ *]

Clinical & Regulatory

   $ [ *]

Technical Development

   $ [ *]

Project Management

   $ [ *]

Quality Assurance

   $ [ *]

Quality Control

   $ [ *]

 

Establishment of annual FTE Rates for functional areas not set forth in the
table above shall be the responsibility of the JRDC or, as applicable, the Joint
Commercialization Team subject to a $[*] per annum minimum. Such rates will be
used to determine the R&D Plan and Budget for the applicable annual period and
all future periods.

 

1.49 “Fully Burdened Manufacturing Costs” Fully Burdened Manufacturing Costs
shall mean, with respect to a Collaboration Product (in bulk, vialed or finished
form, as the case may be) for successful and failed lots, the sum of the
following, all of which shall be calculated in accordance with GAAP; provided
that in no event shall any expense be double-counted or included in Fully
Burdened Manufacturing Costs if such expense has already been accounted for
elsewhere:

 

(a) The amounts paid by a Party to a Third Party for (i) providing raw materials
and packaging materials for producing such Collaboration Product, (ii)
manufacturing, filling and/or finishing such Collaboration Product or any
component thereof, (iii) distributing, transporting, storing and insuring such
Collaboration Product, and (iv) testing such Collaboration Product, including
with respect to the foregoing, all sales and excise taxes and customs duty
charges imposed by governmental authorities with respect thereto to the extent
paid by the Party and not reimbursed or refunded by a Third Party;

 

(b) Direct expenses, which include those material, labor and service expenses
captured in time sheets, invoices and the like, that are specifically for such
Collaboration Product. Direct material expenses include cost of raw materials,
filters, manufacturing supplies, solvent, containers, container components,
packaging, labels and other printed materials used in production. Direct labor
expenses include salaries and fringe benefits for personnel directly involved in
manufacturing such Collaboration Product in accordance with GMP requirements,
such as production, quality control, quality assurance, microbiology, and other
similar departments as needed who participate directly in the production of such
Collaboration Product. Direct services expenses include reasonable out-of-pocket
payments to Third Parties for services;

 

(c) Indirect expenses, which include production overhead costs such as a
reasonable allocation of expenses associated with personnel supporting the
direct manufacturing of such Collaboration Product in accordance with GMP
requirements. Indirect

 

-9-

--------------------------------------------------------------------------------

expenses can include labor and overhead for quality control, quality assurance,
raw material acquisition and acceptance, microbiology, document control,
calibration/validation, and non-research and development expenses for process
development and analytical methods development supporting manufacturing, but
excluding interest expenses and capital expenditures for facilities and
equipment used to manufacture Collaboration Products; and

 

(d) Overhead costs, which are reasonably allocated direct and indirect
manufacturing costs with respect to such Collaboration Product that cannot be
identified in a practical manner with specific units of production and,
therefore, cannot be included as direct material or direct labor expenses. Such
overhead costs include:

 

(i) Specific manufacturing overhead allocations, including but not limited to,
facilities support costs, utilities (including electricity, water, sewer, waste
disposal), indirect materials and supplies, consumables (including maintenance
and repair materials, tools, spare parts), plant management, engineering and
development support, maintenance and repair of the production plant and
production equipment, property taxes (excluding income taxes), materials
management, inventory storage, information management services and insurance;

 

(ii) Depreciation and lease costs over the expected life of buildings and
equipment specifically attributable to such Collaboration Product; and

 

(iii) Reasonable costs related to unused manufacturing capacity reserved for
such Collaboration Product as agreed to by the Parties in advance, if any.

 

1.50 “GAAP” GAAP shall mean United States generally accepted accounting
principles, consistently applied, as in effect from time to time.

 

1.51 “GMP” GMP shall mean Good Manufacturing Practices regulations and
implementing guidelines and General Biological Products Standards promulgated by
the FDA and published at 21 CFR §§ 210, 211 and 610, as such regulations may be
amended from time to time, and by the European Commission as set out in
Directive 91/356 EEC of the Commission of the European Communities as may be
amended from time to time and all relevant foreign equivalents.

 

1.52 “Go/No Go Decision Point” Go/No Go Decision Point shall have the meaning
set forth in Section 3.5(a).

 

1.53 “Human Engineering™ Technology” Human Engineering™ Technology shall mean
the Human Engineering™ technology Controlled by XOMA Technology Ltd. and
subsequently licensed to XOMA (with the right to sublicense hereunder) and shall
not include any improvements thereto which constitute Collaboration Inventions.

 

1.54 “Identifying Party” Identifying Party shall have the meaning set forth in
Section 3.3(d).

 

-10-

--------------------------------------------------------------------------------

1.55 “IND” IND shall mean an investigational new drug application with the FDA
as more fully described at 21 CFR § 312.20, or successor equivalent, or a
comparable filing with a Regulatory Authority outside the United States.

 

1.56 “IND-Enabling Studies” IND-Enabling Studies shall mean GLP toxicology and
safety studies designed and conducted to support submission of an IND.

 

1.57 “Initial Agreement” Initial Agreement shall have the meaning set forth in
the Recitals.

 

1.58 “Interest Period” Interest Period shall have the meaning set forth in
Section 7.4.

 

1.59 “Interest Rate” Interest Rate shall have the meaning set forth in Section
7.4.

 

1.60 “Inventions” Inventions shall mean any and all inventions, discoveries or
ideas, and improvements thereto (whether or not patentable).

 

1.61 “Joint Commercialization Team” Joint Commercialization Team shall mean the
team established pursuant to Section 4.3(a).

 

1.62 “Joint Patent Committee” Joint Patent Committee shall mean the committee
established pursuant to Section 5.3.

 

1.63 “Joint Research and Development Committee” and “JRDC” Joint Research and
Development Committee and JRDC shall mean the committee established pursuant to
Section 5.2(a).

 

1.64 “Joint Steering Committee” Joint Steering Committee shall mean the
committee established pursuant to Section 5.1(a).

 

1.65 “Know-How” Know-How shall mean any and all know-how, trade secrets, data,
processes, techniques, procedures, compositions, materials, devices, methods,
formulas, protocols, pre-clinical and clinical data and information, including
any and all chemical, biochemical, toxicological, and scientific research
information, whether in written, electronic, graphic or video form or any other
form or format.

 

1.66 “Life Cycle Management” Life Cycle Management shall mean efforts, whether
prior to or after obtaining Regulatory Approval of a Collaboration Product, to
maximize long term commercial sales and commercial potential of such
Collaboration Product.

 

1.67 “Losses” Losses shall have the meaning set forth in Section 13.5.

 

1.68 “Material Budget Deviation” A Material Budget Deviation shall mean an
incurred deviation of [*] percent ([*]%) or more above any R&D Plan and Budget.

 

-11-

--------------------------------------------------------------------------------

1.69 “Maximum Profit Share Differential” Maximum Profit Share Differential shall
have the meaning set forth in Section 6.3.

 

1.70 “Net Sales” Net Sales shall mean the gross amounts invoiced by Chiron or,
in the case of Section 3.9(e)(ii) and Section 6.2(b), XOMA (and their respective
Affiliates), as the case may be, for sales of products to Third Parties less the
following unreimbursed or non-refunded deductions with respect thereto,
determined in accordance with GAAP and calculated in United States dollars and
to the extent such amounts have not already been deducted from the amount
invoiced: (a) amounts actually allowed as volume or quantity discounts, rebates,
price reductions, returns (including recalls) and charge-backs, (b) sales,
excise and turnover taxes imposed directly upon and actually paid by such Party
and its Affiliates, (c) uncollectible accounts, to the extent such reserve is
determined in accordance with GAAP, consistently applied across all product
lines of such Party and its Affiliates, as applicable, until such amounts are
collected, and (d) all other direct expenses or discounts, including but not
limited to cash discounts, custom duties and transportation and insurance
charges. In the event that products are sold in the form of combination products
containing one or more active ingredients, other than Collaboration Products or
Opt-Out Products, as the case may be, Net Sales for such combination products
will be calculated by determining the portion of received revenue attributable
to the sale of the Collaboration Products or Opt-Out Products, as the case may
be, in the combination product.

 

1.71 “Non-Identifying Party” Non-Identifying Party shall have the meaning set
forth in Section 3.3(d).

 

1.72 “Opt-Out Product” Opt-Out Product shall have the meaning set forth in
Section 3.9(a).

 

1.73 “Opt-Out Target” Opt-Out Target shall have the meaning set forth in Section
3.9(a).

 

1.74 “Opting-Out Party” Opting-Out Party shall have the meaning set forth in
Section 3.9(a).

 

1.75 “Parties” and “Party” Parties and Party shall have the respective meanings
set forth in the introductory paragraph to this Agreement.

 

1.76 “Patent Rights” Patent Rights shall mean (a) unexpired letters patent
(including inventor’s certificates) which have not been held invalid or
unenforceable by a court of competent jurisdiction from which no appeal can be
taken or has been taken within the required time period (and which have not been
admitted to be invalid or unenforceable through reissue, disclaimer or
otherwise, or been abandoned), including without limitation any substitution,
extension, registration, confirmation, reissue, re-examination, supplementary
protection certificates, confirmation patents, patent of additions, renewal or
any like filing thereof and (b) pending applications for letters patent which
have not been canceled, withdrawn from consideration, finally determined to be
unallowable by the applicable governmental authority for whatever reason (and
from which no appeal is or can be taken), and/or abandoned, including without
limitation any continuation, division or continuation-in-part thereof and any
provisional applications.

 

-12-

--------------------------------------------------------------------------------

1.77 “Phase I Clinical Trial” Phase I Clinical Trial shall mean that portion of
the process seeking Regulatory Approval which provides for human trials for the
purpose of determining toxicity, metabolism, absorption, elimination and other
pharmacological action, as more fully described at 21 CFR § 312.21(a).

 

1.78 “Phase II Clinical Trial” Phase II Clinical Trial shall mean that portion
of the process seeking Regulatory Approval which provides for human trials for
the purposes of determining dose and evaluating safety and efficacy in the
proposed therapeutic indication, as more fully described at 21 CFR § 312.21(b).

 

1.79 “Phase III Clinical Trial” Phase III Clinical Trial shall mean that portion
of the process seeking Regulatory Approval which provides for human trials on
sufficient numbers of patients intended for the purposes of (a) establishing
safety and efficacy for an intended use; and (b) defining warnings, precautions
and adverse reactions in the dosage to be prescribed, as more fully described at
21 CFR § 312.21(c).

 

1.80 “Potential Targets” Potential Targets shall have the meaning set forth in
Section 3.3(c).

 

1.81 “Pre-Tax Profit” Pre-Tax Profit shall mean the amount, whether positive or
negative, equal to Collaboration Gross Margin minus (i) Research and Development
Costs of the Collaboration and (ii) Commercialization Costs of the
Collaboration.

 

1.82 “Project Team” Project Team shall have the meaning set forth in Section
3.6(a).

 

1.83 “Protein Expression Technology” Protein Expression Technology shall mean
modular transient mammalian vectors, modular permanent mammalian vectors, and
their associated genetic control elements, methods of use, and technologies
necessary and/or useful for the expression or production of Antibodies in a cell
or host organism.

 

1.84 “Quality Agreement” Quality Agreement shall have the meaning set forth in
Section 10.5.

 

1.85 “R&D Plans and Budgets” R&D Plans and Budgets shall have the meaning set
forth in Section 3.5(a).

 

1.86 “Regulatory Approval” Regulatory Approval shall mean any product and/or
establishment licenses, registrations, authorizations or similar approvals of
any federal, state or local regulatory agency, department, bureau or other
governmental entity, necessary for the manufacture, use, storage, importation,
export, transport and sale of a Collaboration Product in a regulatory
jurisdiction.

 

1.87 “Regulatory Approval Application” Regulatory Approval Application shall
mean an application for Regulatory Approval required to be obtained for the
purpose of and before Commercialization of a Collaboration Product in a
regulatory jurisdiction, including but not limited to, for the purposes of
Regulatory Approval in the United States, a BLA, and all supplements thereto
filed pursuant to the requirements of the FDA (including all necessary

 

-13-

--------------------------------------------------------------------------------

documents, data and other information) and, for the purposes of Regulatory
Approval in the European Union, an application for Regulatory Approval and all
supplements thereto filed pursuant to the requirements of the European Medicines
Agency (including all necessary documents, data and other information).

 

1.88 “Regulatory Authority” Regulatory Authority shall mean any national (e.g.,
the FDA), supranational (e.g., the European Medicines Agency), regional, state
or local regulatory agency, department, bureau, commission, council or other
governmental entity in any jurisdiction of the world involved in the granting of
Regulatory Approvals for pharmaceutical products.

 

1.89 “Regulatory Filing” Regulatory Filing shall mean a BLA or an IND, and any
foreign counterparts thereof, and any other filings required by a Regulatory
Authority relating to the research and development or the Commercialization of a
Collaboration Product.

 

1.90 “Related Chiron Patent Rights” Related Chiron Patent Rights shall have the
meaning set forth in Section 12.3(b).

 

1.91 “Related XOMA Patent Rights” Related XOMA Patent Rights shall have the
meaning set forth in Section 12.3(c).

 

1.92 “Requesting Party” Requesting Party shall have the meaning set forth in
Section 7.1(b).

 

1.93 “Research and Development Costs” Research and Development Costs shall mean:

 

(a) All out-of-pocket expenses, including specific use capital costs to the
extent incurred for Collaboration projects and not applicable for commercial
scale uses, incurred by a Party and its Affiliates and the FTE Costs incurred by
such Party and its Affiliates, fairly allocable to the performance of its
obligations under R&D Plans and Budgets, determined in accordance with GAAP and
calculated in United States dollars;

 

(b) Expenses incurred by either Party and its Affiliates for prosecution,
maintenance, enforcement and defense of Patent Rights incurred after the
Effective Date and fairly allocable to the Collaboration, including without
limitation costs and expenses of outside counsel; and

 

(c) Fully Burdened Manufacturing Costs incurred with respect to pre-clinical and
clinical supplies of Collaboration Products for use in research and development
activities in accordance with an R&D Plan and Budget, as applicable, determined
in accordance with GAAP and calculated in United States dollars.

 

Section (a) shall include all out-of-pocket license fee, milestone and similar
payments, and royalties actually paid by a Party to a Third Party in
consideration for obtaining or maintaining Chiron Background IP, XOMA Background
IP and Collaboration IP licensed to either Party under this Agreement, to the
extent fairly allocable to the Collaboration, including, for example, Useful
Third Party IP.

 

-14-

--------------------------------------------------------------------------------

In no event shall any expense be double-counted or included in Research and
Development Costs if such expense has already been accounted for elsewhere in
this definition or this Agreement.

 

1.94 “Responding Party” Responding Party shall have the meaning set forth in
Section 7.1(b).

 

1.95 “Target” Target shall mean any biological molecule that (a) is believed to
be accessible to an Antibody, and (b) is further believed to have application in
the Field.

 

1.96 “Target Submission” Target Submission shall have the meaning set forth in
Section 3.3(d).

 

1.97 “Third Party” Third Party shall mean any entity other than Chiron or XOMA
or their respective Affiliates.

 

1.98 “Third Party Technology Agreement” Third Party Technology Agreement shall
have the meaning set forth in Section 3.3(f).

 

1.99 “United States” United States shall mean the United States of America,
including its territories and possessions, the District of Columbia and Puerto
Rico.

 

1.100 “Useful Third Party IP” Useful Third Party IP shall mean Patent Rights
Controlled by a Third Party, which if utilized by the Parties under this
Agreement would facilitate the activities contemplated hereunder and/or would be
reasonably likely to materially enhance the commercial value of any
Collaboration Product.

 

1.101 “Valid Claim” Valid Claim shall mean, with respect to a particular
country, a claim of an issued and unexpired Patent Right in such country that
(a) has not been revoked or held unenforceable or invalid by a decision of a
court or governmental agency of competent jurisdiction from which no appeal can
be taken or has been taken within the time allowed for appeal; and (b) has not
been abandoned, disclaimed, denied or admitted to be invalid or unenforceable
through reissue or disclaimer or otherwise in such country.

 

1.102 “Validated Target” Validated Target shall mean a Target having one or both
of the following features: (1) [*]; and/or (2) [*]. The Party submitting a
Validated Target having either feature will have made reasonable efforts to [*].

 

1.103 “XOMA Background IP” XOMA Background IP shall mean any and all Know-How
and Patent Rights (including, for example, intellectual property relating to
Collaboration Targets) Controlled by XOMA as of the Effective Date (or, in the
case of intellectual property relating to Collaboration Targets accepted for
inclusion in the Collaboration pursuant to Section 3.3(d) after the Effective
Date, as of the date on which each such Collaboration Target is so accepted)
that are [*] for (i) research relating to Collaboration Target(s) or (ii)
research, development, manufacture or Commercialization of Collaboration
Product(s). XOMA Background IP shall also include any and all Know-How and
Patent Rights that are necessary for either of the purposes set forth in clauses
(i) and (ii) of the immediately preceding sentence and that come to be
Controlled by XOMA during the term of this Agreement but not in the course of
the

 

-15-

--------------------------------------------------------------------------------

Collaboration, except (x) to the extent the inclusion of such Know-How and
Patent Rights in XOMA Background IP would constitute a breach or violation of or
a default under, or would otherwise be inconsistent with, the terms and
provisions of any license or other agreement giving rise to or governing such
Know-How or Patent Rights, and (y) that, in the event the inclusion of such
Know-How or Patent Rights in XOMA Background IP would subject either or both of
the Parties to additional financial or other adverse obligations to a Third
Party, such Know-How or Patent Rights shall not be so included in XOMA
Background IP unless the Parties so agree (which agreement shall not be
unreasonably withheld). For the avoidance of doubt, the Parties acknowledge
that, to the extent any XOMA Background IP is covered by a license or other
agreement with a Third Party, such XOMA Background IP shall, for all purposes of
this Agreement, be subject to the financial and other obligations, limitations
and restrictions contained in such Third Party license or agreement. XOMA
Background IP shall include, without limitation, those licenses, patents and
patent applications set forth on Schedule 1.103. Notwithstanding any provision
of this Agreement to the contrary, XOMA Background IP shall not include the
Expression and Engineering Technologies.

 

1.104 “XOMA Commercial Lead” XOMA Commercial Lead shall have the meaning set
forth in Section 4.3(e).

 

1.105 “XOMA Core Technologies” XOMA Core Technologies shall mean Antibody
Display, Panning, Screening and Characterization Technology, Antibody
Optimization Technology, Bacterial Cell Expression Technology, Human
Engineering™ Technology and Protein Expression Technology, in each case as
Controlled by XOMA as of the Effective Date.

 

1.106 “XOMA Opt-Out IP” XOMA Opt-Out IP shall mean any and all XOMA Background
IP and Collaboration IP Controlled by XOMA, each as (i) existing as of the date
of the applicable opt-out and (ii) necessary or reasonably useful for research,
development, manufacture and Commercialization of the applicable Opt-Out
Target(s) and Opt-Out Product(s) corresponding to the particular Opt-Out
Target(s); provided that, with respect to XOMA Background IP that falls within
the definition thereof by virtue of the second sentence of such definition, only
such XOMA Background IP as is necessary for research, development, manufacture
and Commercialization of the applicable Opt-Out Target(s) and Opt-Out Product(s)
corresponding to the particular Opt-Out Target(s) shall be included in XOMA
Opt-Out IP.

 

1.107 “XOMA Profit Share Differential” XOMA Profit Share Differential shall mean
the aggregate amount by which (a) the share of positive Pre-Tax Profits to which
XOMA would otherwise be entitled pursuant to Section 6.2(a) (i.e., thirty
percent (30%) thereof) for the period during which Section 6.3 applies is
greater than (b) XOMA’s share of positive Pre-Tax Profits pursuant to the first
sentence of Section 6.3 (i.e., [*] percent ([*]%) thereof).

 

ARTICLE II

 

OVERVIEW

 

2.1 Overview. Subject to the terms and conditions of this Agreement, XOMA and
Chiron will collaborate to research, develop and commercialize Antibody Products
with respect to Collaboration Targets for the treatment of Cancer in humans
worldwide (the “Field”).

 

-16-

--------------------------------------------------------------------------------

For the avoidance of doubt, palliative treatment and treatment to prevent
recurrence or metastasis shall be considered to be treatments of Cancer. For
convenience, this Article II sets forth a brief overview of the Collaboration.
This overview is subject to the more definitive terms and conditions set forth
elsewhere in this Agreement. In the event of a conflict between the provisions
of this Article II and any other provision of this Agreement, such other
provision shall control.

 

2.2 General Allocation of Responsibilities. Subject entirely to the more
detailed provisions set forth elsewhere in this Agreement, (a) each Party will
conduct Target identification work in its sole discretion, (b) both Parties will
conduct research and development work relating to Collaboration Targets and
Collaboration Products in accordance with R&D Plans and Budgets, (c) XOMA will
be responsible for manufacture of pre-clinical supplies and supplies for Phase I
and Phase II Clinical Trials of Collaboration Products, and (d) Chiron will be
responsible for Commercialization of Collaboration Products.

