ex10_2.htm


    Ex.
      10.2

     

    

 

    XOMA
      LTD.

     

      

     

    CHANGE
      OF CONTROL SEVERANCE AGREEMENT

     

    This
      Change of Control Severance Agreement (the “Agreement”) is made and
      entered into effective as of August 3, 2007 (the “Effective Date”), by and
      between Steven B. Engle (the “Employee”) and XOMA Ltd., a Bermuda company
      (the “Company”).

     

    R
      E C
      I T A L S

     

    A.           It
      is expected that the Company may from time to time consider the possibility
      of a
      Change of Control (as hereinafter defined).  The Board of Directors of
      the Company (the “Board”) recognizes that such consideration could be a
      distraction to the Employee and could cause the Employee to consider alternative
      employment opportunities.

     

    B.           The
      Board believes that it is in the best interest of the Company and its
      shareholders to provide the Employee with an incentive to continue the
      Employee’s employment and to maximize the value of the Company upon a Change of
      Control for the benefit of its shareholders.

     

    C.           In
      order to provide the Employee with enhanced financial security and sufficient
      encouragement to remain with the Company notwithstanding the possibility of
      a
      Change of Control, the Board believes that it is imperative to provide the
      Employee with certain severance benefits upon the Employee’s termination of
      employment following a Change of Control.

     

    D.           XOMA
      (US) LLC, a wholly-owned subsidiary of the Company, and the Employee have
      previously entered into an employment agreement effective as of August 3, 2007
      (the “Existing Agreement”), which provides the Employee with certain
      severance benefits upon the Employee’s termination of employment.

     

    E.           The
      parties intend that this Agreement shall operate in addition to, and not in
      replacement of, the Existing Agreement.

     

    AGREEMENT

     

    In
      consideration of the mutual covenants herein contained and the continued
      employment of the Employee by the Company, the parties agree as
      follows:

     

    1.  Definition
      of Terms.  The following terms referred to in this Agreement shall
      have the following meanings:

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    (a)  “Cause”
      shall mean (i) the Employee has been convicted of any crime or offense
      constituting a felony under applicable law, including, without limitation,
      any
      act of dishonesty such as embezzlement, theft or larceny, (ii) the Employee
      has
      acted or refrained from acting in respect of any of the duties and
      responsibilities which have been assigned to her/him in accordance with this
      Agreement or the Existing Agreement and shall fail to desist from such action
      or
      inaction within thirty (30) days after the Employee’s receipt of notice from the
      Company of such action or inaction and the Board determines that such action
      or
      inaction constituted gross negligence or a willful act of malfeasance or
      misfeasance of the Employee in respect of such duties, or (iii) the Employee
      has
      breached any material term of this Agreement or the Existing Agreement and
      shall
      fail to correct such breach within thirty (30) days after the Employee’s receipt
      of notice from the Company of such breach.

     

    (b)  “Change
      of Control” shall mean the occurrence of any of the following
      events:

     

    (i)  a
      merger,
      amalgamation or acquisition in which the Company is not the surviving or
      continuing entity, except for a transaction the principal purpose of which
      is to
      change the jurisdiction of the Company’s organization;

     

    (ii)  the
      sale,
      transfer or other disposition of all or substantially all of the assets of
      the
      Company;

     

    (iii)  any
      other
      reorganization or business combination in which fifty percent (50%) or more
      of
      the Company’s outstanding voting securities are transferred to different holders
      in a single transaction or series of related transactions;

     

    (iv)  any
      approval by the shareholders of the Company of a plan of complete liquidation
      of
      the Company;

     

    (v)  any
      “person” (as such term is used in Sections 13(d) and 14(d) of the Securities
      Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in
      Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
      representing more than fifty percent (50%) of the total voting power represented
      by the Company’s then outstanding voting securities; or

     

    (vi)  a
      change
      in the composition of the Board, as a result of which fewer than a majority
      of
      the directors are Incumbent Directors.  “Incumbent Directors”
shall mean directors who (A) are directors of the Company as of the
      date hereof,
      (B) are elected, or nominated for election, to the Board with the affirmative
      votes of  the directors of the Company as of the date hereof, or (C)
      are elected, or nominated for election, to the Board with the affirmative votes
      of at least a majority of those directors whose election or nomination was
      not
      in connection with any transaction described in subsections (i) through (v)
      or
      in connection with an actual or threatened proxy contest relating to the
      election of directors of the Company.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    (c)  “Change
      of Control Protection Period” shall mean the period commencing one (1) month
      prior to the execution of the definitive agreement for a Change of Control
      and
      eighteen (18) months following the closing of a Change of Control.

     

    (d)  “Compensation
      Continuation Period” shall mean the period of time commencing with
      termination of the Employee’s employment as a result of Involuntary Termination
      at any time within a Change of Control Protection Period and ending with the
      date twenty-four (24) months following the date of the Employee’s Involuntary
      Termination.

     

    (e)  “Code”
      shall mean the Internal Revenue Code of 1986, as amended.

     

    (f)  “Involuntary
      Termination” shall mean (i) the failure of a successor or an acquiring
      company to offer the Employee the position held by Employee on the date of
      this
      Agreement (or, if higher, a subsequent position of the Employee) with the
      successor or acquiring company following a Change of Control; (ii) without
      the
      Employee’s express written consent, a substantial reduction, without good
      business reasons, of the