 

2.3 General Financial Terms. Subject entirely to the more detailed provisions
set forth elsewhere in this Agreement, (a) each Party will bear all costs and
expenses incurred by it in connection with its Target identification work, (b)
the Parties will share Research and Development Costs incurred in connection
with Collaboration research and development activities 70% (Chiron) and 30%
(XOMA), and (c) the Parties will share Pre-Tax Profits from the Collaboration
70% (Chiron) and 30% (XOMA).

 

2.4 Transparency. The Parties intend that each of them be fully and promptly
informed as to all material information and developments relating to the
activities of the Parties under this Agreement, including, without limitation,
all material information and developments relating to the research and
development, manufacture and commercialization of Collaboration Products. As
more fully set forth elsewhere in this Agreement, with respect to research and
development and manufacturing of preclinical and clinical supplies, the primary
mechanism for communicating such information in a timely manner will be the
day-to-day interaction of the Project Teams. In addition, all material
information and developments will be presented and discussed in the appropriate
level of detail at the periodic meetings of the Joint Steering Committee, the
JRDC and the Joint Commercialization Team.

 

2.5 Independence. Subject to the terms of this Agreement, including without
limitation Section 2.4 (Transparency), Collaboration activities will be
performed by or on behalf of XOMA and Chiron, each acting in its own capacity
and independently pursuant to plans and budgets as set forth herein, rather than
through a joint venture, partnership or similar jointly owned enterprise.

 

ARTICLE III

 

RESEARCH AND DEVELOPMENT

 

3.1 In General. As set forth in greater detail below, both Parties will use
Commercially Reasonable and Diligent Efforts to conduct research and development
activities relating to Collaboration Targets and Collaboration Products in
accordance with R&D Plans and Budgets. Such plans will assign responsibility for
specific research and development activities to

 

-17-

--------------------------------------------------------------------------------

each Party; provided that in general XOMA will be responsible for generating
Antibodies against each Collaboration Target and for optimizing such Antibodies.

 

3.2 Exclusivity.

 

(a) During the Exclusivity Period, neither Party will, directly or indirectly,
conduct any research and development with respect to Antibody Products in the
Field, except as expressly set forth in this Agreement. An Antibody Product,
other than an Antibody Product that binds to a Collaboration Target, that has a
use or utility within the Field, for the purposes of this Section 3.2, shall not
be deemed to be within the Field where a Party is pursuing research, development
or commercialization of such Antibody Product only in a field of use other than
Cancer.

 

(b) The Exclusivity Period commenced on the Effective Date and shall end three
(3) years thereafter. If (i) the parties reasonably expect that Chiron will be
able to offer to the Collaboration at least two (2) additional Validated Targets
each year during the extended Exclusivity Period and (ii) Chiron provides an
extension notice at least [*] prior to the end of the Exclusivity Period
provided for in the first sentence of this Section 3.2(b), Chiron may extend, at
its option, the Exclusivity Period by an additional two (2) years. Upon exercise
by Chiron of such option, the third event set forth in Section 6.3 shall be
deemed to have occurred, and the profit share adjustment provided for in such
Section shall be reduced as set forth therein.

 

(c) Notwithstanding anything to the contrary in this Section 3.2, either Party
may conduct research or development activities in the Field relating solely to
the identification or validation of Targets.

 

(d) Notwithstanding anything to the contrary in this Section 3.2, either Party
may conduct research and development activities in the Field pursuant to
agreements with Third Parties which existed as of the Effective Date, as set
forth on Schedule 3.2(d).

 

(e) Notwithstanding anything to the contrary in this Section 3.2:

 

(i) Each Party shall have a right to research, develop and/or commercialize any
composition of matter or article of manufacture, other than Antibody Products,
derived from or otherwise relating to Collaboration Targets (including, without
limitation, any small molecule not integral to a targeting Antibody). Each of
the Parties acknowledges and agrees that any such activity shall be conducted
outside of the Collaboration and shall not be dependent on any right or license
granted to it by the other Party under this Agreement for use only in the
Collaboration.

 

(ii) The Parties acknowledge that on September 23, 2004, XOMA entered into a
worldwide collaboration with Aphton Corporation (“Aphton”) for the development
and commercialization of anti-gastrin antibodies to treat gastrointestinal and
other gastrin-sensitive cancers. XOMA represents and warrants that it has
provided Chiron a true and correct redacted copy of such collaboration
agreement, prior to the Date of this Agreement. In the event that [*]. For the
avoidance of doubt, the rights granted to Chiron pursuant to this Section
3.2(e)(ii) shall be inapplicable to [*].

 

-18-

--------------------------------------------------------------------------------

(iii) XOMA may pursue opportunities to provide, and may provide, contract
manufacturing services to Third Parties using its available capacity for
products in the Field; provided that, during the Exclusivity Period, without
Chiron’s written consent, such consent not to be unreasonably withheld, XOMA
shall not provide contract manufacturing services for products in the Field:

 

[*]

 

The Parties acknowledge that nothing in this Agreement shall restrict XOMA’s
ability to pursue opportunities to provide, or to provide, contract
manufacturing services to Third Parties using its available capacity for
products outside the Field.

 

3.3 Collaboration Targets.

 

(a) Target Identification Activities. Notwithstanding anything to the contrary
contained in this Agreement, neither Party shall have any obligation to the
other Party to conduct Target identification research. In the event that either
Party elects to engage in Target identification research, it may do so in its
sole discretion.

 

(b) Initial Targets. Chiron has contributed to the Collaboration the initial
Targets described on Schedule 3.3(b), and XOMA has accepted such Targets into
the Collaboration, thereby making them Collaboration Targets.

 

(c) Additional Targets. The Parties anticipate that in the future either Party
may identify additional Targets that such Party has a reasonable basis to
believe may have potential utility in the Field and to the Collaboration
(collectively, “Potential Targets”). Each Party acknowledges that Targets
“identified” by Chiron or XOMA may include Targets owned, controlled or
initially identified by Third Parties and, therefore, that such Targets may be
subject to Third Party licenses, arrangements or other rights. On a regular
basis, but no less often than once per quarter, each Party will identify in
writing to the other Party any Potential Targets, as well as any Antibody
Products which relate to such Potential Targets, that are being considered by
such Party. At such time, counsel for each of the Parties shall discuss any
intellectual property owned or otherwise controlled by a Third Party known to
that Party after reasonable inquiry that relate to such Potential Targets.
Except as expressly set forth in Section 3.3(e) below, each Party may, in its
sole discretion and expense, perform all research and development with respect
to each Potential Target up to the point at which the Potential Target has
become a Validated Target.

 

(d) Submission of Validated Targets. If a Potential Target becomes a Validated
Target (regardless of any previously unsuccessful efforts to validate such
Potential Target), the Party that identifies such Potential Target to the other
Party (the “Identifying Party”) will formally and promptly present the Validated
Target to the other Party (the “Non-Identifying Party”) for inclusion in the
Collaboration. Such presentation shall be in the form of a written submission
(the “Target Submission”) and shall include [*]. At such time, counsel for each
of the Parties shall discuss in reasonable detail any intellectual property,
licenses and Third Party obligations relevant to the Validated Target. [*]
Validated Targets may be formally presented for acceptance as Collaboration
Targets in the absence of such information. Within [*] of the date of the
provision of the Target Submission, the Non-Identifying Party shall either
accept or

 

-19-

--------------------------------------------------------------------------------

reject the inclusion of the applicable Validated Target into the Collaboration;
provided that, in order for the Validated Target to be accepted into the
Collaboration, the Parties shall establish an R&D Plan and Budget that includes
sufficient resources to advance such Validated Target appropriately (i.e.,
through completion of the next Go/No Go Decision Point). In the event that,
within such [*] period, the Non-Identifying Party has neither approved nor
rejected a Validated Target for inclusion into the Collaboration such Validated
Target shall be deemed a Dismissed Target as set forth in Section 3.4; provided
that, if an R&D Plan and Budget has not been established prior to the end of
such [*] period, then such period shall be extended for so long as discussions
regarding such R&D Plan and Budget continue in good faith but in no event beyond
[*] from the date of Target Submission. The Identifying Party will bear all
costs and expenses incurred by it in connection with identification and
validation work, up to the point when a Validated Target is accepted into the
Collaboration, including as provided in this Section 3.3(d).

 

(e) Validation Assistance. From time to time during the Exclusivity Period, but
for no more than two (2) Potential Targets per year, at Chiron’s expense (based
on FTE Rates, where applicable), solely for possible inclusion into the
Collaboration as a Validated Target, Chiron may require XOMA to use its
Commercially Reasonable and Diligent Efforts to generate Antibodies against a
Potential Target. Upon mutual written agreement, XOMA shall conduct additional
work at Chiron’s expense to assist in the validation of Potential Targets.

 

(f) Third Party Technology. Prior to the generation or optimization of any
Antibody corresponding to a Collaboration Target, XOMA shall identify in writing
to Chiron the generation and/or optimization technology or technologies that
XOMA intends to use to generate and/or optimize such Antibody. To the extent any
such technology is the subject of an agreement between XOMA and a Third Party
(each, a “Third Party Technology Agreement”), XOMA shall also identify such
Third Party Technology Agreement, and shall provide a copy of such Third Party
Technology Agreement to Chiron, unless a copy of such agreement has been
provided previously.

 

(g) Pre-clinical Activities of XOMA. Throughout the Exclusivity Period, XOMA
shall reserve sufficient pre-clinical capacity to enable it to conduct
pre-clinical activities with respect to at least [*] new Validated Targets
accepted into the Collaboration per year at a rate of [*] new Validated Target
per calendar quarter.

 

(h) Certain Activities of Chiron. This Agreement shall not impose any
restriction upon Chiron with respect to the generation of any Antibody or the
making, testing or using, or the research or development, of any Antibody or
Antibody Product that binds or interacts with any Target, including any
Potential Target, except that, with respect to Antibody generation relating to
Collaboration Targets, Chiron may only carry out those activities specifically
allocated to it pursuant to R&D Plans and Budgets.

 

(i) End of Exclusivity. The Parties’ rights and obligations set forth in
Sections 3.3(c), 3.3(d), 3.3(e), 3.3(f) and 3.3(g) shall expire at the end of
the Exclusivity Period.

 

-20-

--------------------------------------------------------------------------------

3.4 Dismissed Targets.

 

(a) In General. In the event a Validated Target presented for acceptance into
the Collaboration is not approved by the Non-Identifying Party (a “Dismissed
Target”), the Identifying Party will be free to conduct research and development
activities in the Field with respect to such Dismissed Target and to
commercialize any resulting products. The Non-Identifying Party will have no
rights hereunder to, interest hereunder in or obligations hereunder with respect
to such Dismissed Target or any product resulting from such Dismissed Target,
except as expressly set forth in paragraph (b) below. For the avoidance of
doubt, the Parties acknowledge that [*].

 

(b) Antibody Work by XOMA.

 

(i) In the event that a Target proposed by Chiron becomes a Dismissed Target
during the Exclusivity Period:

 

[*]

 

(ii) It is understood that XOMA has access to certain Third Party technologies,
including, without limitation, multiple phage display libraries, that may be
useful in the generation and/or optimization of antibodies, and that certain
contractual limitations restrict XOMA’s ability to access such technologies. At
Chiron’s request, the Parties shall explore the feasibility of accessing such
Third Party technologies through XOMA’s existing agreements in order to generate
and/or optimize Antibodies or Antibody Products for Dismissed Targets.

 

3.5 Research and Development Plans and Budgets.

 

(a) In General. All research and development activities relating to
Collaboration Targets and Collaboration Products will be conducted in accordance
with research and development plans and budgets approved in accordance with the
terms of this Agreement (“R&D Plans and Budgets”). XOMA and Chiron will strive
to have alignment on budget and project monitoring and spending under each R&D
Plan and Budget. Each R&D Plan and Budget will be project specific and comprise
the collection of activities and the associated budget related to a particular
“go/no go” decision point (each such decision point a “Go/No Go Decision
Point”); provided that, in any event, such R&D Plan and Budget shall include as
a Go/No Go Decision Point completion of each of the project-specific activities
in Schedule 3.5(a). R&D Plans and Budgets will assign responsibility for such
specific research and development activities to one of the Parties; provided
that in general XOMA will be responsible for generating and optimizing
Antibodies against Collaboration Targets and for manufacturing preclinical
supplies and supplies for Phase I and Phase II Clinical Trials. Each R&D Plan
and Budget is intended to include sufficient resources to expeditiously advance
the corresponding Collaboration Target and/or Collaboration Product. All R&D
Plans and Budgets will include cost and resource requirements for each Party to
complete the activities leading to the Go/No Go Decision Point(s) included
therein.

 

(b) Initial Plans and Budgets. An initial R&D Plan and Budget must be
established for each Collaboration Target in order for such Target to be
accepted into the Collaboration.

 

-21-

--------------------------------------------------------------------------------

(c) Subsequent Plans and Budgets. Once an R&D Plan and Budget is approved in
accordance with the provisions of this Agreement (including without limitation
Section 5.1(b)(i)), the research and development activities set forth in such
R&D Plan and Budget will be deemed approved through completion of the Go/No Go
Decision Point included therein. Not later than [*] after reaching each Go/No Go
Decision Point, a subsequent R&D Plan and Budget for any such Collaboration
Target and/or Collaboration Product will be established in accordance with
Section 3.5(a).

 

(d) Budget Deviations. An important objective of the Parties is that potential
budget deviations be identified as soon as possible to enable review and
approval and/or remedial actions to be agreed upon by the Parties. Any cost
increase in a calendar year of more than (i) [*] percent ([*]%) for projects
with annual budgets less than or equal to [*] dollars ($[*]), or (ii) [*]
percent ([*]%) for projects with annual budgets greater than [*] dollars ($[*])
and less than or equal to [*] dollars ($[*]), or (iii) [*] percent ([*]%) for
projects with annual budgets greater than [*] dollars ($[*]) from any R&D Plan
and Budget (each an “Annual Budget Deviation Threshold”) shall require the
approval of the Joint R&D Committee pursuant to Section 5.2(b)(ii) and the Joint
Steering Committee pursuant to Section 5.1(b)(i). Upon either Party becoming
aware that a cost increase in excess of the Annual Budget Deviation Threshold is
reasonably likely or has occurred, such Party shall notify the other Party
thereof and the Parties shall promptly convene meetings of the Joint R&D
Committee and the Joint Steering Committee, at which the Parties will confer in
good faith to determine the cause(s) for the deviation, the appropriate steps to
equitably remedy the situation, and the measures to be taken to prevent future
such deviations. In the event a cost increase occurs that exceeds the Annual
Budget Deviation Threshold, as applicable, based on the criteria above in this
Section 3.5(d) with respect to any R&D Plan and Budget without disclosure and
discussion between the Parties as set forth in this Section 3.5(d), [*].

 

(e) Consolidated Annual Plans and Budgets. Although each R&D Plan and Budget
will continue in effect until the next Go/No Go Decision Point is reached in the
absence of a Material Budget Deviation, a consolidated R&D Plan and Budget for
all Collaboration research and development activities will be established
annually in a timeframe that coincides with the Parties’ respective internal
annual planning and budget processes. Not later than June 30 of each year, each
Project Team will submit to the JRDC for review a draft R&D Plan and Budget. Not
later than September 30 of each calendar year, the JRDC shall submit its
recommendation for the consolidated R&D Plan and Budget to the Joint Steering
Committee for approval. Periodically, the JRDC shall review the R&D Plan and
Budget for each Collaboration Product to ensure consistency with the
consolidated R&D Plan and Budget, and may propose changes thereto; provided,
however, that the R&D Plan and Budget in effect for reaching a Go/No Go Decision
Point with respect to a particular Collaboration Product shall not be modified,
except as approved by the Joint Steering Committee. No later than October 31 of
each calendar year, the Joint Steering Committee shall approve the consolidated
R&D Plan and Budget as part of the approval of the overall Collaboration plan
and budget.

 

3.6 Project Teams.

 

(a) In General. A Project Team will be established and comprised of
representatives of both Parties to execute each R&D Plan and Budget (a “Project
Team”). The

 

-22-

--------------------------------------------------------------------------------

Project Team will endeavor to reach decisions by consensus. If the Project Team
is not able to reach consensus on a matter, it will be referred to the JRDC.
Each Party will designate a representative to the Project Team who will serve as
its primary point of contact. In addition to the primary points of contact,
Project Teams will be comprised of appropriate representatives of the relevant
functional areas. Composition of each Project Team may vary, depending on the
nature of the Project, and will be fluid over time, depending on the phase of
research or development.

 

(b) Responsibilities of the Project Teams. Each Project Team will

 

(i) carry out its approved project in accordance with the R&D Plan and Budget;

 

(ii) monitor performance of its approved project against the R&D Plan and
Budget;

 

(iii) be responsible for tactical decisions (i.e., decisions within the scope of
the R&D Plan and Budget);

 

(iv) report in reasonable detail on the status of its approved project to the
JRDC at least quarterly; provided that such report shall be provided to the JRDC
promptly in the event of (A) any incurred or forecasted budget deviation that
exceeds the Annual Budget Deviation Threshold, as applicable, based on the
criteria in Section 3.5(d) above with respect to any R&D Plan and Budget; (B)
any material change in the timeline included in the R&D Plan and Budget; (C) any
material change in project scope or in the assumptions on which the R&D Plan and
Budget was based (including, without limitation, material changes in
Commercialization assumptions, such as the status of competitive products); and
(D) any material technical issues; and in each case such report shall include a
proposed plan of action to address such material change or issue; and

 

(v) draft and propose to the JRDC further plans and budgets (including product
strategy) in accordance with Section 3.5(c).

 

(c) Coordination and Transparency. Each Project Team will meet as needed but no
less frequently than once each quarter. The JRDC shall designate a project
leader for each Project Team. The project leader will notify the other Party’s
representatives of the proposed date, time, location and agenda for meetings,
which generally will take place one month in advance of JRDC meetings. In the
event that either Party cannot participate in any such meeting due to
circumstances beyond the reasonable control of such Party, it shall promptly
notify the other Party and shall propose an alternative meeting date within ten
business days after the originally scheduled meeting date and an alternative
mutually convenient meeting date shall be scheduled. Between meetings the
members of the Project Team will communicate directly with one another as needed
(in many cases, daily) to ensure that all members of the Project Team are
promptly and fully apprised of all matters within the scope of the Project
Team’s responsibilities.

 

-23-

--------------------------------------------------------------------------------

3.7 Pre-Clinical and Phase I and Phase II Clinical Supplies.

 

(a) XOMA shall have the first right to manufacture itself all of the Parties’
requirements for Collaboration Products for pre-clinical development, Phase I
Clinical Trials and Phase II Clinical Trials (other than anti-CD40 Antibody
Product in 2004) and not subcontract such manufacturing, unless mutually agreed
by the Parties. In the event that XOMA is unable or reasonably likely to be
unable to manufacture such supplies, Chiron shall have the right to manufacture
or otherwise provide such supplies or to have such supplies manufactured by a
Third Party, and XOMA shall assist in transferring technology, skills and
know-how relating to manufacturing to ensure a smooth and orderly transition of
manufacturing capability with respect thereto. For avoidance of ambiguity, XOMA
hereby grants Chiron a non-exclusive license under XOMA Background IP and XOMA’s
interest in Collaboration IP to manufacture, either itself or through a Third
Party, all of the Parties’ requirements for any Collaboration Product XOMA is
unable or reasonably likely to be unable to manufacture itself for pre-clinical
development, Phase I Clinical Trials and Phase II Clinical Trials (other than
anti-CD40 Antibody Product in 2004). The Parties shall mutually establish
appropriate procedures to allow forecasting of XOMA’s ability to manufacture in
accordance with this Section 3.7(a).

 

(b) Each R&D Plan and Budget shall include a plan and budget for manufacturing
the requisite pre-clinical and clinical supplies of the corresponding
Collaboration Product(s). The Party responsible for manufacturing shall draft
and propose to the JRDC, for inclusion in R&D Plan and Budgets, appropriate
manufacturing plans (including available capacity, resources and similar
details) and spending forecasts for the manufacture of supplies of each
Collaboration Product for pre-clinical development, and Phase I and Phase II
Clinical Trials for such Collaboration Product based on forecasts to be provided
by the Project Teams.

 

(c) All Collaboration Product manufactured by the responsible Party that will be
used in clinical trials shall comply with all laws and requirements applicable
to the use of such Collaboration Product in Phase I and Phase II Clinical
Trials, and shall meet the specifications set forth in the applicable Regulatory
Filing.

 

(d) Promptly following execution of this Agreement, the Parties will enter into
a supplemental Pre-Clinical and Clinical Supplies Agreement that will include
supply provisions and such other terms and conditions as are reasonably
necessary to implement such supply provisions. The Parties agree that XOMA shall
prepare the first draft of such agreement to initiate the negotiation process.

 

3.8 Phase III Clinical Supplies. Sourcing of supplies of Collaboration Products
for Phase III Clinical Trials will be planned for by the Joint Steering
Committee in accordance with Section 5.1(c), on a Collaboration
Product-by-Collaboration Product basis, not later than the initiation of
clinical studies of such Collaboration Product.

 

3.9 Opt-Out.

 

(a) When Opt-Out Available, Effective. Either Party (the “Opting-Out Party”) may
opt out by written notice to the other Party and, subject to the provisions of
Section 3.9(g) and any applicable Opt-Out Agreement, terminate its research,
development, manufacture and Commercialization relating to a Collaboration
Target (an “Opt-Out Target”) and/or a Collaboration Product (an “Opt-Out
Product”) otherwise under the oversight of the Joint Steering

 

-24-

--------------------------------------------------------------------------------

Committee, on a Collaboration Target by Collaboration Target and/or
Collaboration Product by Collaboration Product basis, as provided herein (i) at
any time upon written agreement of the other Party, (ii) at any time effective
upon reaching the next Go/No Go Decision Point related to such Collaboration
Product or a Collaboration Product relating to such Collaboration Target, as the
case may be, or otherwise terminating the relevant R&D Plan and Budget, in each
case in process at the time of such notice, or (iii) in the event of a Material
Budget Deviation effective upon the earlier of (A) reaching the next Go/No Go
Decision Point related to such Collaboration Product or a Collaboration Product
relating to such Collaboration Target, as the case may be, or otherwise
terminating the relevant R&D Plan and Budget or (B) the sooner of either (I) [*]
following such notice or (II) the end of the calendar year in which such notice
was given. Notwithstanding the above, in the event that a Party is in, or
reasonably expects to be in, Financial Hardship, the Parties, in good faith,
will endeavor to agree (which agreement shall not be unreasonably withheld)
whether to treat such Financial Hardship in the same manner and with the same
consequences as a Material Budget Deviation. For purposes of this Section
3.9(a), the term “Financial Hardship” means a circumstance where continued
participation in research, development, manufacture and Commercialization
relating to a particular Collaboration Target and/or Collaboration Product would
either (x) require a significant curtailment of a Party’s activities with
respect to other existing on-going projects or other efforts, or (y) threaten a
Party’s ability to meet its financial obligations with respect to other existing
on-going projects or other efforts.

 

(b) Continuing Party. In the event a Party delivers the notice referred to in
Section 3.9(a), the other Party (the “Continuing Party”), at its sole option and
expense and in its sole discretion, may continue to conduct research,
development and Commercialization activities with respect to such Opt-Out Target
or Opt-Out Product in the Field and may initiate and conduct research,
development, manufacturing and Commercialization activities with respect to such
Opt-Out Product or Opt-Out Target outside the Field; provided that such
Continuing Party shall, promptly after such written notification from the
Opting-Out Party, notify the Opting-Out Party whether it will continue to
conduct such research, development, manufacturing and Commercialization
activities with respect to such Opt-Out Target or Opt-Out Product. In the event
the Continuing Party thereafter abandons an Opt-Out Target or Opt-Out Product
(including all out-licensing activities and efforts with respect thereto), it
shall notify the Opting-Out Party, whereupon (i) the licenses and other rights,
together with the royalty and other obligations, hereunder with respect to such
Opt-Out Target or Opt-Out Product shall be of no further force and effect and
(ii) either Party may conduct research, development, manufacture and
commercialization thereof without the benefits of, or restriction under, this
Agreement.

 

(c) Effect of Opt-Out Notice. Until a Party’s opt-out is effective as provided
in Section 3.9(a), the Opting-Out Party shall remain obligated to complete those
activities for which it is responsible according to all in process R&D Plans and
Budgets related to each subject Opt-Out Target or Opt-Out Product, as the case
may be, that had previously been set forth in the relevant R&D Plan and Budget
(or, if applicable, the activities for which it is responsible according to any
R&D Plan and Budget related thereto revised by the Continuing Party to reflect
reduced activities and/or expenditures) up to the next Go/No Go Decision Point,
but such obligation is expressly limited to the activities set forth in such R&D
Plan and Budget (or, if applicable, the R&D Plan and Budget revised by the
Continuing Party to reflect reduced activities and/or expenditures).

 

-25-

--------------------------------------------------------------------------------

(d) Effect of Opt-Out. Upon effectiveness of a decision to opt out as provided
in Section 3.9(a), each Opt-Out Target in which the Opting-Out Party has opted
out with respect to such Opt-Out Target shall cease to be a Collaboration
Target, and each Opt-Out Product in which the Opting-Out Party has opted out
with respect to such Opt-Out Product shall cease to be a Collaboration Product.
The Opting-Out Party shall have no further rights to or interest in or
obligations with respect to any Opt-Out Target or any Opt-Out Product, other
than the right to receive the royalties set forth in this Section 3.9 or Section
6.2(b), as applicable. The Opting-Out Party shall not be responsible for any
activities set forth in an R&D Plan and Budget initiated after the effective
date of such Party’s opt-out. In addition,

 

(i) until a Party’s opt-out is effective as provided in Section 3.9(a), the
Opting-Out Party shall be responsible for its share of all costs and expenses
actually incurred to achieve, and shall receive its share of profits, if any,
actually earned prior to, the next Go/No Go Decision Point as set forth in the
R&D Plan and Budget then in effect. Upon opting out, the Opting-Out Party shall
use commercially reasonable efforts to transfer to the Continuing Party the
Opting-Out Party’s responsibilities under such R&D Plan and Budget. In the event
that such transition continues after the effective date of such opt-out, the
Opting-Out Party shall be reimbursed by the Continuing Party for its expenses
incurred after the effective date of such opt-out in achieving such Go/No Go
Decision Point at its cost. The Parties agree that the calculation of such
expenses shall be made in the same manner as if this Agreement otherwise still
applied thereto;

 

(ii) if a Party opts out of an Opt-Out Target, such Party will be deemed to have
also opted out with respect to any future Antibody Products or related
activities with respect to such Opt-Out Target but will not be deemed to have
opted out with respect to any then existing Collaboration Products or related
activities with respect to such Opt-Out Target unless the Opting-Out Party
expressly opts out of such existing Collaboration Product(s) in accordance with
clause (iii) below;

 

(iii) if a Party opts out of an Opt-Out Product, such Party will be deemed to
have also opted out with respect to the Collaboration Target corresponding to
such Opt-Out Product (which shall consequently become an Opt-Out Target) and any
then existing Collaboration Products, Antibody Products or related activities
with respect to such Opt-Out Target that are at an earlier stage of development
than the Opt-Out Product and any future Antibody Products or related activities
with respect to such Opt-Out Target, but will not be deemed to have opted out
with respect to any then existing Collaboration Product with respect to such
Opt-Out Target that is at a later stage of development than the Opt-Out Product;
and

 

(iv) in recognition of the multi-Target, multi-product nature of the
Collaboration, the Parties agree to include, from time to time in their
discretion to be exercised in good faith, in discussions between the Parties
relating to the development and/or Commercialization of Collaboration Targets
and/or Collaboration Products, relevant information regarding Opt-Out Targets
and/or Opt-Out Products.

 

-26-

--------------------------------------------------------------------------------

(e) Royalties in the Event of Opt-Out.

 

(i) Opt-Out by XOMA. In the event that XOMA is the Opting-Out Party, Chiron will
pay to XOMA a royalty on Net Sales of any Opt-Out Product or any Antibody
Product corresponding to an Opt-Out Target as follows:

 

Point at Which Opt-Out Occurs

--------------------------------------------------------------------------------

   Royalty

--------------------------------------------------------------------------------

  After the start of IND-Enabling Studies but before the start of Phase I
Clinical Trials    [ *]% After the start of Phase I Clinical Trials but before
the start of Phase II Clinical Trials    [ *]% After the start of Phase II
Clinical Trials but before the start of Phase III Clinical Trials    [ *]% After
the start of Phase III Clinical Trials but before Regulatory Approval of a BLA
   [ *]%

 

Notwithstanding the foregoing, in the event Chiron uses a license to the
Bacterial Cell Expression Technology to manufacture a Human Engineered™ Opt-Out
Product, the applicable royalty on such Opt-Out Product shall not be less than
[*]%. In addition, in the event XOMA is the Opting-Out Party, Chiron will be
responsible for and shall pay any fees, royalties or other amounts due and
payable pursuant to any applicable XOMA Opt-Out IP and any agreement with a
Third Party entered into in accordance with Section 12.6 in respect of such
Opt-Out Product or Antibody Product corresponding to an Opt-Out Target.

 

(ii) Opt-Out by Chiron. In the event that Chiron is the Opting-Out Party, XOMA
will pay to Chiron a royalty on Net Sales of any Opt-Out Product or any Antibody
Product corresponding to an Opt-Out Target as follows:

 

Point at Which Opt-Out Occurs

--------------------------------------------------------------------------------

   Royalty Percentage

--------------------------------------------------------------------------------

  After the start of IND-Enabling Studies but before the start of Phase I
Clinical Trials    [ *]% After the start of Phase I Clinical Trials but before
the start of Phase II Clinical Trials    [ *]% After the start of Phase II
Clinical Trials but before the start of Phase III Clinical Trials    [ *]% After
the start of Phase III Clinical Trials but before Regulatory Approval of a BLA
   [ *]%

 

In addition, in the event Chiron is the Opting-Out Party, XOMA will be
responsible for and shall pay any fees, royalties or other amounts due and
payable pursuant to any applicable Chiron Opt-Out IP and any agreement with a
Third Party entered into in accordance with Section 12.6 in respect of such
Opt-Out Product or Antibody Product corresponding to an Opt-Out Target.

 

(f) Certain Covenants in the Event of Opt-Out.

 

(i) Upon an opt-out by a Party, the Opting-Out Party shall immediately, at its
own cost and expense, assign and transfer to the Continuing Party the entire
right, title and interest held by the Opting-Out Party, to and under, any and
all Regulatory Filings relating solely to the Collaboration Product and provide
to the Continuing Party access to any and all other

 

-27-

--------------------------------------------------------------------------------

Regulatory Filings relating to the Collaboration Product, in each case obtained
from the Opt-Out Target, including without limitation any and all Regulatory
Approvals. The Continuing Party shall have the right to file for all Regulatory
Approvals with respect to its Opt-Out Products in its own name.

 

(ii) The Opting-Out Party, at the Opting-Out Party’s cost and expense, shall
provide to the Continuing Party, or the Continuing Party’s designee, if
applicable, all commercially reasonable assistance requested by the Continuing
Party to utilize information contained in Regulatory Filings relating to the
Collaboration Product obtained from the Opt-Out Target assigned and transferred
pursuant to Section 3.9(f)(i), and to otherwise effect the intent of the Parties
to enable the Continuing Party to continue research, development and
Commercialization activities with respect thereto. For the avoidance of doubt,
nothing herein is intended to give an Opting-Out Party any right to opt back in
to an Opt-Out Target or Opt-Out Product.

 

(iii) In the event that the Opting-Out Party with respect to a Collaboration
Product is responsible (pursuant to an R&D Plan and Budget, or a plan and budget
for Commercialization, then in effect) for manufacturing of such Collaboration
Product on the effective date of the notice referred to in Section 3.9(a), such
Opting-Out Party will contract manufacture such product at cost for the
Continuing Party until such time as the Continuing Party is able to establish
alternative manufacturing but in no event for more than [*] beyond the effective
date of the Opting-Out Party’s opt-out. During such [*] period, the Opting-Out
Party will provide reasonable assistance to the Continuing Party or to any third
party manufacturer as the Continuing Party may designate in its sole discretion
to transfer all requisite technology, skills and know-how relating to
manufacturing to the Continuing Party and/or such third party manufacturer to
ensure a smooth and orderly transition of manufacturing capability at the
Continuing Party’s expense.

 

(g) Third Party Technologies.

 

(i) Simultaneously with the delivery by XOMA of written notice of an opt-out
with respect to a Collaboration Product or a Collaboration Target in accordance
with Section 3.9(a), XOMA shall (A) identify to Chiron in writing each and every
technology actually used to generate and/or optimize such Collaboration Product,
or the Antibody Product(s) corresponding to such Collaboration Target, which is
the subject of such opt-out notice, and (B) provide to Chiron a copy of each
Third Party Technology Agreement that covers such technology or technologies,
unless a copy of such agreement has been provided previously. In the event any
Third Party Agreements cover such technology or technologies, the provisions of
Schedule 3.9(g) shall apply.

 

(ii) The Parties acknowledge that circumstances may exist where a Target
proposed by Chiron, or Antibody Product(s) corresponding to such Target, or a
technology or technologies used by Chiron in connection with a Target or
Antibody Product(s), may be the subject of an agreement between Chiron and a
Third Party, and that it may be appropriate for XOMA to have rights similar to
those of Chiron pursuant to this Section 3.9(g) and Schedule 3.9(g). In the
event that Chiron delivers written notice of an opt-out with respect to a
Collaboration Product or a Collaboration Target, the provisions of this Section
3.9(g) and Schedule 3.9(g) shall apply, mutatis mutandis, as if the agreements
referred to in the preceding sentence were

 

-28-

--------------------------------------------------------------------------------

Third Party Technology Agreements and Chiron, and not XOMA, was a party to such
agreement.

 

3.10 Applications Outside the Field. Neither Party shall have the right to
conduct any research or development activities with respect to any Antibody
Product generated against a Collaboration Target, including any Collaboration
Product, outside the Field without the prior written consent of the other Party.

 

3.11 Research and Development Records. Each Party shall maintain written or
electronic records of work conducted pursuant to its efforts under Collaboration
research and development activities, and information generated in connection
with such efforts, in sufficient detail and in a manner appropriate for
regulatory and patent purposes. Each Party shall maintain such records and the
information of the other Party contained therein in strict confidence in
accordance with Article XI. As soon as practicable after the Date of this
Agreement, the Parties shall agree upon document standards, templates for
reports, a shared electronic document management system, and the manner for
transfer of documents.

 

3.12 Specific Use Capital Equipment. In the event any specific use capital
equipment purchased by either Party for use in the Collaboration, the cost of
which was properly included in Research and Development Costs, ceases to be used
in the Collaboration:

 

(a) whichever Party operated such equipment can purchase it at its then-current
book value by paying the other Party such other Party’s pro rata share of the
then-current book value based on a useful life in accordance with GAAP. Chiron’s
share of book value payable to XOMA would be thirty percent (30%) of the
then-current book value and XOMA’s share of book value payable to Chiron would
be seventy percent (70%) of the then-current book value;

 

(b) if the operating Party does not want to so purchase such equipment, the
other Party can purchase it at the then-current book value by paying the
operating Party such operating Party’s pro rata share of the then-current book
value based on a useful life in accordance with GAAP. Chiron’s share of book
value payable to XOMA would be thirty percent (30%) of the then-current book
value and XOMA’s share of book value payable to Chiron would be seventy percent
(70%) of the then-current book value; and

 

(c) if such equipment is sold to a Third Party, the Parties will share the
proceeds seventy percent (70%) for Chiron and thirty percent (30%) for XOMA.

 

ARTICLE IV

 

COMMERCIALIZATION

 

4.1 In General. Chiron shall be responsible for Commercialization of all
Collaboration Products, subject to XOMA’s right to employ a portion of the sales
force in the United States as described in Section 4.2 and to the transparency
provisions described in Section 2.4. Chiron shall use Commercially Reasonable
and Diligent Efforts to Commercialize Collaboration Products.

 

-29-

--------------------------------------------------------------------------------

4.2 XOMA Right to Employ Portion of Sales Force.

 

(a) In General. In the event that Chiron determines at any time that additional
sales representatives are required over and above its then-current sales force
in order to implement the plan and budget for Commercialization of a
Collaboration Product approved in accordance with Section 4.3, XOMA shall be
entitled (but shall not be required) to employ a portion of the sales force in
the United States to detail such Collaboration Product, not to exceed [*]% of
the aggregate promotional effort (as measured by the aggregate number of
Details) on such Collaboration Product on a Collaboration
Product-by-Collaboration Product basis; provided that, in connection with any
expansion of the sales force relating to any Collaboration Product, XOMA shall
be entitled to employ up to all of the additional sales representatives being
added each time such additional sales representatives are added until XOMA has
sufficient sales representatives to provide [*]% of such Details, and thereafter
to employ its pro rata share of any additional sales representatives or further
increases in the sales force. Such XOMA sales representatives shall be XOMA
employees but shall operate under Chiron’s overall supervision and control with
respect to such Collaboration Products, and the expenses associated therewith
shall be part of the calculation of Pre-Tax Profits under Section 6.2(a). As
soon as practicable after XOMA exercises its rights under this Section 4.2(a)
with respect to a Collaboration Product, the Joint Commercialization Team shall
include within the plan and budget for Commercialization of such Collaboration
Product an allocation of responsibilities as between the Chiron and XOMA sales
forces.

 

(b) Charge to the Collaboration. In the event that XOMA exercises its right to
employ a portion of the sales force in the United States to detail Collaboration
Products, the associated expense charged to the Collaboration by XOMA shall not
exceed Chiron’s per head expense on a geographic basis; provided that the
expense charged to the Collaboration shall be fairly allocated to reflect the
level of effort. Consistent with the foregoing, the Parties agree to decide in
good faith upon the specific procedure for making the calculation of such
expense at an appropriate time after the Date of this Agreement and prior to the
first commercial sale of the first Collaboration Product to be so sold. XOMA
shall prepare and furnish to Chiron within [*] after the end of each calendar
month a written report showing in specific detail such Commercialization Costs.

 

(c) Geographic Limitation. For the avoidance of doubt: XOMA’s right to employ a
portion of the sales force to detail Collaboration Products is limited to the
United States. XOMA shall not have any right to detail Collaboration Products
outside the United States. For the further avoidance of doubt, Chiron is
responsible for commercialization of Collaboration Products globally.

 

4.3 Joint Commercialization Team.

 

(a) General. No later than initiation of Phase III Clinical Trials for any
Collaboration Product, the Parties will establish a Joint Commercialization Team
with representation from all appropriate functions within Chiron, and with such
representation from XOMA as XOMA may elect (up to equal representation). The
Joint Commercialization Team will serve as a forum for sharing of information
and discussing Chiron’s commercialization activities

 

-30-

--------------------------------------------------------------------------------

hereunder. For the avoidance of doubt, Chiron, and not the Joint
Commercialization Team, is responsible for commercialization of Collaboration
Products.

 

(b) Commercialization Strategy, Plans and Budgets. Promptly upon Chiron having
prepared its plan and budget for Commercialization of a Collaboration Product,
it will provide such plan and budget to the Joint Commercialization Team. Each
year, Chiron will prepare a draft annual plan and budget for Commercialization,
a long range financial plan and a draft updated Life Cycle Management plan, for
each Collaboration Product being commercialized or for which a plan and budget
for Commercialization has been prepared. No later than June 30 of each year,
Chiron will present such draft plans and budgets for discussion in the Joint
Commercialization Team.

 

(c) Decisions. The Joint Commercialization Team will endeavor to reach consensus
on plans and budgets for Commercialization of Collaboration Products. If the
Joint Commercialization Team is not able to reach consensus on any such plan(s)
and budget(s), Chiron will present such draft plan(s) and budget(s) for
discussion in the Joint Steering Committee, and will consider all comments and
suggestions in preparation of a final plan and budget for Commercialization of
each such Collaboration Product. For purposes of clarification, Chiron, with
appropriate regard for XOMA’s rights pursuant to Section 4.2, shall cast the
deciding vote with respect to the plan and budget for Commercialization of each
and every Collaboration Product.

 

(d) Reporting and Updates. Chiron will report on each of the following, as
applicable, at each quarterly meeting of the Joint Commercialization Team: (i)
actual sales of Collaboration Products, (ii) quarterly forecasts for the quarter
following such month, and (iii) such other matters as reasonably necessary to
keep XOMA informed of substantive developments with respect to
commercialization.

 

(e) Meetings and Coordination. The Joint Commercialization Team will be chaired
by a representative from Chiron (the “Chiron Commercial Chair”). XOMA will
designate one of its representatives to the Joint Commercialization Team as its
lead representative (the “XOMA Commercial Lead”). The Joint Commercialization
Team will meet as needed but no less frequently than once each quarter. The
meeting location will be Chiron’s marketing headquarters, unless the Chiron
Commercial Chair and the XOMA Commercial Lead otherwise agree in writing. The
Chiron Commercial Chair will notify the XOMA Commercial Lead of the proposed
date, time, and agenda for meetings. In the event that either Party cannot
participate in any such meeting due to circumstances beyond the reasonable
control of such Party, it shall promptly notify the other Party and shall
propose an alternative meeting date within ten business days of the originally
scheduled meeting date and an alternative mutually convenient date shall be
scheduled. Between meetings, the Chiron Commercial Chair and the XOMA Commercial
Lead will communicate directly with one another as needed to ensure that XOMA is
promptly and fully apprised of all substantive matters relating to the
commercialization of Collaboration Products by Chiron.

 

4.4 Top Line Sales. The Parties intend that Chiron recognize top-line sales for
all Collaboration Products. It is understood that, in order for Chiron to
recognize such

 

-31-

--------------------------------------------------------------------------------

top-line sales under GAAP, certain criteria must be satisfied. Such criteria
include, without limitation, the following:

 

(a) Chiron is the obligor to the customer and retains inventory title before
customer’s order is placed and upon any customer return; and

 

(b) Chiron controls daily sales and marketing activities, sales and marketing
strategies and plans, the establishment of product price, and any discounts,
samples or product trials.

 

XOMA expressly acknowledges Chiron’s control over each of the foregoing, and
such other criteria as may be necessary for Chiron to recognize top-line sales
for all Collaboration Products. From time to time, XOMA shall enter into such
further agreements with Chiron as may be reasonably necessary to establish that
Chiron meets the requirements for recognizing top-line sales of Collaboration
Products.

 

ARTICLE V

 

MANAGEMENT OF THE COLLABORATION

 

5.1 Joint Steering Committee.

 

(a) In General. The Parties will establish a Joint Steering Committee to oversee
all Collaboration activities. The Joint Steering Committee shall be composed of
three senior representatives from each Party, and shall be chaired by a senior
Chiron representative. The Joint Steering Committee shall meet at least
semi-annually, and more frequently as the Parties may agree.

 

(b) Responsibilities. The Joint Steering Committee will

 

(i) set priorities for the Collaboration by reviewing and approving on a
portfolio basis with reference to all Collaboration projects, all R&D Plans and
Budgets, proposed material modifications thereto (including product strategy)
and all cost increases that exceed the Annual Budget Deviation Threshold, as
applicable, based on the criteria in Section 3.5(d) with respect thereto for all
research and development activities (including, without limitation, process
development and clinical supplies); provided, however, that to the extent any
such proposed material modification is not approved, the then-existing R&D Plan
and Budget shall govern; and provided, further, that upon approval of an R&D
Plan and Budget pursuant to this Section 5.1(b)(i), such plan and budget will be
designated by the Joint Steering Committee as “approved” for purposes of this
Agreement;

 

(ii) discuss but not determine, on a portfolio basis with reference to all other
Collaboration projects, the plans and budgets for Commercialization of
Collaboration Products described in Section 4.3(b) within thirty (30) days of
each submission;

 

-32-

--------------------------------------------------------------------------------

(iii) approve or reject product pipeline entry and exit decisions recommended by
the JRDC (including for example, product phase shifts, changes in target
indications, development “go/no-go” decisions);

 

(iv) determine the appropriate course of action in the event of notices of
alleged infringement as described in Section 12.5 and the desirability of Third
Party IP as described in Section 12.6; and

 

(v) discuss but not determine other material non-commercial matters relating to
the activities of the Parties under this Agreement.

 

(c) Decisions: In General. The Joint Steering Committee will endeavor to reach
consensus on all matters within the scope of its responsibilities including
those as set forth in Section 5.1(b) and Section 4.3(b). If the Joint Steering
Committee is not able to reach consensus on any such matter within [*] of the
first presentation of such matter to the Joint Steering Committee, it will be
referred to business heads of the respective Parties for resolution. The
business heads shall meet in person within [*] of such referral and attempt to
resolve any differences in good faith. If the business heads are not able to
reach agreement within [*] of the first such in person meeting, Chiron will have
the right to cast the deciding vote except as expressly set forth in Section
5.1(d) below. Notwithstanding anything to the contrary herein and for the
avoidance of doubt, if the JRDC, Joint Commercialization Team, any Project Team
or the Joint Patent Committee, as the case may be, is unable to reach consensus
on any matter, such matter shall be referred to the Joint Steering Committee for
resolution in accordance with this Section 5.1(c) or Section 5.1(d), as
applicable; provided, however, matters within the responsibility of the Project
Teams and Joint Patent Committee shall first be referred to the JRDC for
resolution and then to the Joint Steering Committee for resolution pursuant to
this Section 5.1(c), if necessary.

 

(d) Decisions: [*].

 

(i) In the event the Joint Steering Committee and business heads of Chiron and
XOMA are not able to reach consensus with respect to [*], the dispute related to
such [*] shall be resolved by binding baseball-style arbitration in accordance
with the procedures set forth in Schedule 5.1(d)(i) hereto. For clarification,
this Section 5.1(d)(i) shall not apply with respect to [*].

 

(ii) Notwithstanding Section 5.1(d)(i), arbitration may not be invoked (and
Chiron will have the right to cast the deciding vote) in the event that [*].

 

5.2 Joint Research and Development Committee.

 

(a) In General. The Parties will establish a Joint Research and Development
Committee to oversee all research and development activities of the
Collaboration. The JRDC will be composed of representatives from each Party with
experience in research, development and manufacture of human pharmaceutical
products. The JRDC shall have no more than ten members in total. The JRDC will
meet at least quarterly, and more frequently as the Parties may agree.

 

-33-

--------------------------------------------------------------------------------

(b) Responsibilities. The JRDC will

 

(i) review, on a portfolio basis with reference to all Collaboration projects,
and recommend to the Joint Steering Committee for approval all research and
development plans and budgets (including all product strategy and spending) and
proposed material modifications thereto for all research and development
activities (including without limitation process development and clinical
supplies);

 

(ii) review all research and development budget forecasts and variances on a
quarterly basis and recommend to the Joint Steering Committee for review all
cost increases that exceed the Annual Budget Deviation Threshold, as applicable,
based on the criteria in Section 3.5(d) with respect to any R&D Plan and Budget;

 

(iii) allocate resources, on a portfolio basis, for all R&D Plans and Budgets;

 

(iv) guide and monitor Joint Project Teams performance against Go/No Go Decision
Points within the R&D Plans and Budgets;

 

(v) review and discuss all Potential Targets on a regular basis, but no less
often than once per quarter, and facilitate their entry into the Collaboration,
as appropriate; provided that the JRDC may delegate these responsibilities to
other agreed upon representatives of the Parties;

 

(vi) review and decide matters raised by the Project Teams; and

 

(vii) discuss and consider all other material research and development matters
relating to the activities of the Parties under this Agreement.

 

(c) Decisions. The JRDC will endeavor to reach consensus on all matters within
the scope of its responsibilities. If the JRDC is not able to reach consensus on
any such matter, it will be referred to the Joint Steering Committee for
resolution in accordance with the procedure described in Sections 5.1(c) and
5.1(d), as applicable.

 

5.3 Joint Patent Committee. The Parties will establish a Joint Patent Committee
to coordinate all matters relating to the Patent Rights and Know-How relevant to
this Agreement and to oversee and direct the prosecution of any Collaboration
Patent Rights and the preparation and filing of patent applications claiming any
Collaboration Inventions. The Joint Patent Committee shall be comprised of one
(1) senior patent attorney from each Party as appointed by such Party. A Party
may replace its representative from time to time upon written notice to the
other Party. The Joint Patent Committee shall exist until the termination of
this Agreement. The Joint Patent Committee will endeavor to reach consensus on
all matters within the scope of its responsibilities. If the Joint Patent
Committee is not able to reach consensus on any such matter, it will be referred
to the Joint Steering Committee for resolution in accordance with the procedures
described in Section 5.1(c).

 

-34-

--------------------------------------------------------------------------------

ARTICLE VI

 

FINANCIAL PROVISIONS

 

6.1 Initial Payment. XOMA hereby acknowledges receipt from Chiron of the sum of
$10,000,000.

 

6.2 Profit and Cost Sharing.

 

(a) Share. The Parties shall share all Pre-Tax Profits from Collaboration
Products and otherwise arising from the Collaboration (e.g., license fees from
Third Parties, upfront and other fees from marketing partners, etc.) so that
Chiron will receive seventy percent (70%) of such Pre-Tax Profits, and XOMA will
receive thirty percent (30%) of such Pre-Tax Profits. Within ten (10) days after
the end of each calendar month during which research and development activities
are ongoing, each Party shall prepare and furnish to the other Party a written
report showing in specific detail the costs actually incurred by such Party for
research and development activities during such month. Within ten (10) days
after the end of each calendar month during which Commercialization activities
are ongoing, Chiron shall prepare and furnish to XOMA a written report showing
in specific detail Net Sales for Collaboration Products, Collaboration Cost of
Goods Sold, Collaboration Gross Margin, and Commercialization costs recognized
by Chiron for Commercialization activities during such month. Within [*] days
after the end of each calendar quarter, the Parties shall determine, based on
such written reports and such other necessary information, any amounts payable
and execute the necessary cash settlement payments so that Chiron recognizes
seventy percent (70%) and XOMA recognizes thirty percent (30%) of the total
Pre-Tax Profits recognized.

 

(b) Conversion from Profit Sharing to Royalties. Notwithstanding anything in
Section 6.2(a) above, on a country-by-country and Collaboration
Product-by-Collaboration Product basis at any time upon [*] prior written
notice, either Party may irrevocably convert its right to share profits and
losses (including Third Party payments) in Commercialization of any
Collaboration Product after obtaining Regulatory Approval for such Collaboration
Product to a right to receive a royalty on Net Sales of such Collaboration
Product in each such country. In the event that Chiron exercises its right under
this Section 6.2(b) with respect to a Collaboration Product in any country, it
will receive a royalty equal to [*]% of Net Sales of such Collaboration Product
in such country and, in the event that XOMA exercises its right under this
Section 6.2(b) with respect to a Collaboration Product in any country, it will
receive a royalty equal to [*]% of Net Sales of such Collaboration Product in
such country. Such a conversion of the sharing of profits and losses to the
receipt of a royalty shall not be effective prior to the later of (i) obtaining
the first Regulatory Approval for such Collaboration Product or (ii) [*] after
receipt of the notice by the Party not exercising its right under this Section
6.2(b) (or such later date as stated in such notice). For purposes of
clarification, a Party shall continue to bear its share of (A) all Research and
Development Costs with respect to such Collaboration Product until the effective
date of conversion from a sharing of profits and losses to the receipt of a
royalty under this Section 6.2(b) and (B) all Commercialization Costs including,
if applicable, pre-launch ramp-up costs for such [*] notice period.

 

-35-

--------------------------------------------------------------------------------

6.3 Pre-Tax Profit Adjustment. Following the first commercial sale of a
Collaboration Product, and until the XOMA Profit Share Differential reaches the
Maximum Profit Share Differential (as defined below), XOMA’s share of positive
Pre-Tax Profits shall be [*] percent ([*]%) and not the thirty percent (30%)
provided for in Section 6.2(a). “Maximum Profit Share Differential” shall mean
thirteen million three hundred thirty thousand dollars ($13,330,000), as reduced
by the amounts set forth below upon first achievement of any of the particular
events set forth below corresponding to each such particular amount:

 

Event

--------------------------------------------------------------------------------

   Amount of Reduction

--------------------------------------------------------------------------------

1.      File an IND on a Collaboration Product within 18 months after a decision
by the Joint Steering Committee designating such Collaboration Product to be a
development candidate (i.e., authorizing IND-Enabling Studies)

   $ 1,670,000

2.      Produce a GMP lot of a Collaboration Product within 15 months after
initiating process development

   $ 1,660,000

3.      Chiron exercises its option to extend the Exclusivity Period to 5 years
pursuant to Section 3.2(b)

   $ 5,000,000

 

The reduction in Maximum Profit Share Differential may be applied no more than
once for each event. In the event that each and every such particular event has
occurred, the Maximum Profit Share Differential shall equal five million dollars
($5,000,000). The Parties acknowledge that the second such event set forth in
the Initial Agreement relating to the Human Engineering™ of an [*] Antibody
Product was achieved prior to the Date of this Agreement, thereby reducing the
profit-share adjustment originally set forth therein of fifteen million dollars
($15,000,000) by one million six hundred seventy thousand dollars ($1,670,000).

 

6.4 Line of Credit. Simultaneously with the execution of this Agreement, the
Parties shall enter into a separate Secured Note Agreement in the form attached
hereto as Schedule 6.4. For the avoidance of doubt, the line of credit referred
to in this Section 6.4, together with the payments from Chiron to XOMA pursuant
to Section 6.1, will be the only funds that Chiron will be required to provide
to XOMA to fund XOMA’s share of Collaboration activities. If, following XOMA’s
use of the funds available under such line of credit, XOMA does not have
sufficient financial resources to cover its share of Collaboration activities,
it will opt out of a sufficient number of Collaboration Targets and/or
Collaboration Products in accordance with Section 3.9 in order that its
resources are sufficient to cover its share of costs and expenses associated
with the Collaboration Targets and/or Collaboration Products remaining in the
Collaboration.

 

6.5 Additional Fees.

 

[*]

 

-36-

--------------------------------------------------------------------------------

ARTICLE VII

 

RECORDS, RECORD KEEPING AND PAYMENT TERMS

 

7.1 Payment Records; Audits.

 

(a) Records. Each Party agrees to keep and to require its Affiliates to keep,
clear, accurate and complete records in accordance with GAAP for a period of at
least [*] in sufficient detail to enable costs and expenses, profits and losses,
and profit and loss sharing relating to amounts payable or creditable under this
Agreement to be determined.

 

(b) Request. Upon the written request of a Party (the “Requesting Party”) and
not more than once each calendar year, the other Party (the “Responding Party”)
shall permit an independent certified public accounting firm of recognized
standing, selected by the Requesting Party and reasonably acceptable to the
Responding Party, at the Requesting Party’s expense, to have access during
normal business hours to the records of the Responding Party as may be
reasonably necessary to verify the accuracy of the financial reports and
calculations made under this Agreement for any calendar quarter ending not more
than [*] prior to the date of such request. The accounting firm shall disclose
to both Parties whether the reports and calculations are correct or not, and
shall disclose to both Parties the specific details concerning any
discrepancies. All information disclosed to such independent accountant, and any
verbal or written disclosure by such independent accountant to the Parties,
shall be deemed to be Confidential Information.

 

(c) Discrepancy. If any error in favor of either Party is discovered in the
course of inspection under this Section 7.1, the other Party, within [*] after
the accounting firm’s disclosure of its findings, shall pay the first Party the
amount (plus interest, if applicable) that the first Party would have received
in the absence of such error. Inspections conducted under this Section 7.1 shall
be at the expense of the inspecting Party, unless a variation or error in favor
of the inspected Party exceeding [*] percent ([*]%) of the amount actually paid
for the period covered by the inspection is established in the course of such
inspection, whereupon all costs relating to the inspection for such period will
be paid by the inspected Party within [*] after the accounting firm’s disclosure
of its findings.

 

7.2 Payment Method.

 

(a) All payments hereunder shall be in United States dollars in immediately
available funds and shall be made by wire transfer from a United States bank
located in the United States to such bank account as designated from time to
time by the Party receiving such payment to the Party making such payment.

 

(b) Any determination(s) hereunder requiring the conversion of currency shall be
made by the Party responsible for such determination(s) in the same manner such
Party uses in connection with the preparation of its audited externally
published financial statements (or those of its parent company), consistent with
GAAP.

 

7.3 Withholding Taxes. If the laws, rules or regulations require withholding of
income taxes or other taxes or other duties imposed on payments made between the
Parties,

 

-37-

--------------------------------------------------------------------------------

the Party making a payment under the terms of this Agreement shall make such
withholding payments as required and subtract such withholding payments from the
payments otherwise to be paid, and shall promptly submit appropriate proof of
payment of the withholding taxes to the Party receiving payment. The paying
Party shall provide reasonable cooperation to the receiving Party in the event
that the receiving Party claims exemption from (or reduction in the rate of)
such withholding, including but not limited to, by providing to the receiving
Party copies of receipts of payment of such withheld tax or other documents
reasonably available to the paying Party.

 

7.4 Interest on Payments Past Due. Any failure by a Party to make a payment
within [*] after the date when due shall obligate such Party to pay interest to
the receiving Party at a rate equal to the lesser of: (a) [*] as published in
The Wall Street Journal on the date the payment is due or (b) the maximum rate
permitted by applicable law (the “Interest Rate”). The Interest Rate shall be
calculated from the date payment was due until actually received by the
receiving party (the “Interest Period”) based on actual number of days lapsed
and a 360-day year. If the Interest Period extends beyond [*], the Interest Rate
will be recalculated using [*], as described above, until the payment is
received. Interest shall be compounded daily in arrears and shall be due and
payable on the tender of the underlying principal amount.

 

ARTICLE VIII

 

LICENSES AND RIGHTS

 

8.1 Collaboration Product Licenses.

 

(a) Subject to the terms of this Agreement, XOMA hereby grants to Chiron and its
Affiliates:

 

(i) A worldwide, co-exclusive license (or as applicable sublicense) with XOMA,
with the right to sublicense at multiple levels, under XOMA Background IP and
XOMA’s interest in Collaboration IP to make and use Collaboration Targets and
Collaboration Products solely for purposes of research and development in the
Field, in accordance with R&D Plans and Budgets. As used in this Section
8.1(a)(i), the term “co-exclusive” shall mean that XOMA reserves the right to
engage in the activities licensed pursuant to this Section 8.1(a)(i) under the
licensed intellectual property itself or through its Affiliate(s) solely in
accordance with R&D Plans and Budgets and further reserves the right to grant a
similar license as the one granted to Chiron pursuant to this Section 8.1(a)(i)
to one or more Third Parties in accordance with R&D Plans and Budgets.

 

(ii) A worldwide, exclusive license (or as applicable sublicense), with the
right to sublicense at multiple levels, under XOMA Background IP and XOMA’s
interest in Collaboration IP to make, use, sell, offer for sale and import
Collaboration Products solely for purposes of Commercialization in the Field.
Notwithstanding anything to the contrary, such exclusive license is and shall be
subject to XOMA’s right to Detail such Collaboration Products pursuant to and in
accordance with Section 4.2 and to any right XOMA may have to manufacture
Collaboration Products for use in clinical development following Phase II
Clinical Trials in accordance with R&D Plans and Budgets or to

 

-38-

--------------------------------------------------------------------------------

manufacture Collaboration Products as provided in plans and budgets for
Commercialization of such Collaboration Products as approved in accordance with
Section 4.3(b).

 

(iii) A worldwide, co-exclusive license, with the right to sublicense at
multiple levels, under the Human Engineering™ Technology (or any portion
thereof) for use with respect to any Collaboration Product in the Field in
accordance with an R&D Plan and Budget and/or Commercialization activities
hereunder, at no incremental cost to Chiron, and to otherwise make, use, sell,
offer for sale and import Collaboration Products in the Field. Such license is
subject to any agreements between Affiliates of XOMA, on the one hand, and any
Third Parties, on the other hand, entered into prior to the Effective Date and
includes all intellectual property rights under the Human Engineering™
Technology directed to the particular Collaboration Product or Collaboration
Products that are subject to the license but not the right to practice the
methods of the Human Engineering™ Technology (or any portion thereof) more
generally. As used in this Section 8.1(a)(iii), the term “co-exclusive” shall
mean that XOMA reserves the right to engage in the activities licensed pursuant
to this Section 8.1(a)(iii) under the licensed intellectual property itself or
through its Affiliate(s) and, after the Exclusivity Period, with Third Parties,
solely in accordance with R&D Plans and Budgets but does not reserve the right
during the Exclusivity Period to grant a similar license to the one granted to
Chiron pursuant to this Section 8.1(a)(iii) to one or more Third Parties.

 

(iv) A worldwide, non-exclusive license to Chiron under the Bacterial Cell
Expression Technology (or any portion thereof) for use with respect to any
Collaboration Target or Collaboration Product in the Field in accordance with an
R&D Plan and Budget and/or Commercialization activities hereunder, at no
incremental cost to Chiron. Such license shall (A) be assignable and
sublicensable in connection with the sale or out-license of such Collaboration
Product and any Antibody Products directed against such Collaboration Target,
(B) be subject to any agreements between Affiliates of XOMA, on the one hand,
and any Third Parties, on the other hand, entered into prior to the Date of this
Agreement, and (C) include only the right to use the Bacterial Cell Expression
Technology (or relevant portions thereof) with respect to the particular
Collaboration Product or Collaboration Products that are subject to the license
and not the right to practice the methods of the Bacterial Cell Expression
Technology (or any portion thereof) more generally.

 

(b) Subject to the terms of this Agreement, Chiron hereby grants to XOMA and its
Affiliates:

 

(i) A worldwide, co-exclusive license (or as applicable sublicense) with Chiron,
with the right to sublicense at multiple levels, under Chiron Background IP and
Chiron’s interest in Collaboration IP to make and use Collaboration Targets and
Collaboration Products solely for purposes of research and development, in
accordance with R&D Plans and Budgets. As used in this Section 8.1(b)(i), the
term “co-exclusive” shall mean that Chiron reserves the right to engage in the
activities licensed pursuant this Section 8.1(b)(i) under the licensed
intellectual property itself or through its Affiliate(s) solely in accordance
with R&D Plans and Budgets and further reserves the right to grant

 

-39-

--------------------------------------------------------------------------------

a similar license as the one granted to XOMA pursuant to this Section 8.1(b)(i)
to one or more Third Parties in accordance with R&D Plans and Budgets.

 

(ii) A worldwide, exclusive license, without the right to sublicense, under
Chiron Background IP and Chiron’s interest in Collaboration IP to make and have
made Collaboration Products for use in pre-clinical development and in Phase I
Clinical Trials and Phase II Clinical Trials in accordance with Section 3.7 and
R&D Plans and Budgets. Notwithstanding the foregoing, such exclusive license is
and shall be subject to Chiron’s right to manufacture or otherwise provide
supplies pursuant to Section 3.7(a).

 

(iii) A worldwide, non-exclusive license under Chiron Background IP and Chiron’s
interest in Collaboration IP to make or have made Collaboration Products in
accordance with R&D Plans and Budgets for use in clinical development following
Phase II Clinical Trials and Commercialization as provided in plans and budgets
for Commercialization as approved in accordance with Section 4.3(b).

 

(iv) A non-exclusive license, without the right to sublicense, under Chiron
Background IP and Chiron’s interest in Collaboration IP for the sole purpose of
Detailing Collaboration Products in the United States, pursuant to XOMA’s rights
under Section 4.2.

 

8.2 Opt-Out Product Licenses.

 

(a) Subject to the terms of this Agreement, effective upon a Collaboration
Target or Collaboration Product becoming an Opt-Out Target or Opt-Out Product,
as the case may be, as a result of XOMA’s exercise of its rights under Section
3.9 following notification by XOMA to Chiron in accordance with Section 3.9(a),
XOMA hereby grants to Chiron and its Affiliates:

 

(i) An exclusive license (or as applicable sublicense), with the right to
sublicense at multiple levels, under XOMA Opt-Out IP to make, use, sell, offer
for sale and import any and all Antibody Products with respect to such Opt-Out
Target or such Opt-Out Product, as the case may be, in the Field.

 

(ii) An exclusive license (or as applicable sublicense), with the right to
sublicense at multiple levels, under the Human Engineering™ Technology (or any
portion thereof) for use with respect to any Antibody Products with respect to
such Opt-Out Target or such Opt-Out Product, as the case may be, in the Field.
Such license shall (A) be subject to any agreements between XOMA and its
Affiliates, on the one hand, and any Third Parties, on the other hand, entered
into prior to the Date of this Agreement; and (B) include all intellectual
property rights under the Human Engineering™ Technology (or any portion thereof)
directed to the particular Antibody Products with respect to such Opt-Out Target
or such Opt-Out Product, as the case may be, that are subject to the license but
not the right to practice the methods of the Human Engineering™ Technology (or
any portion thereof) more generally.

 

(iii) A non-exclusive license under the Bacterial Cell Expression Technology (or
any portion thereof) for use with respect to any Antibody Products with respect
to

 

-40-

--------------------------------------------------------------------------------

such Opt-Out Target or such Opt-Out Product, as the case may be, in the Field.
Each such license shall (A) be [*] in connection with the sale or out-license of
such Antibody Products with respect to such Opt-Out Target or such Opt-Out
Product, as the case may be, (B) be subject to any agreements between XOMA or
its Affiliates, on the one hand, and any Third Parties, on the other hand,
entered into prior to the effective date of such Opt-Out; provided that XOMA and
its Affiliates shall not during the Exclusivity Period grant any rights to the
Bacterial Cell Expression Technology in the Field to any Third Party that would
restrict a non-exclusive license granted pursuant to this Section 8.2(a)(iii)
and (C) include only the right to use the Bacterial Cell Expression Technology
(or relevant portions thereof) with respect to the particular Antibody Products
with respect to such Opt-Out Target or such Opt-Out Product, as the case may be,
that are subject to the license and not the right to practice the methods of the
Bacterial Cell Expression Technology (or any portion thereof) more generally.

 

(b) Subject to the terms of this Agreement, effective upon a Collaboration
Target or Collaboration Product becoming an Opt-Out Target or Opt-Out Product,
as the case may be, as a result of Chiron’s exercise of its rights under Section
3.9 following notification by Chiron to XOMA in accordance with Section 3.9(a),
Chiron hereby grants to XOMA and its Affiliates an exclusive license (or as
applicable sublicense), with the right to sublicense at multiple levels, under
Chiron Opt-Out IP to make, use, sell, offer for sale, and import any and all
Antibody Products with respect to such Opt-Out Target or such Opt-Out Product,
as the case may be, in the Field.

 

(c) In the event that a Party opts out of research and development activities
with respect to a Collaboration Target or Collaboration Product pursuant to
Section 3.9, the Opting-Out Party will provide all assistance reasonably
requested by the Continuing Party to ensure a smooth and orderly transition of
the Opt-Out Target or Opt-Out Product, as the case may be, to the Continuing
Party, including the assignment, transfer or sublicense, as appropriate, of any
contracts with respect to the exploitation of such Opt-Out Target or Opt-Out
Product, as the case may be, in the Field to the Continuing Party, and the
assumption by the Continuing Party of any obligations previously borne by the
Opting-Out Party in the Field. Such assistance shall include, but shall not be
limited to, providing the Continuing Party, at the Opting-Out Party’s sole cost
and expense, documentation, materials (including, without limitation, then
existing expression vectors and cell lines with respect to such Opt-Out
Product), reasonable training and technical assistance to transfer technical
know-how and skills relating to such Opt-Out Target or Opt-Out Product, as the
case may be, to the Continuing Party or its designee by, for example, making its
employees and consultants available upon reasonable notice during normal
business hours at their respective places of business to consult with the
Continuing Party.

 

8.3 Rights Outside the Field. XOMA and Chiron each acknowledge and agree that
the rights and licenses granted to XOMA by Chiron, and the rights and licenses
granted to Chiron by XOMA, pursuant to the terms and conditions of this
Agreement are only as to the Field. In addition, XOMA and Chiron each agree that
(i) Collaboration Products may be developed and commercialized outside the
Field, (ii) XOMA, or an Affiliate or a licensee of XOMA, may develop and
commercialize an Opt-Out Product for use outside the Field in the event that
Chiron is the Opting-Out Party, (iii) Chiron, or an Affiliate or a licensee of
Chiron, may develop and commercialize an Opt-Out Product in the event that XOMA
is the Opting-Out

 

-41-

--------------------------------------------------------------------------------

Party for use outside the Field, and (iv) Chiron, or an Affiliate or a licensee
of Chiron, may develop and commercialize a product derived from a Human
Engineered™ Antibody generated from a Dismissed Target pursuant to Section 3.4
for use outside the Field; provided that, with respect to (ii), (iii) and (iv)
above, [*]. For purposes of clarification, no consideration, other than as set
forth in this Agreement for Collaboration Products, Opt-Out Products, and
products derived from a Human Engineered™ Antibody generated from a Dismissed
Target, whether in the form of fees or royalties, will be due or payable with
respect to commercialization of such a product outside the Field.

 

ARTICLE IX

 

ENABLING CHIRON

 

9.1 In General. During the Exclusivity Period and/or within six months
thereafter, the Parties will establish appropriate mechanisms to convey to
Chiron hands-on experience and tutelage with respect to Antibody generation,
optimization, cell line development and manufacturing (including, without
limitation, phage display, Human Engineering™ and bacterial and mammalian
expression technologies but subject to any limitations and restrictions
contained in the licenses and other agreements with Third Parties giving rise to
or governing XOMA’s access to such technologies), at Chiron’s expense based on
the applicable FTE Rates.

 

9.2 Observation and Training.

 

(a) Observation Rights. Subject to the limitations set forth in Section 9.2(c),
during the Exclusivity Period and/or within six months thereafter, Chiron may
send observers, on reasonable notice and during normal business hours, to
observe work being conducted by XOMA pursuant to research and development
activities conducted under this Agreement.

 

(b) Training. Subject to the limitations set forth in Section 9.2(c), during the
Exclusivity Period and/or within six months thereafter, XOMA shall provide
training and technical assistance reasonably requested by Chiron, at Chiron’s
sole expense, to teach Chiron representatives at XOMA’s facilities to perform
Antibody generation, optimization, cell line development and manufacturing work
in Chiron’s facilities.

 

(c) Limitations. The observation rights and training provisions of Sections
9.2(a) and (b) shall be subject to the following limitations: in no event shall
XOMA be obligated to admit as observers and/or train more than [*].

 

9.3 Expression and Engineering Technologies.

 

(a) During the Exclusivity Period and/or within [*] thereafter, at Chiron’s
option, XOMA will provide Antibody generation services to Chiron in the Field
using the Human Engineering™ Technology, and in such event XOMA shall procure
for Chiron from XOMA Technology Ltd. or its Affiliates an exclusive worldwide
license in the Field under all intellectual property arising out of the work
performed by XOMA under this Section 9.3(a) directed to any resulting Human
Engineered™ Antibody, including all Patent Rights and Know-How with respect
thereto. The commercial terms for such services and license(s) shall be XOMA
Technology Ltd.’s (or its Affiliate’s) standard commercial terms on the date of
Chiron’s request for

 

-42-

--------------------------------------------------------------------------------

such services. Any such license shall (i) be subject to any agreements between
XOMA Technology Ltd. and its Affiliates, on the one hand, and any Third Parties,
on the other hand, entered into prior to the date of Chiron’s request for such
services; provided that XOMA Technology Ltd. and its Affiliates shall not during
the Exclusivity Period grant any rights to the Human Engineering™ Technology in
the Field to any Third Party that would restrict an exclusive license granted
pursuant to this Section 9.3(a) and (ii) include all intellectual property
rights under the Human Engineering™ Technology (or any portion thereof) directed
to the particular Antibody Product or Antibody Products that are subject to the
license but not the right to practice the methods of the Human Engineering™
Technology (or any portion thereof) more generally.

 

(b) XOMA hereby agrees, at Chiron’s option during the Exclusivity Period and/or
within [*] thereafter, to procure for Chiron from XOMA Technology Ltd. or its
Affiliates a non-exclusive worldwide license (or sublicense as applicable) under
the Human Engineering™ Technology for use with respect to any Antibody Product
(other than Collaboration Products and Opt-Out Products) in the Field. Such a
license shall (i) be on an Antibody Product-by-Antibody Product basis, (ii) be
on XOMA Technology Ltd.’s (or its Affiliate’s) standard commercial terms at the
time such option is exercised, (iii) be assignable and sublicensable in
connection with the sale or out-license of such Antibody Product(s), (iv) be
subject to any agreements between XOMA Technology Ltd. and its Affiliates, on
the one hand, and any Third Parties, on the other hand, entered into prior to
the exercise of such option; provided that XOMA Technology Ltd. and its
Affiliates shall not during the Exclusivity Period grant any exclusive rights to
the Human Engineering™ Technology in the Field to any Third Party that would
restrict a non-exclusive license granted pursuant to this Section 9.3(b) and (v)
include all intellectual property rights under the Human Engineering™ Technology
(or relevant portion thereof) directed to the particular Antibody Product or
Antibody Products that are subject to the license but not the right to practice
the methods of the Human Engineering™ Technology (or any portion thereof) more
generally.

 

(c) XOMA hereby agrees, at Chiron’s option during the Exclusivity Period and/or
within [*] thereafter, to procure for Chiron from XOMA Ireland Limited a
non-exclusive worldwide license (or sublicense as applicable) under the
Bacterial Cell Expression Technology for use with respect to any Antibody
Product (other than Collaboration Products and Opt-Out Products) in the Field.
Such a license shall (i) be on an Antibody Product-by-Antibody Product basis,
(ii) be on XOMA Ireland Limited’s standard commercial terms at the time such
option is exercised, (iii) be personal to Chiron and not assignable or
sublicensable, (iv) be subject to any agreements between XOMA Ireland Limited,
on the one hand, and any Third Parties, on the other hand, entered into prior to
the exercise of such option; provided that XOMA Ireland Limited shall not during
the Exclusivity Period grant any exclusive rights to the Bacterial Cell
Expression Technology in the Field to any Third Party that would restrict a
non-exclusive license granted pursuant to this Section 9.3(c), and (v) include
(I) to the extent it is Chiron’s intent to use any such technology in
conjunction with one or more Third Party collaborators of Chiron for purposes of
developing and commercializing such Antibody Product(s), a covenant not to sue
under the licensed patents for the benefit of such Third Party collaborators for
such purposes; provided that each such covenant not to sue shall apply only to
such Antibody Product(s) with respect to which Chiron has expended significant
research or development effort, (II) only the right to use the Bacterial Cell
Expression Technology (or relevant portion thereof) with respect to the
particular Antibody Product or Antibody Products that are subject to the license
and not

 

-43-

--------------------------------------------------------------------------------

the right to practice the methods of the Bacterial Cell Expression Technology
(or any portion thereof) more generally.

 

9.4 License to Third Party Technology. During the Exclusivity Period, Chiron may
request to receive sublicenses from XOMA under Third Party technologies licensed
to XOMA, including, without limitation, multiple phage display libraries for use
with respect to any Target other than Collaboration Targets, Dismissed Targets
and Opt-Out Targets (all of which are covered by other licenses in this
Agreement). In the event that XOMA has a right to grant such a sublicense to
Chiron, the Parties shall negotiate the grant of such a sublicense on mutually
agreeable terms.

 

9.5 Limitation. Notwithstanding anything to the contrary, XOMA shall have no
further obligation to convey any experience or tutelage to Chiron after the
effective date of the termination of this Agreement if the termination is due to
a material breach by Chiron of a representation, warranty or covenant under this
Agreement.

 

ARTICLE X

 

REGULATORY MATTERS

 

10.1 INDs.

 

(a) Regulatory Filings. Chiron will have responsibility for the preparation and
filing of any and all Regulatory Filings relating to research and development
activities with respect to Collaboration Products, including without limitation
IND filings. Any and all such Regulatory Filings shall be held in the name of
Chiron.

 

(b) Communications with Regulatory Authorities. In general, Chiron will have
responsibility for maintaining Regulatory Filings, and for initiating
communications to and for responding to communications from all applicable
Regulatory Authorities. Chiron will use reasonable commercial efforts to provide
XOMA a reasonable opportunity to review, provide comment and participate in all
communications, and shall incorporate those of such comments as can reasonably
be incorporated into such communications, relating to research and development
activities with respect to Collaboration Products, including without limitation
IND filings. Without limiting the generality of the foregoing, to the extent
practicable, Chiron will provide copies to XOMA of all written (including
electronic) communications with any Regulatory Authority relating to research
and development activities with respect to Collaboration Products, and will
advise XOMA of the content of any oral communications.

 

10.2 Regulatory Approval Applications. Chiron will have responsibility for the
preparation and filing of any and all Regulatory Approval Applications to obtain
Regulatory Approval for Commercialization of a Collaboration Product, whether a
BLA in the United States or another form of Regulatory Approval whether in the
United States or outside the United States. Any and all such Regulatory
Approvals shall be held in the name of Chiron.

 

10.3 Further Assistance. The Parties acknowledge and agree that, from time to
time during the course of research and development, and Commercialization of
Collaboration Products, Chiron may require information and assistance from XOMA
to assemble, file and

 

-44-

--------------------------------------------------------------------------------

maintain Regulatory Filings with respect to Collaboration Products, or to
respond to inquiries from Regulatory Authorities regarding Collaboration
Products. XOMA agrees to use all reasonable commercial efforts to provide any
and all such information and assistance as reasonably requested by Chiron.

 

10.4 Drug Safety. As soon as practicable after the Date of this Agreement, the
Parties will enter into a separate drug safety agreement (“Drug Safety
Agreement”) which will address, among other things, the reporting, investigation
and handling of adverse events, product complaints and product recalls. The
Parties agree that Chiron shall prepare the first draft of such agreement to
initiate the negotiation process. In the event of a conflict specific to an
issue of drug safety between the provisions of the Drug Safety Agreement and any
provisions of this Agreement, the provisions of the Drug Safety Agreement shall
govern; otherwise, the provisions of this Agreement shall govern. The Drug
Safety Agreement may be amended from time to time by written mutual consent of
the Parties in the light of changing regulatory requirements or other
circumstances.

 

10.5 Quality. As soon as practicable after the Date of this Agreement, the
Parties will enter into a separate quality agreement (“Quality Agreement”) which
will address, among other things, compliance, audit rights, and
responsibilities, and maintenance of records. As the Parties agreed, XOMA has
prepared the first draft of such agreement to initiate the negotiation process.
In the event of a conflict specific to an issue of quality between the
provisions of the Quality Agreement and any provisions of this Agreement, the
provisions of the Quality Agreement shall govern; otherwise, the provisions of
this Agreement shall govern. The Quality Agreement may be amended from time to
time by written mutual consent of the Parties in the light of changing
regulatory requirements or other circumstances.

 

10.6 XOMA’s Responsibility in Certain Circumstances. The Parties acknowledge
that there may be circumstances in which it would be appropriate for XOMA to
have responsibility for Regulatory Filings and the other responsibilities placed
on Chiron pursuant to Sections 10.1 through 10.3. When the Parties so agree by
allocating any such responsibilities to XOMA in an R&D Plan and Budget, the
provisions of Sections 10.1 through 10.3 shall apply, mutatis mutandis, as if
XOMA and not Chiron were the Party bearing such responsibilities. For the
avoidance of doubt, all responsibility for matters covered by this Article X
relating to an Opt-Out Product shall be with the Continuing Party.

 

ARTICLE XI

 

CONFIDENTIALITY

 

11.1 Confidentiality.

 

(a) Prior Agreements Superseded. The obligations of confidentiality in this
Article XI shall supersede all prior agreements between the Parties regarding
obligations of confidentiality and non-use with respect to the subject matter of
the Collaboration.

 

(b) Treatment. Except to the extent expressly authorized by this Agreement,
required under agreements by which technology is or was acquired for use in the
Collaboration

 

-45-

--------------------------------------------------------------------------------

or otherwise agreed to in writing by a disclosing Party, a receiving Party shall
keep confidential and shall not publish or otherwise disclose or use for any
purpose other than as expressly permitted under this Agreement, any Confidential
Information of the disclosing Party, except on a need-to-know basis to the
receiving Party’s directors, officers, employees, agents, consultants,
subcontractors, attorneys and accountants, and others approved by the disclosing
Party, to the extent such disclosure is reasonably necessary in connection with
the receiving Party’s activities or exercise of rights under this Agreement,
including, without limitation, the research and development, and
Commercialization of Collaboration Products. To the extent that disclosure to
any person other than a Regulatory Authority or other governmental body or
entity is authorized by this Agreement, prior to disclosure, a Party shall
obtain written agreement of such person to hold in confidence and not disclose
or use the Confidential Information of the disclosing Party, which agreement
shall contain obligations of confidentiality and non-use no less restrictive
than those set forth in this Article XI. The receiving Party shall notify the
disclosing Party promptly upon discovery of any unauthorized use or disclosure
of the disclosing Party’s Confidential Information.

 

(c) Exclusions. Notwithstanding anything to the contrary, the obligations of the
Parties under this Section 11.1 shall not apply to the extent that Confidential
Information of the other Party (as determined by competent documentation):

 

(i) was known or used by the receiving Party, other than under an obligation of
confidentiality, prior to its date of receipt by the receiving Party; or

 

(ii) either before or after the date of the disclosure to the receiving Party is
lawfully disclosed to the receiving Party by independent sources rightfully in
possession of such information, other than under an obligation of
confidentiality; or

 

(iii) either before or after the date of the disclosure to the receiving Party
becomes published or generally known to the public (including information known
to the public through the sale of products in the ordinary course of business)
through no fault or omission on the part of the receiving Party; or

 

(iv) is independently developed by or for the receiving Party without reference
to or reliance upon the Confidential Information.

 

11.2 Authorized Disclosure. The obligations of nondisclosure and nonuse under
this Article XI shall not apply to the extent that a Party is required to
disclose information by applicable law, regulation or order of a governmental
agency or a court of competent jurisdiction; provided, however, that such Party
shall provide written notice thereof to the other Party, consult with the other
Party with respect to such disclosure, provide the other Party a reasonable
opportunity to object to any such disclosure or to request confidential
treatment thereof and, except to the extent such information becomes part of the
public domain as a result of disclosure permitted pursuant to this Section 11.2,
shall continue to treat such Confidential Information as such with respect to
any Third Party to whom such information is not so required to be disclosed.

 

11.3 Survival. This Article XI shall survive expiration or termination of this
Agreement for the longer of (a) a period of [*] or (b) as required pursuant to
any confidentiality

 

-46-

--------------------------------------------------------------------------------

agreement between either of the Parties and any Third Party pursuant to which
Confidential Information is shared between the parties to such confidentiality
agreement in connection with the Collaboration.

 

11.4 Publications.

 

(a) In General. The Joint Steering Committee will seek advice on overall
strategy for publication and presentation of information and data arising out of
the Collaboration, including for example from the Joint Patent Committee, and
from the Project Teams. Publication and/or presentation of information and/or
data arising out of the Collaboration shall require the prior approval of the
JRDC.

 

(b) Publication Process. Except as required by applicable law, regulation or
court order, each Party agrees that it shall not publish or present the results
of work related to any Collaboration Target or Collaboration Product, including
but not limited to, clinical trials carried out by such Party under this
Agreement, without the opportunity for prior review by the other Party. Each
Party shall provide to the other Party the opportunity to review any of the
submitting Party’s proposed abstracts, manuscripts, publications or
presentations (including information to be presented verbally) which relate to
any Collaboration Target or Collaboration Product (including any proposed Third
Party publication submitted to the submitting Party for review, to the extent
the applicable terms of any agreement with such Third Party permit) for at least
[*], with respect to abstracts, and at least [*], with respect to manuscripts,
publications and presentations, prior to their intended presentation or
submission for publication, and such submitting Party agrees, upon written
request from the other Party, not to submit such abstract or manuscript for
publication or to make such presentation until the other Party is given [*] from
the date of such written request to seek appropriate patent protection for any
Collaboration Invention in such publication or presentation which it reasonably
believes is patentable. Any disagreements between the Parties related to
publications will be referred to the Joint Steering Committee for resolution in
accordance with Section 5.1(c). Once such abstracts, manuscripts or
presentations have been reviewed by each Party and have been approved for
publication, the same abstracts, manuscripts or presentations do not have to be
provided again to the other Party for review for a later submission for
publication. The reviewing Party shall use reasonable efforts to expedite
reviews for abstracts or poster presentations, if so reasonably requested by the
submitting Party. Each Party shall also have the right to require that its
Confidential Information or other proprietary information that is proposed to be
disclosed in any such proposed publication or presentation be deleted prior to
such publication or presentation. In the event that either Party submits any
manuscript or other publication relating to a Collaboration Target or a
Collaboration Product, it will consider and acknowledge the contributions of the
other Party, including, as appropriate, co-authorship, giving equal prominence
in such manuscript or other publication to the name of each Party.

 

11.5 Terms of This Agreement; Press Release; Publicity. Neither Party shall
disclose any confidential terms or conditions of this Agreement to any Third
Party without the prior consent of the other Party; provided, however, that a
Party may disclose the terms or conditions of this Agreement, (a) to government
authorities where and to the extent required by applicable law, regulation or
court order (and with appropriate requests made for confidential treatment),
including filings required to be made by law with the United States Securities
and Exchange Commission and any market on which a Party’s securities are traded,
(b) to a Party’s

 

-47-

--------------------------------------------------------------------------------

accountants or lawyers, and (c) to a Third Party under an obligation of
confidentiality in connection with a bona fide written proposal from such Third
Party and an authorization by XOMA’s Board of Directors to negotiate a
significant equity investment by or in such Party or a merger, consolidation or
similar transaction with such Party or a sale of all or substantially all of the
assets of such Party. Each Party shall be entitled to make or publish any public
statement consistent with the contents of the press release issued in connection
with the execution of the Initial Agreement and any public disclosure
thereafter. Subject to the immediately preceding sentence, all publicity, press
releases and other announcements relating to this Agreement or the transactions
contemplated hereby shall be reviewed in advance by and subject to the approval
of both Parties; except that such review and approval shall not be required for
any announcement that discloses the existence of this Agreement without
disclosing any of its non-public terms.

 

ARTICLE XII

 

INTELLECTUAL PROPERTY

 

12.1 Ownership.

 

(a) Collaboration Inventions and Collaboration IP.

 

(i) Chiron and XOMA each shall own an undivided interest in and to any and all
Collaboration Inventions and Collaboration IP regardless of inventorship. Except
as otherwise provided in this Agreement (including, for example, Article VIII),
neither Chiron nor XOMA shall have the right to (x) exploit Collaboration
Inventions and Collaboration IP without the prior approval of the Joint Steering
Committee in a manner directed to Collaboration Targets or Collaboration
Products or (y) Exploit Collaboration Inventions and Collaboration IP without
the prior approval of the Joint Steering Committee (A) in the Field during the
Exclusivity Period and for a period of [*] thereafter or (B) outside the Field
for a period of [*] from the Effective Date. Any and all cash or other similar
economic consideration (including, without limitation, any premium received on
an equity investment, but not the market value of such equity investment, in
Chiron or XOMA, as the case may be) received as a result of such Exploitation
and attributable to such Collaboration Invention(s) or Collaboration IP being
Exploited (but excluding payments for funded research and development and for
reimbursable expenses) shall be shared seventy percent (70%) to Chiron and
thirty percent (30%) to XOMA.

 

(ii) For the avoidance of doubt and notwithstanding anything herein to the
contrary, (A) the restrictions and obligations of this Section 12.1(a) shall not
apply to any use of such Collaboration Inventions and/or Collaboration IP (x) in
the context of XOMA’s collaboration with Aphton for the development and
commercialization of anti-gastrin and/or anti-gastrin receptor antibodies to
treat gastrointestinal and other gastrin-sensitive cancers or (y) directed to
any Dismissed Target, and (B) the Parties acknowledge that, to the extent any
Collaboration Invention and/or Collaboration IP is covered by a license or other
agreement with a Third Party, such Collaboration Invention and/or Collaboration
IP shall, for all purposes of this Agreement, be subject to the financial and
other obligations, limitations and restrictions contained in such Third Party
license or agreement.

 

-48-

--------------------------------------------------------------------------------

(iii) (A) Notwithstanding Section 12.1(a)(i), with respect to any improvement to
any XOMA Core Technology that is a Collaboration Invention and/or Collaboration
IP (a “Core Technology Improvement”) and that is invented solely by employees of
XOMA, XOMA shall have the right and license, with the right to grant licenses
and sublicenses, [*], to make, have made, use, sell, offer to sell and import,
either on its own or with or to a Third Party, each such Core Technology
Improvement outside the Collaboration. XOMA’s rights under this Section
12.1(a)(iii)(A) shall not extend to any Collaboration Targets or Collaboration
Products and, during the Exclusivity Period, shall not extend to any activities
within the Field. Chiron, on an exclusive, perpetual and [*], hereby grants to
and licenses XOMA all of its undivided interest in and to all Core Technology
Improvements invented solely by employees of XOMA; provided, however, that
Chiron shall have, for its own use, on its own behalf or in the context of a
Bona Fide Collaboration to which Chiron is a party, except as to Collaboration
Targets and Collaboration Products, a non-exclusive, perpetual and [*] license,
without the right to grant licenses or sublicenses, outside the Collaboration to
make, have made, use, sell, offer to sell and import each such Core Technology
Improvement outside the Field and, commencing at the end of the Exclusivity
Period, in the Field.

 

(B) Notwithstanding Section 12.1(a)(i), with respect to any Core Technology
Improvement that is invented solely by employees of Chiron, Chiron shall have
the right and license, with the right to grant licenses and sublicenses, [*], to
make, have made, use, sell, offer to sell and import, either on its own or with
or to a Third Party, each such Core Technology Improvement outside the
Collaboration. Chiron’s rights under this Section 12.1(a)(iii)(B) shall not
extend to any Collaboration Targets or Collaboration Products and, during the
Exclusivity Period, shall not extend to any activities within the Field. XOMA,
on an exclusive, perpetual and [*], hereby grants to and licenses Chiron all of
its undivided interest in and to all Core Technology Improvements invented
solely by employees of Chiron; provided, however, that XOMA shall have, except
as to Collaboration Targets and Collaboration Products, a non-exclusive,
perpetual [*] license, with the right to grant licenses and sublicenses, outside
the Collaboration to make, have made, use, sell, offer to sell and import each
such Core Technology Improvement outside the Field and, commencing at the end of
the Exclusivity Period, in the Field; provided, further, that in the event of
any Exploitation of any such Core Technology Improvement by XOMA, any payments
received by XOMA as a result of such Exploitation and attributable to the Core
Technology Improvement being Exploited shall be shared [*] percent ([*]%) to
Chiron and [*] percent ([*]%) to XOMA.

 

(C) Notwithstanding Section 12.1(a)(i), with respect to any Core Technology
Improvement that is invented jointly by employees of Chiron and XOMA, each Party
shall have the right and license, with the right to grant licenses and
sublicenses, [*], to make, have made, use, sell, offer to sell and import,
either on its own or with or to a Third Party, each such Core Technology
Improvement outside the Collaboration. The rights of each Party under this
Section 12.1(a)(iii)(C) shall not extend to any Collaboration Targets or
Collaboration Products and, during the Exclusivity Period, shall not extend to
any activities within the Field. Notwithstanding the first sentence of this
Section 12.1(a)(iii)(C), XOMA may, in its discretion, designate any one or more
Core Technology Improvements jointly invented by employees of Chiron and XOMA as
being capable of Exploitation

 

-49-

--------------------------------------------------------------------------------

only by XOMA (each, a “Designated Core Technology Improvement”). In such event,
Chiron, on an exclusive, perpetual and [*], shall grant to and license XOMA all
of its undivided interest in and to such Designated Core Technology Improvement;
provided, however, that Chiron shall have, for its own use, on its own behalf or
in the context of a Bona Fide Collaboration to which Chiron is a party, except
as to Collaboration Targets and Collaboration Products, a non-exclusive,
perpetual and [*]license, without the right to grant licenses or sublicenses,
outside the Collaboration to make, have made, use, sell, offer to sell and
import each such Designated Core Technology Improvement outside the Field and,
commencing at the end of the Exclusivity Period, in the Field; provided,
further, that in the event of any Exploitation of any such Designated Core
Technology Improvement by XOMA, any payments received by XOMA as a result of
such Exploitation and attributable to the Designated Core Technology Improvement
being Exploited shall be shared [*] percent ([*]%) to Chiron and [*] percent
([*]%) to XOMA.

 

(D) To the extent the laws of any country governing any Core Technology
Improvement require the agreement of the other joint owner(s) of such Core
Technology Improvement in order for a Party to enjoy the rights or licenses
provided for by this Section 12.1(a)(iii), Chiron and XOMA each hereby agrees to
such Exploitation by the other Party. With respect to the rights of each of the
Parties under this Section 12.1(a)(iii), neither Party pursuant to this Section
12.1(a)(iii) grants to the other Party any rights or licenses to any patents or
patent applications (other than those claiming Core Technology Improvements)
which may dominate or may otherwise be necessary to the making, having made,
use, sale, offering for sale or importing of any Core Technology Improvement.
Each of the Parties acknowledges and agrees that this Section 12.1(a)(iii) is
not intended to modify, and does not modify, the rights granted by and between
the Parties under Article VIII. Inventorship for purposes of this Section
12.1(a)(iii) shall be determined in accordance with United States Patent law.

 

(iv) [*].

 

(v) [*].

 

(b) Chiron Background IP and Inventions Outside Collaboration. As between Chiron
and XOMA, Chiron shall own the entire right, title and interest in and to any
and all (i) Chiron Background IP and (ii) Inventions made, conceived or reduced
to practice by Chiron, either alone or jointly with a Third Party, outside the
Collaboration, and Know-How or Patent Rights including, claiming or covering
such Inventions. Inventorship of Inventions for purposes of this Section 12.1(b)
shall be determined in accordance with United States patent law.

 

(c) XOMA Background IP and Inventions Outside Collaboration. As between XOMA and
Chiron, XOMA shall own the entire right, title and interest in and to any and
all (i) XOMA Background IP and (ii) Inventions made, conceived or reduced to
practice by XOMA, either alone or jointly with a Third Party, outside the
Collaboration, and Know-How or Patent Rights including, claiming or covering
such Inventions. Inventorship of Inventions for purposes of this Section 12.1(c)
shall be determined in accordance with United States patent law.

 

-50-

--------------------------------------------------------------------------------

12.2 Disclosure. Each Party, within [*] after the end of each calendar quarter,
shall submit an invention disclosure or, if applicable, a draft patent
application to the other Party describing each and every Collaboration Invention
made, conceived or reduced to practice during the just-ended calendar quarter
which such Party believes may be patentable. The Parties, through the Joint
Patent Committee, shall decide whether to file a patent application claiming or
covering such Invention, as set forth in Section 12.3.

 

12.3 Patent Prosecution.

 

(a) Collaboration Patent Rights. The Parties, through the Joint Patent
Committee, shall establish a patent strategy for all Collaboration Patent Rights
claiming or covering Collaboration Inventions. As part of such patent strategy,
the Parties shall designate, on a Collaboration Invention-by- Collaboration
Invention basis, one Party to be responsible for the filing, prosecution
(including any interferences, oppositions, reissue proceedings and
reexaminations) and maintenance of all Collaboration Patent Rights claiming or
covering a Collaboration Invention. Each Party shall be provided (i) a draft of
each and every patent application claiming or covering a Collaboration Invention
prior to the filing of such patent application, allowing adequate time for
review and comment by each Party; provided, however, that the Party responsible
for any such patent application shall not be required to delay the initial
filing of such patent application if such delay would jeopardize the ability of
the Parties to secure priority status against Third Parties; and (ii) copies of
all correspondence from any and all patent offices concerning patent
applications within the Collaboration Patent Rights and an opportunity to
comment on any proposed responses, voluntary amendments and submissions of any
kind to be made to any and all such patent offices. If the responsible Party
decides not to continue the prosecution or maintenance of any patent application
or patent within the Collaboration Patent Rights, it shall promptly notify the
other Party thereof. Following such notice, the other Party may, in its
discretion, take over the prosecution and maintenance of any such patent
application or patent within the Collaboration Patent Rights. All costs and
expenses for the filing, prosecution (including any interferences, oppositions,
reissue proceedings and reexaminations) and maintenance of Collaboration Patent
Rights (other than Patent Rights solely within Chiron Opt-Out IP and/or XOMA
Opt-Out IP ) shall be shared seventy percent (70%) by Chiron and thirty percent
(30%) by XOMA. All costs and expenses for the filing, prosecution (including any
interferences, oppositions, reissue proceedings and reexaminations) and
maintenance of Collaboration Patent Rights solely within Chiron Opt-Out IP
and/or XOMA Opt-Out IP shall be borne 100% by the Continuing Party. A Party who
files a patent application claiming or covering a Collaboration Invention, or
who is responsible for the prosecution of a patent application within the
Collaboration Patent Rights, shall take reasonable steps to insure that it does
not take any action or make any statement that would reasonably be expected to
cause material harm to the patentability, validity or enforceability of any
Chiron Background IP, XOMA Background IP, or other Collaboration Patent Right
without first obtaining the informed consent of the other Party. In the event
that an interference is declared by a Patent and Trademark Office between one or
more patents or patent applications owned solely by one Party relating to any
Targets with potential utility in the Field or that constitute Patent Rights
claiming or covering any Collaboration Target that are relevant to the
Collaboration, and one or more patents or patent applications owned or otherwise
controlled solely by the other Party that are relevant to the Collaboration, or
any of the above and one or more patents or patent applications owned or
otherwise controlled jointly by the Parties pursuant to the Collaboration,
including where such declared interference involves patents or patent

 

-51-

--------------------------------------------------------------------------------

applications owned by a Third Party or Third Parties, then the Parties shall in
good faith establish within thirty (30) days of the declaration of such
interference or such other time as agreed upon a mutually agreeable process to
resolve solely those portions of such interference or interferences which relate
to matters in dispute between Chiron and XOMA in a reasonable manner in
conformance with all applicable legal standards and to maximize the scope,
priority, validity and/or enforceability of the Patent Rights licensed or
co-owned hereunder.

 

(b) Patent Rights Controlled by Chiron. Chiron shall prosecute and maintain, at
its sole expense, the Patent Rights Controlled by Chiron (including, for
example, Patent Rights within Chiron Background IP and Patent Rights claiming or
covering Inventions made, conceived or reduced to practice by Chiron outside the
Collaboration). Chiron shall provide XOMA with (i) drafts of each and every
patent application within the Patent Rights Controlled by Chiron necessary or
useful for, and being utilized in, the research and development, and/or
Commercialization of Collaboration Products (“Related Chiron Patent Rights”);
and (ii) copies of all correspondence from any and all patent offices concerning
patent applications within the Related Chiron Patent Rights and an opportunity
to comment on any proposed responses, voluntary amendments and submissions of
any kind to be made to any and all such patent offices. If Chiron decides not to
continue the prosecution or maintenance of any patent application or patent
within the Related Chiron Patent Rights, it shall promptly notify XOMA thereof.
Following such notice, XOMA may take over prosecution and maintenance of such
patent application or patent within the Related Chiron Patent Rights that claims
or covers a product or products obtained from Collaboration Targets provided to
the Collaboration by Chiron, and thereafter such patent application or patent
will be deemed a patent application or patent within the Related XOMA Patent
Rights, as further described in Section 12.3(c) below.

 

(c) Patent Rights Controlled by XOMA. XOMA shall prosecute and maintain, at its
sole expense, the Patent Rights Controlled by XOMA (including, for example,
Patent Rights within XOMA Background IP or XOMA Core Technologies and Patent
Rights claiming or covering Inventions made, conceived or reduced to practice by
XOMA outside the Collaboration). XOMA shall provide Chiron with (i) drafts of
each and every patent application within the Patent Rights Controlled by XOMA
necessary or useful for, and being utilized in, the research and development,
and/or Commercialization of Collaboration Products (“Related XOMA Patent
Rights”); and (ii) copies of all correspondence from any and all patent offices
concerning patent applications within the Related XOMA Patent Rights and an
opportunity to comment on any proposed responses, voluntary amendments and
submissions of any kind to be made to any and all such patent offices. If XOMA
decides not to continue the prosecution or maintenance of any patent application
or patent within the Related XOMA Patent Rights, it shall promptly notify Chiron
thereof. Following such notice, Chiron may take over prosecution and maintenance
of such patent application or patent within the Related XOMA Patent Rights that
claims or covers a product or products obtained from Collaboration Targets
provided to the Collaboration by XOMA, and thereafter such patent application or
patent will be deemed a patent application or patent within the Related Chiron
Patent Rights, as further described in Section 12.3(b) above.

 

(d) Cooperation. At the request of the Party performing the prosecution of any
patent application under this Section 12.3, the other Party will cooperate, in
all reasonable ways, in connection with the prosecution and maintenance of all
such patent applications. Each Party shall make available to the other Party or
its respective authorized attorneys, agents or

 

-52-

--------------------------------------------------------------------------------

representatives such of its employees or consultants as the other Party in its
reasonable judgment deems necessary in order to assist such other Party with the
prosecution and maintenance of such patents. Each Party shall sign or use
commercially reasonable efforts to have signed at no charge to the other Party
all legal documents necessary in connection with such prosecution and
maintenance.

 

(e) Updates on Developments. Notwithstanding anything to the contrary, the Party
performing the prosecution and maintenance of any patent application or patent
within the Collaboration Patent Rights, the Related Chiron Patent Rights or the
Related XOMA Patent Rights in accordance with this Section 12.3 shall advise the
other Party of any action or development in the prosecution or maintenance of
such patent application or patent, including, for example, any action or
development concerning the question of scope of coverage, the issuance,
rejection, or revocation of any right with respect to such patent application or
patent, the declaration of and status and outcome of any interference, and the
filing of and status and outcome of any opposition to any such patent
application or patent.

 

12.4 Enforcement of Patent Rights.

 

(a) Enforcement of Collaboration Patent Rights.

 

(i) Primary Enforcement Right. In the event either Party becomes aware of a
suspected infringement of a patent within the Collaboration Patent Rights or the
institution by a Third Party of any proceedings for the revocation of, or to
invalidate or render unenforceable, any patent within the Collaboration Patent
Rights, such Party shall notify the other Party promptly, and following such
notification, the Parties shall discuss the situation. In any such circumstance,
Chiron shall have the first right (with associated expenses charged to the
Collaboration), but shall not be obligated, to bring legal action to enforce the
Parties’ rights under the Collaboration Patent Rights or to defend such
proceedings. XOMA will provide reasonable assistance to Chiron in any such
action or proceeding, including for example lending XOMA’s name to such action
or proceeding if requested by Chiron or required by law, and shall have a right
to participate and be represented in any such suit by its own counsel. No
settlement of any such action or defense which restricts the scope or affects
the enforceability of a patent within the Collaboration Patent Rights may be
entered into by Chiron without the prior consent of XOMA, which consent shall
not be unreasonably withheld.

 

(ii) Secondary Enforcement Right. If Chiron elects not to bring any legal action
for infringement or to defend any proceeding described in Section 12.4(a)(i) and
so notifies XOMA, then XOMA may (with associated expenses charged to the
Collaboration) bring such a legal action. Chiron will provide reasonable
assistance to XOMA in any such action or proceeding, including for example,
lending Chiron’s name to such action or proceeding if requested by XOMA or
required by law, and shall have a right to participate and be represented in any
such suit by its own counsel. No settlement of any such action or defense which
restricts the scope or affects the enforceability of a patent within the
Collaboration Patent Rights may be entered into by XOMA without the prior
consent of Chiron, which consent shall not be unreasonably withheld.

 

(iii) Recoveries. In the event either Party exercises the rights conferred in
this Section 12.4(a) and recovers any damages or other sums in such action, suit
or proceeding or in settlement

 

-53-

--------------------------------------------------------------------------------

thereof, such damages or other sums recovered shall first be applied to all
out-of-pocket costs and expenses incurred by the Parties in connection
therewith, including attorneys fees. If such recovery is insufficient to cover
all such costs and expenses of both Parties, it shall be shared in proportion to
the total such costs and expenses incurred by each Party. If after such
reimbursement any funds shall remain from such damages or other sums recovered,
seventy percent (70%) of such funds shall be retained Chiron and thirty percent
(30%) of such funds shall be retained by the XOMA or, in the event such
recoveries relate solely to an Opt-Out Target or Opt-Out Product, [*]% of such
funds shall be retained by the Continuing Party.

 

(b) Enforcement of Patent Rights Controlled by Chiron.

 

(i) Enforcement by Chiron. In the event either Party becomes aware of a
suspected infringement of a patent within the Related Chiron Patent Rights
(including, for example, Patent Rights within Chiron Background IP and Patent
Rights claiming or covering Inventions made, conceived or reduced to practice by
Chiron outside the Collaboration) or the institution by a Third Party of any
proceedings for the revocation of, or to invalidate or render unenforceable, any
patent within the Related Chiron Patent Rights, such Party shall notify the
other Party promptly, and following such notification, the Parties shall confer.
Chiron shall have the right, but shall not be obligated, to bring an
infringement action or to defend such proceedings at its own expense, in its own
name and entirely under its own direction and control. XOMA will provide
reasonable assistance to Chiron in such actions or proceedings if so requested,
and will lend its name to such actions or proceedings if requested by Chiron or
required by law. XOMA shall have the right to participate and be represented in
any such suit by its own counsel. No settlement of any such action or defense
which restricts the scope or affects the enforceability of a patent within the
Related Chiron Patent Rights that claims or covers a Collaboration Product may
be entered into by Chiron without the prior consent of XOMA, which consent shall
not be unreasonably withheld.

 

(ii) Recoveries. In the event Chiron exercises the rights conferred in this
Section 12.4(b) and recovers any damages or other sums in such action, suit or
proceeding or in settlement thereof, such damages or other sums recovered shall
first be applied to all out-of-pocket costs and expenses incurred by the Parties
in connection therewith, including attorneys fees. If such recovery is
insufficient to cover all such costs and expenses of both Parties, it shall be
shared in proportion to the total such costs and expenses incurred by each
Party. If after such reimbursement any funds shall remain from such damages or
other sums recovered, all such funds shall be retained by Chiron; provided,
however, if such recovery relates to a product in the Field competitive to a
Collaboration Product, seventy percent (70%) of such funds shall be retained by
Chiron and thirty percent (30%) of such funds shall be retained by XOMA.

 

(c) Enforcement of Patent Rights Controlled by XOMA.

 

(i) Enforcement by XOMA. In the event either Party becomes aware of a suspected
infringement of a patent within the Related XOMA Patent Rights (including, for
example, Patent Rights within XOMA Background IP or XOMA Core Technologies and
Patent Rights claiming or covering Inventions made, conceived or reduced to
practice by XOMA outside the Collaboration) or the institution by a Third Party
of any proceedings for the revocation of, or to invalidate or render
unenforceable, any patent within the Related XOMA Patent Rights, such Party
shall

 

-54-

--------------------------------------------------------------------------------

notify the other Party promptly, and following such notification, the Parties
shall confer. XOMA shall have the right, but shall not be obligated, to bring an
infringement action or to defend such proceedings at its own expense, in its own
name and entirely under its own direction and control. Chiron will provide
reasonable assistance to XOMA in such actions or proceedings if so requested,
and will lend its name to such actions or proceedings if requested by XOMA or
required by law. Chiron shall have the right to participate and be represented
in any such suit by its own counsel. No settlement of any such action or defense
which restricts the scope or affects the enforceability of a patent within the
Related XOMA Patent Rights that claims or covers a Collaboration Product may be
entered into by XOMA without the prior consent of Chiron, which consent shall
not be unreasonably withheld.

 

(ii) Recoveries. In the event XOMA exercises the rights conferred in this
Section 12.4(c) and recovers any damages or other sums in such action, suit or
proceeding or in settlement thereof, such damages or other sums recovered shall
first be applied to all out-of-pocket costs and expenses incurred by the Parties
in connection therewith, including attorneys fees. If such recovery is
insufficient to cover all such costs and expenses of both Parties, it shall be
shared in proportion to the total such costs and expenses incurred by each
Party. If after such reimbursement any funds shall remain from such damages or
other sums recovered, all of such funds shall be retained by XOMA; provided,
however, if such recovery relates to a product in the Field competitive to a
Collaboration Product, seventy percent (70%) of such funds shall be retained by
Chiron and thirty percent (30%) of such funds shall be retained by XOMA.

 

12.5 Allegations of Infringement by Third Parties.

 

(a) In General. In the event that either Party receives notice that the use,
development, manufacture, sale, import or export of a Collaboration Target or
Collaboration Product or any other action by either of them under this
Agreement, during the term of this Agreement, is alleged to be a violation of
the patent or other intellectual property rights of a Third Party, it shall
promptly notify the other Party. The Joint Steering Committee shall promptly
determine an appropriate response and course of action. Chiron will have the
right to control any defense, using counsel selected by it with the consent of
XOMA (which consent shall not be unreasonably withheld). [*] The Party
controlling such action, as provided in this Section 12.5, shall consult with
the other Party, and give due consideration to any concerns the other Party may
raise, with respect to all significant matters relating to such action. The
costs thereof (including any damages, costs or expenses resulting from any
action) shall be shared 70% (Chiron)/30% (XOMA) between the Parties (unless such
allegations relate only to a Collaboration Target or Collaboration Product as to
which one Party has opted out, in which case all such costs shall be borne by
the other Party). The Party controlling such action shall not admit the
invalidity of any Collaboration Patent Rights or settle any such suit, without
the written consent of the other Party (which shall not be unreasonably withheld
or delayed). Any recovery obtained as a result of infringement actions governed
by this Section 12.5 shall be treated as provided in Section 12.4(a)(iii).

 

(b) Selection of Negotiating Party. The Joint Steering Committee shall determine
which Party shall negotiate with said Third Party for a suitable license or
assignment and execute such license or assignment; provided, however, that XOMA
and/or its Affiliates shall be such Party for any such license or assignment
relating to the XOMA Background IP or the

 

-55-

--------------------------------------------------------------------------------

XOMA Core Technologies and Chiron shall be such Party for any such license or
assignment relating to the Chiron Background IP; provided, further, that such
Party shall enter into no such agreement unless it has first obtained the other
Party’s written approval of the terms of such agreement, including the amounts
of any royalties or payments, which approval shall not be unreasonably withheld.
If such negotiation results in a consummated agreement, such Party shall make
all payments to the Third Party and such payments shall be allocated in
accordance with the allocation of other costs in accordance with Section 6.2.

 

12.6 Third Party Licenses.

 

(a) [*]

 

(b) Resolution of Disputes. If the Joint Patent Committee is unable to reach a
determination with respect to whether Third Party intellectual property
constitutes Useful Third Party IP, then such issue shall be presented to the
JRDC for determination. For the avoidance of doubt, either Party may enter into
a license with respect to, and may practice, any such Third Party intellectual
property for purposes unrelated to this Agreement.

 

12.7 Trademarks.

 

(a) Collaboration Product Marks. Chiron will own all right, title and interest
in and to all trademarks, trade names, service marks and trade dress
specifically developed for and used on or in connection with all Collaboration
Products. Chiron hereby grants to XOMA a fully paid-up, non-exclusive license
(with Chiron) to use all trademarks, trade names, service marks and trade dress
specifically developed for and used on or in connection with all Collaboration
Products for the Detailing activities of XOMA provided for in this Agreement.
Chiron, with assistance from the Joint Patent Committee, shall be responsible
for all decisions regarding the trademarks, service marks and trade dress used
on and in connection with all Collaboration Products. For the avoidance of
doubt, the Continuing Party with respect to any Opt-Out Product shall own all
right, title and interest in and to all trademarks, trade names, service marks
and trade dress specifically developed for and used on or in connection with the
relevant Collaboration Product prior to its being an Opt-Out Product and shall
be responsible for all decisions regarding the trademarks, service marks and
trade dress used on and in connection therewith.

 

(b) Party Marks. Chiron and XOMA shall each retain sole and exclusive ownership
of their own respective and independently developed and/or pre-existing
trademarks, trade names, service marks and trade dress, regardless of whether
such trademarks, trade names, service marks and trade dress are used on or in
connection with any Collaboration Product. All advertising and promotional and
educational materials in respect of each Collaboration Product in each country
(including any Collaboration Product labeling or packaging inserts to the extent
permitted by law or required by any Regulatory Authority) will include, if
Chiron’s name is included, XOMA’s name, the size and placement of which shall be
comparable. Chiron will use commercially reasonable efforts to provide XOMA with
copies of all significant such advertising, promotional and educational
materials reasonably in advance of publication.

 

-56-

--------------------------------------------------------------------------------

12.8 Patent Disputes Between the Parties. Notwithstanding any provision of this
Agreement to the contrary, any dispute between the Parties involving the
validity, enforceability or infringement of the Patent Rights of either Party by
the other Party shall be subject to the terms and conditions of Section 15.12
and shall not be subject to any other decision-making provisions hereof.

 

ARTICLE XIII

 

REPRESENTATIONS AND WARRANTIES;

DISCLAIMER; INDEMNIFICATION

 

13.1 Representations and Warranties of XOMA. XOMA represents and warrants to
Chiron that, as of the Date of this Agreement:

 

(i) XOMA is a limited liability company duly organized, validly existing and in
good standing under the laws of the state of its formation; XOMA has the full
legal authority and the legal right to enter into this Agreement; this Agreement
has been duly authorized by all necessary corporate action on the part of XOMA,

 

(ii) this Agreement does not conflict with, violate, or breach or constitute a
default or require any consent under, any contractual obligation or court or
administrative order by which XOMA is bound,

 

(iii) XOMA has not entered into any agreement under which it has granted to any
Third Party any license or other rights under the XOMA Background IP, in the
Field, except as expressly set forth in Schedule 13.1 hereto,

 

(iv) XOMA has the full right and authority to grant to Chiron the licenses and
other rights granted to Chiron under this Agreement, and

 

(v) XOMA has not entered into any agreement under which it has granted to any
Third Party any license or other rights under the XOMA Background IP which is in
conflict or otherwise inconsistent with the licenses and other rights granted to
Chiron under this Agreement.

 

13.2 Representations and Warranties of Chiron. Chiron represents and warrants to
XOMA that, as of the Date of this Agreement:

 

(i) Chiron is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation; Chiron has the full
corporate authority and the legal right to enter into this Agreement; this
Agreement has been duly authorized by all necessary corporate action on the part
of Chiron,

 

(ii) this Agreement does not conflict with, violate, or breach or constitute a
default or require any consent under, any contractual obligation or court or
administrative order by which Chiron is bound,

 

-57-

--------------------------------------------------------------------------------

(iii) Chiron has not entered into any agreement under which it has granted to
any Third Party any license or other rights under the Chiron Background IP, in
the Field, except as expressly set forth in Schedule 13.2 hereto,

 

(iv) Chiron has the full right and authority to grant to XOMA the licenses and
other rights granted to XOMA under this Agreement, and

 

(v) Chiron has not entered into any agreement under which it has granted to any
Third Party any license or other rights under the Chiron Back-ground IP which is
in conflict or otherwise inconsistent with the licenses and other rights granted
to XOMA under this Agreement.

 

13.3 No Warranty of Validity; Non-Infringement. Nothing in this Agreement shall
be construed as (a) a warranty or representation by either Party as to the
validity or scope of any Patent Right or (b) a warranty or representation that
any product obtained from a Collaboration Target, including without limitation
any Collaboration Product will be free from infringement of intellectual
property rights held or otherwise controlled by a Third Party.

 

13.4 No Other Warranties. EXCEPT AS SPECIFICALLY SET FORTH IN THIS ARTICLE,
NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO ANY INTELLECTUAL PROPERTY LICENSED UNDER THE
TERMS OF THIS AGREEMENT, ANY COLLABORATION TARGET OR ANY COLLABORATION PRODUCT,
AND FURTHER MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, OR THAT THE USE OF ANY COLLABORATION TARGET OR
COLLABORATION PRODUCT SET FORTH IN THIS AGREEMENT WILL NOT INFRINGE ANY
THIRD-PARTY RIGHTS.

 

13.5 Indemnification.

 

(a) Indemnification by Chiron. Chiron will indemnify, defend and hold harmless
XOMA, its Affiliates and their respective directors, officers, employees and
agents against any and all loss, damage, action, suit, claim, demand, liability
or expense, and reasonable attorneys fees and expenses (collectively, “Losses”)
to the extent such Losses arise out of any Third Party claim relating to (i)
willful misconduct of Chiron, or its permitted licensees, in connection with the
performance of any tasks to be performed by Chiron under this Agreement, (ii)
the intentional material breach by Chiron of any of its express representations
or warranties in this Agreement or (iii) the intentional material breach by
Chiron of any of its covenants or obligations in this Agreement; provided that
the foregoing indemnification shall not apply to any Loss to the extent such
Loss is based on or arises out of the matters described in Section 13.5(b).

 

(b) Indemnification by XOMA. XOMA will indemnify, defend and hold harmless
Chiron, its Affiliates and their respective directors, officers, employees and
agents against any and all Losses to the extent such Losses arise out of any
Third Party claim relating to (i) willful misconduct of XOMA, or its permitted
licensees, in connection with the performance of any tasks to be performed by
XOMA under this Agreement, (ii) the intentional material breach by XOMA of any
of its express representations or warranties in this Agreement or (iii)

 

-58-

--------------------------------------------------------------------------------

the intentional material breach by XOMA of any of its covenants or obligations
in this Agreement; provided that the foregoing indemnification shall not apply
to any Loss to the extent such Loss is based on or arises out of the matters
described in Section 13.5(a).

 

(c) Environmental. Notwithstanding any other indemnification obligation in this
Agreement, and in addition to any rights the Parties may have under relevant
federal, state, or local statutory and common laws, each Party shall indemnify
and hold harmless the other Party and its Affiliates from and against any and
all Losses which (i) arise under any Environmental Law in connection with
performance of tasks pursuant to this Agreement and (ii) are incurred as a
result of Environmental Matters, except to the extent attributable to acts or
omissions of the other Party or its Affiliates or representatives.
“Environmental Matters” means:

 

(i) The operation by such Party, its Affiliates or representatives of any site
or facility in a manner that is not in compliance with and is in violation of
any Environmental Law.

 

(ii) Any release of Hazardous Materials into the environment by such Party, its
Affiliates or representatives, including any release related to the storage,
treatment or disposal of Hazardous Materials at any site or facility operated by
such Party, its Affiliates or representatives.

 

(iii) Any other actual or alleged act or omission relating to the manufacture,
distribution, generation, use, handling, storage, treatment, transport or
disposal of Hazardous Materials at any site or facility.

 

(iv) “Hazardous Materials” includes any contaminant, pollutant, material, waste,
substance or chemical, including without limitation, asbestos, PCB’s, petroleum
and petroleum products, medical waste and infectious waste, which are regulated
or can give rise to liability under any applicable Environmental Law.

 

(v) “Environmental Law” means any law, statute, rule, code, regulation, decree,
judgment relating to pollution or protection of the environment or human health
(to the extent related to exposure to Hazardous Materials) including, without
limitation, those relating to the release or threatened release, or manufacture,
use, generation, distribution, transport, handling, storage, treatment or
disposal of Hazardous Materials.

 

(d) Collaboration Product. Except in those instances where Sections 13.5(a) and
(b) expressly apply, in the event of any Losses to either Party resulting
directly or indirectly from the manufacture, use, testing, handling, storage or
disposition of a Collaboration Product or the inherent properties of a
Collaboration Product (including without limitation product liability claims),
the Parties shall share such Losses in accordance with Section 6.2(a).

 

(e) General Indemnification Provisions. In the event that a Party is seeking
indemnification under this Section 13.5, it shall inform the other Party of a
claim as soon as reasonably practicable after it receives notice of the claim,
shall permit the other Party to assume direction and control of the defense of
the claim, and shall cooperate as requested by the other Party (at the expense
of the other Party) in the defense of the claim. Neither Party shall have the
right to settle a claim for which it is seeking indemnification under this
Section 13.5, whether the

 

-59-

--------------------------------------------------------------------------------

claim seeks monetary consideration or injunctive relief, without the consent of
the other Party (which consent shall not be unreasonably withheld or delayed).
For the avoidance of doubt, any Losses paid in accordance with this Section 13.5
shall not be chargeable to the Collaboration.

 

(f) Insurance. Each Party shall obtain and maintain in effect with financially
sound and reputable insurers an appropriate insurance policy with respect to its
obligations under this Article XIII, to the extent such policy can be obtained
and maintained on reasonable commercial terms and if such a policy cannot be so
obtained and maintained, the Parties shall meet and confer regarding appropriate
alternatives, which may include appropriate reserves in respect of such
obligations. At the written request of a Party, the other Party will supply a
Certificate of Insurance or evidence of such reserve, reasonably satisfactory to
the requesting Party, indicating the terms of coverage.

 

ARTICLE XIV

TERM; SURVIVAL

 

14.1 Term. The term of this Agreement shall commence as of the Date of this
Agreement and shall remain in full force and effect until the expiration of the
last cost or profit sharing, or royalty payment obligation of the Parties
pursuant to the terms of this Agreement. The Parties acknowledge that the
Initial Agreement governed the Collaboration during that portion of the
Exclusivity Period from the Effective Date through the Date of this Agreement.

 

14.2 Material Breach.

 

(a) Notice. If either Party materially breaches this Agreement, the other Party,
at its option, may provide written notice to the Party in breach describing in
reasonable detail the nature of the material breach.

 

(b) Cure. In the event that a Party receives written notice from the other Party
describing a material breach, such Party shall have an opportunity to cure such
material breach during a period of not less than [*] in the case of any breach
other than a payment breach, and [*] in the case of any payment breach, such
period beginning on the date of receipt of such written notice.

 

(c) Buy-Out Right.

 

(i) Upon a final determination that (x) a material breach occurred, (y) such
material breach was not cured and (z) such material breach has caused or is
reasonably likely to cause a material adverse effect on the business or
prospects of the Collaboration, the non-breaching Party, at its option and in
its sole discretion, may exercise a right to buy-out the entire interest held by
the other Party in the Collaboration at fair market value (“FMV”) by providing
written notice thereof to the breaching Party within [*] of such final
determination.

 

(ii) For purposes of this Section 14.2(c), FMV shall be determined as follows:

 

(A) If the Parties, in good faith, cannot determine FMV within [*] after the
notification of the non-breaching Party’s exercise of its right to buy the
entire interest in the Collaboration held by the breaching Party, each Party
shall

 

-60-

--------------------------------------------------------------------------------

designate a reputable investment banking or appraisal firm of its choice (which
in the case of an investment bank shall not be the regular banker of the Party)
(the “Appraiser”), who will be asked to provide its best, single number estimate
of the FMV, using a common set of assumptions provided by the Parties, or if the
Parties cannot agree, by the Appraisers. Each Party shall use its best efforts
to cause its designated Appraiser to provide the evaluation within [*].

 

(B) If one valuation exceeds the other by [*] percent ([*]%) or less, the FMV
shall be the average of the two valuations. If one evaluation exceeds the other
by more than [*] percent ([*]%), the Parties (or, if the Parties cannot agree,
the Appraisers) shall designate a third Appraiser to prepare a valuation without
access to the earlier valuations. Each Party shall use its best efforts to
enable the third Appraiser to provide the evaluation within [*]. If the third
valuation falls between the prior two valuations, the three valuations shall be
averaged to determine the FMV. If the third valuation falls outside the range of
the prior two valuations, the valuation closest to the median of the three
valuations shall be the FMV. Each Party shall bear the costs and expenses of its
own Appraiser as well as [*] percent ([*]%) of the costs and expenses of the
third Appraiser, if necessary.

 

(iii) The non-breaching Party shall pay to the breaching Party the FMV of the
breaching Party’s interest in the Collaboration in cash within [*] after the
date of the determination of such FMV. If the non-breaching Party does not make
such payment within such [*], such right hereunder shall expire unexercised.

 

(iv) For commercial Collaboration Products, upon a final determination that a
material breach occurred and that such material breach was not cured, the
breaching Party shall retain its profit interest in each and every such
Collaboration Product pursuant to Section 6.2, subject in the case of XOMA to
adjustment in accordance with Section 6.3 for achievement of each and every
event prior to the date of the final determination that a material breach
occurred and that such material breach was not cured, together with rights
applicable to such Collaboration Products pursuant to Article X, but shall have
no other rights under the terms of this Agreement.

 

14.3 Opt-Out Royalty Term. The royalty obligations under Sections 3.9(e)(i) and
3.9(e)(ii) shall terminate with respect to each Opt-Out Product with respect to
an Opt-Out Target on the later of (i) the expiration date of the last to expire
of any issued Collaboration Patent Rights or Patent Rights of the Opt-Out Party
that includes at least one Valid Claim covering the sale of such Opt-Out Product
on a country-by-country basis or (ii) [*] years after first commercial sale of
such Opt-Out Product on a country by country basis; provided, however, in any
event, royalty obligations under Sections 3.9(e)(i) and 3.9(e)(ii) shall be
reduced by [*]%, on a country-by-country basis, with respect to each Opt-Out
Product with respect to an Opt-Out Target in the event clause (i) is satisfied
with respect to such country.

 

14.4 Bankruptcy. Either Party may, in addition to any other remedies available
to it by law or in equity, terminate this Agreement, in whole or in part as the
terminating Party may determine, by written notice to the other Party in the
event the other Party shall have become bankrupt, or shall have made an
assignment for the benefit of its creditors or there shall

 

-61-

--------------------------------------------------------------------------------

have been appointed a trustee or receiver of the other Party or for all or a
substantial part of its property or any case or proceeding shall have been
commenced or other action taken by or against the other Party in bankruptcy or
seeking reorganization, liquidation, dissolution, winding-up, arrangement,
composition or readjustment of its debts or any other relief under any
bankruptcy, insolvency, reorganization or other similar act or law of any
jurisdiction now or hereafter in effect and any such event shall have continued
for [*] undismissed, unbonded and undischarged. All rights and licenses granted
under this Agreement by one Party to the other Party are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of
rights to “intellectual property” as defined under Section 101(56) of the
Bankruptcy Code. The Parties agree that the licensing Party under this Agreement
shall retain and may fully exercise all of its rights and elections under the
Bankruptcy Code in the event of a bankruptcy by the other Party. The Parties
further agree that in the event of the commencement of a bankruptcy proceeding
by or against one Party under the Bankruptcy Code, the other Party shall be
entitled to complete access to any such intellectual property pertaining to the
rights granted in the licenses hereunder of the Party by or against whom a
bankruptcy proceeding has been commenced and all embodiments of such
intellectual property.

 

14.5 Survival. The rights and obligations of the Parties pursuant to Articles I,
XI, XIII, and XV, Sections 7.1, 9.5, 12.1, 12.7 and 14.5, and, for a period not
to exceed six months after the Exclusivity Period, Sections 9.1, 9.2 and 9.3,
shall survive and continue beyond expiration or earlier termination of this
Agreement. In addition, in the event of expiration of this Agreement, but not
earlier termination, the rights and obligations of the Parties under the
licenses granted pursuant to Article VIII with respect to Know-How shall survive
and continue beyond expiration of this Agreement as non-exclusive licenses.

 

ARTICLE XV

 

MISCELLANEOUS

 

15.1 Further Assurances. At any time or from time to time on and after the date
of this Agreement, each of the Parties shall at the request of the other Party
(i) deliver to such other Party such records, data or other documents consistent
with the provisions of this Agreement, (ii) execute, and deliver or cause to be
delivered, all such assignments, consents, documents or further instruments of
transfer or license, and (iii) take or cause to be taken all such other actions,
as such other Party may reasonably deem necessary or desirable in order to
obtain the full benefits of this Agreement and the transactions contemplated
hereby.

 

15.2 Change of Control.

 

(a) Upon a change of control of XOMA Ltd., a Bermuda company and sole
shareholder of XOMA (“XOMA Parent”), Chiron shall have the right to buy the
entire interest in the Collaboration held by XOMA (subject to Section 15.2(b)
below) at a purchase price equal to the FMV of such interest as of the date of
the change of control of XOMA Parent. Such FMV shall be determined in accordance
with the procedure set forth in Section 15.2(c) (and taking into account Section
15.2(b)). For purposes of this Section 15.2(a), the term “change of control”
shall mean the closing of (i) any consolidation or merger of XOMA Parent with or
into any other corporation or entity, (ii) a sale of all or substantially all of
the assets of XOMA Parent

 

-62-

--------------------------------------------------------------------------------

(including, without limitation, stock in its subsidiaries), (iii) a sale to a
Third Party of XOMA by XOMA Parent, (iv) any transaction by which a Third Party
or group (as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) becomes the beneficial owner (as defined in Rule
13d-3 and 13d-5 of the Exchange Act) of fifty percent (50%) or more of the
voting power of XOMA Parent or (v) any transaction or series of transactions
having similar effect as the foregoing; provided that, in each of cases (i),
(iv) and (v), as a result of such consolidation, merger, sale or other
transaction(s), the shareholders of XOMA Parent immediately prior to the closing
thereof do not own immediately after such closing at least fifty percent (50%)
of the voting power of XOMA Parent, or the surviving entity, or the parent of
the surviving entity. Not later than the date of any public announcement that
XOMA Parent may undergo, or anticipates undergoing, a change of control, XOMA
shall provide written notice thereof to Chiron including in such written notice
the identity of the party or parties in the consolidation, merger, sale or other
transaction(s) that, if completed, would constitute a change of control of XOMA
Parent. In addition, after delivery of such written notice to Chiron, XOMA shall
provide assistance to Chiron, as requested and reasonably required by Chiron, to
permit Chiron to evaluate whether to exercise its right under this Section
15.2(a). After delivery of such written notice from XOMA, Chiron shall have [*]
to provide notice of its intent to exercise its right to buy the entire interest
in the Collaboration held by XOMA, subject to determination of the FMV of the
interest in the Collaboration held by XOMA, by providing written notice thereof
to XOMA. Chiron may consummate the acquisition of the entire interest in the
Collaboration held by XOMA after Chiron’s receipt of the written notice from
XOMA pursuant to this Section 15.2(a) within [*] after the date of determination
of the FMV of the interest in the Collaboration held by XOMA or [*] after the
effective date of such change of control, whichever is later.

 

(b) In the event that, as of the date of the change of control of XOMA, the
Parties have achieved a first commercial sale, or have initiated Phase III
Clinical Trials, of a Collaboration Product, with respect to that Collaboration
Product only, XOMA, notwithstanding Chiron’s rights pursuant to Section 15.2(a)
above, shall have the right to retain its profit interest in such Collaboration
Product pursuant to Section 6.2, subject to adjustment in accordance with
Section 6.3 for achievement of each milestone prior to the date of the change of
control of XOMA, together with rights applicable to such Collaboration Products
pursuant to Article VIII, and all its other rights under the terms of this
Agreement, including for example an option to field sales representatives or a
right to receive information via any transparency provision in this Agreement
(other than financial audit rights in connection with Section any continuing
payments required by this Section 15.2(b)) shall terminate.

 

(c) For purposes of Section 15.2(a), FMV shall be determined as follows:

 

(i) If the Parties, in good faith, cannot determine FMV within [*] after the
notification of Chiron’s exercise of its right to buy the entire interest in the
Collaboration held by XOMA, each Party shall designate an Appraiser, who will be
asked to provide its best, single number estimate of the FMV, using a common set
of assumptions provided by the Parties, or if the Parties cannot agree, by the
Appraisers. Each Party shall use its commercially reasonable efforts to cause
its designated Appraiser to provide the evaluation within [*].

 

-63-

--------------------------------------------------------------------------------

(ii) If one valuation exceeds the other by [*] percent ([*]%) or less, the FMV
shall be the average of the two valuations. If one evaluation exceeds the other
by more than [*] percent ([*]%), the Parties (or, if the Parties cannot agree,
the Appraisers) shall designate a third Appraiser to prepare a valuation without
access to the earlier valuations. Each Party shall use its commercially
reasonable efforts to enable the third Appraiser to provide the evaluation
within [*]. If the third valuation falls between the prior two valuations, the
three valuations shall be averaged to determine the FMV. If the third valuation
falls outside the range of the prior two valuations, the valuation closest to
the median of the three valuations shall be the FMV. Each Party shall bear the
costs and expenses of its own Appraiser as well as [*] percent ([*]%) of the
costs and expenses of the third Appraiser, if necessary.

 

(iii) To exercise its right under this Section 15.2, Chiron shall pay XOMA the
FMV of XOMA’s interest in the Collaboration in cash within [*] after the date of
determination of such FMV. If Chiron, at Chiron’s sole option, does not make
such payment within [*] after the date of the determination of such FMV, such
right hereunder shall expire unexercised.

 

(d) In the event Chiron consummates the acquisition of the entire interest in
the Collaboration held by XOMA pursuant to this Section 15.2, Sections
3.9(f)(i), 3.9(f)(ii), 8.2(a) and (c) shall survive any such acquisition by
Chiron of XOMA’s interest in the Collaboration as if XOMA is the Opting-Out
Party and Chiron is the Continuing Party with respect to all Collaboration
Targets and Collaboration Products, and in the event that then-current R&D Plans
and Budgets provide that XOMA will manufacture any Collaboration Product, XOMA
will contract manufacture each such product at cost for Chiron until such time
as Chiron is able to establish alternative manufacturing but in no event for
more than [*]. During such [*] period, XOMA will provide reasonable assistance
to Chiron or to any third party manufacturer as Chiron may designate in its sole
discretion to transfer all requisite technology, skills and know-how relating to
manufacturing of the applicable Collaboration Product(s) to Chiron and/or such
third party manufacturer to ensure a smooth and orderly transition of
manufacturing capability at Chiron’s expense. For clarification, in the event of
such acquisition by Chiron, Chiron shall have no royalty obligation to XOMA
under Section 3.9(e).

 

15.3 No Right to Use Names. Except as otherwise provided herein or as required
by applicable law, regulation or court order, no right, express or implied, is
granted by this Agreement to use in any manner the names “Chiron,” “XOMA” or any
other trade name or trademark of a Party or its Affiliates.

 

15.4 Covenants.

 

(a) XOMA covenants that (i) XOMA will conduct all research and development
activities allocated to it with respect to Collaboration Targets and
Collaboration Products in accordance with all applicable laws, rules and
regulations; (ii) all Collaboration Products manufactured by XOMA and used for
the Collaboration shall meet the specifications for such Collaboration Products,
and shall be manufactured in accordance with all applicable laws, rules and
regulations; and (iii) XOMA will conduct all its obligations under this
Agreement in accordance with all applicable laws, rules and regulations.

 

-64-

--------------------------------------------------------------------------------

(b) Chiron covenants that (i) Chiron will conduct all research and development
activities allocated to it with respect to Collaboration Targets and
Collaboration Products in accordance with all applicable laws, rules and
regulations; (ii) all Collaboration Products manufactured by Chiron and used for
the Collaboration shall meet the specifications for such Collaboration Products,
and shall be manufactured in accordance with all applicable laws, rules and
regulations; and (iii) Chiron will conduct all its obligations under this
Agreement in compliance with all applicable laws, rules and regulations.

 

15.5 Notices. All consents, notices or reports required or permitted to be given
or made under this Agreement by one of the Parties to the other shall be in
writing and addressed to such other Party at its address indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor, and shall be effective upon receipt by the addressee.

 

If to XOMA, addressed to:

 

XOMA (US) LLC

2910 Seventh Street

Berkeley, California 94710

Attention: General Counsel

Facsimile: 510-649-7571

 

With a copy to:

 

XOMA (US) LLC

2910 Seventh Street

Berkeley, California 94710

Attention: Vice President, Business Development

 

And:

 

Cahill Gordon & Reindel LLP

80 Pine Street

New York, NY 10005

Attention: Geoffrey E. Liebmann

 

If to Chiron, addressed to:

 

CHIRON CORPORATION

4560 Horton Street

Emeryville, CA 94608

Attention: President, BioPharmaceuticals

Facsimile: 510-923-3832

 

-65-

--------------------------------------------------------------------------------

With a copy to:

 

CHIRON CORPORATION

4560 Horton Street

Emeryville, CA 94608

Attention: General Counsel

Facsimile: 510-654-5360

 

15.6 Waiver. The waiver by a Party of any right hereunder, or of any failure to
perform or breach by the other Party hereunder, shall not be deemed a waiver of
any other right hereunder or of any other breach or failure by the other Party
hereunder whether of a similar nature or otherwise.

 

15.7 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY, IN NO
EVENT SHALL A PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE
LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE,
MULTIPLE, EXEMPLARY OR CONSEQUENTIAL DAMAGES OR LOST PROFITS, WHETHER BASED UPON
A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER
TORT, OR OTHERWISE ARISING OUT OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF
SUCH DAMAGES.

 

15.8 Entire Agreement; Amendment. This Agreement, including all exhibits and
schedules attached hereto (which exhibits and schedules are hereby incorporated
herein by this reference), sets forth all the covenants, promises, agreements,
warranties, representations, conditions and understandings between the Parties
with respect to the subject matter hereof and supersedes and terminates all
prior agreements, representations and understandings between the Parties,
including, but not limited to, the Initial Agreement but excluding the Common
Interest and Joint Litigation Agreement between the Parties effective as of the
Effective Date. No alteration, amendment, change or addition to this Agreement
shall be binding upon the Parties hereto unless reduced to writing and signed by
the respective authorized officers of the Parties.

 

15.9 Severability. If any provision of this Agreement is found by a court to be
void, invalid or unenforceable, the same shall either be reformed to comply with
applicable law or stricken if not so conformable, so as not to affect the
validity or enforceability of this Agreement. In the event a provision of this
Agreement is held invalid, illegal or otherwise unenforceable, the Parties shall
substitute a permissible provision intended to effectuate the business
arrangements reflected in this Agreement.

 

15.10 No Joint Venture or Partnership; Independent Contractors. Nothing
contained herein shall establish, and it is not the intention of the Parties to
establish, a joint venture or a partnership. The relationship of Chiron and XOMA
under the terms of this Agreement shall be that of independent contractors, and
nothing contained in this Agreement shall be construed to (a) give either Party
the power to direct or control the day-to-day activities of the other Party, (b)
create an employment, agency, joint venture or partnership relationship between
the Parties or any of their agents or employees, or (c) allow either Party to
create or assume any obligation on behalf of the other Party for any purpose
whatsoever.

 

-66-

--------------------------------------------------------------------------------

15.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
principles of conflict of laws thereof.

 

15.12 Enforcement. Any action or proceeding brought by either Party seeking to
enforce any provision of, or based on any right arising out of, this Agreement
must be brought against any of the Parties in the courts of the State of
California and, in particular with respect to intellectual property matters
(including Patent Rights and Know-How), shall be submitted exclusively to the
United States District Court for the Northern District in the State of
California. Each Party (i) hereby irrevocably submits to the jurisdiction of the
state courts of the State of California and to the jurisdiction of the United
States District Court for the Northern District in the State of California, for
the purpose of any suit, action, or other proceeding arising out of or based
upon this Agreement or the subject matter hereof brought by any Party or its
successors or assigns, (ii) hereby waives, and agrees not to assert, by way of
motion, as a defense, or otherwise, in any such suit, action, or proceeding, any
claim that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution, that
the suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that this Agreement or
the subject matter hereof may not be enforced in or by such court, and (iii)
hereby waives and agrees not to seek any review by any court of any other
jurisdiction that may be called upon to grant an enforcement of the judgment of
any such California state or federal court.

 

15.13 Headings. All headings are for reference purposes only and shall not in
any way affect the meaning or interpretation of this Agreement.

 

15.14 Commercially Reasonable Efforts. In each case in this Agreement in which a
Party is required to use a specific degree of effort to perform a specified
action (other than under Article XIII), the degree of effort required shall be
deemed limited to what is commercially reasonable under the applicable facts and
circumstances.

 

15.15 Construction. Except where the context otherwise requires, wherever used,
the singular shall include the plural, the plural the singular, the use of any
gender shall be applicable to all genders. The term “including” as used herein
shall mean including, without limiting the generality of any description
preceding such term. The language of this Agreement shall be deemed to be
language mutually chosen by the Parties and no rule of strict construction shall
be applied against either Party hereto.

 

15.16 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

15.17 Performance by Affiliates. Each of XOMA and Chiron acknowledges that
obligations under this Agreement may be performed by Affiliates of XOMA and
Chiron. In the event of any dispute arising from the performance of this
Agreement by an Affiliate, or the alleged failure of an Affiliate to comply with
the conditions and obligations of this Agreement, the Party seeking to resolve
such dispute may do so directly with the other Party, without any

 

-67-

--------------------------------------------------------------------------------

obligation to first pursue an action against, or recovery from, the Affiliate
which is alleged to have caused a breach of this Agreement.

 

15.18 Assignment. Neither Party may assign or transfer this Agreement without
the prior written consent of the other, except a Party may make such an
assignment without the other Party’s consent to an Affiliate of such Party for
so long as such assignee is an Affiliate of such Party and covered by Section
15.17 or to a successor to all or substantially all of the related business of
such Party, whether in a merger, sale of stock, sale of assets or other
transaction; provided that, with respect to XOMA, any such assignment to a
successor (other than an Affiliate) of all or substantially all of such related
business shall be deemed to be a “change of control” for purposes of Section
15.2. Any permitted successor or assignee of rights and/or obligations hereunder
shall, in a writing to the other Party, expressly assume performance of such
rights and/or obligations. Any permitted assignment shall be binding on the
successors of the assigning Party. Any assignment or attempted assignment by
either Party in violation of the terms of this Section shall be null and void.

 

15.19 No Access to Human Engineering™ Data Base. Notwithstanding the provisions
of any licenses or other rights granted herein in relation to the Human
Engineering™ Technology, Chiron acknowledges that nothing herein shall be deemed
to grant it, nor shall it have, any access or right of access to the data base
relating to the Human Engineering™ Technology in any circumstance contemplated
hereby; provided that, in the event XOMA changes its policy such that it intends
to begin making such data base available to Third Parties, Chiron will have
access to such data base.

 

15.20 Consents; Agreements. In each case in this Agreement requiring the
approval or consent of either or both of the Parties, the provisions hereof
granting Chiron a right to cast the deciding vote expressly shall not apply to
the subject matter of such approval or consent.

 

-68-

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate
originals by their proper officers as of the date and year first above written.

 

Date: May 26, 2005

 

XOMA (US) LLC

By:   /s/    JOHN L. COSTELLO    

Name:

 

John L. Costello

   

Title:

 

Chairman of the Board, President

and Chief Executive Officer

 

Date: May 26, 2005

 

CHIRON CORPORATION

By:   /s/    CRAIG A. WHEELER    

Name:

 

Craig A. Wheeler

   

Title:

  President,         Chiron BioPharmaceuticals

 

S-1

--------------------------------------------------------------------------------

Schedule 1.15

 

[*]

--------------------------------------------------------------------------------

Schedule 1.103

 

[*]

--------------------------------------------------------------------------------

Schedule 3.2(d)

 

[*]

--------------------------------------------------------------------------------

Schedule 3.3(b)

 

Collaboration Targets

 

CD40

 

[*]

--------------------------------------------------------------------------------

Schedule 3.5(a)

 

[*]

--------------------------------------------------------------------------------

Schedule 3.9(g)

 

[*]

--------------------------------------------------------------------------------

Schedule 5.1(d)(i)

 

Binding Baseball-Style Arbitration Procedures

 

(i) The party invoking baseball style arbitration will so notify the other party
in writing (the “Arbitration Notice”). The Arbitration Notice will contain a
list of all issues the party proposes to submit to arbitration, as well as that
party’s “final best offer” on each of those issues. Within twenty days of
receipt of any such notice, the party receiving the notice will promptly notify
the initiating party of any additional issues which the receiving party intends
to include in the arbitration, as well as the receiving party’s “final best
offer” on such additional issues. The issues listed in the Arbitration Notice
and in such reply will be the only issues submitted to arbitration.

 

(ii) The parties will negotiate in good faith to agree on the Neutral. If the
parties do not agree on the Neutral within twenty days of the date of the
Arbitration Notice, each party will, within twenty-five days of the Arbitration
Notice, designate an independent party who otherwise meets the qualifications
for the Neutral, and, no later than forty days from the date of the Arbitration
Notice, those two designees will select the Neutral. The selection of the
Neutral by the two independent designees will be binding on the parties.

 

(iii) No later than 45 days from the date of the Arbitration Notice, the parties
will prepare and submit to the Neutral in writing their respective positions as
follows: each party will submit to the Neutral a phase I/II R&D plan and budget
which contains that party’s “final best offer” on each open issue, as well as a
Memorandum of Points and Understandings summarizing the party’s position with
respect to each such issue.

 

(iv) The Neutral will be instructed that such plan and budget must be determined
on a portfolio basis (i.e., with reference to all other Collaboration projects)
and must include sufficient resources to expeditiously advance the target and
corresponding Antibody Products and must be consistent with the letter and
spirit of this Agreement. Subject to the foregoing, the Neutral will conduct a
“baseball style” arbitration, pursuant to which the Neutral will select the
single plan and budget, which, in the determination of the Neutral, most closely
conforms to the requirements of this Agreement. Although the determination will
be made based on the entire plan and budget taken as a whole, rather than “issue
by issue”, the Neutral will have a modified “line item veto”, pursuant to which
he or she shall substitute one or more provisions from the nonprevailing party’s
submission in lieu of the comparable provision in the prevailing party’s
submission and/or entirely delete provisions if, in the judgment of the Neutral,
the provision is inconsistent with the letter or spirit of this Agreement or the
definitive agreement, as appropriate, the failure to make such substitution or
deletion would be manifestly unreasonable.

 

(v) The parties will instruct the Neutral to complete his or her determination
no later than 75 days from the date of the Arbitration Notice.

 

(vi) At any time prior to the determination, either party may accept the other
party’s position on any unresolved issue and in such event such position will be
deemed part of the final document and no longer subject to arbitration.

--------------------------------------------------------------------------------

Schedule 6.4

 

Secured Note Agreement

--------------------------------------------------------------------------------

Schedule 13.1

 

[*]

--------------------------------------------------------------------------------

Schedule 13.2

 

[*]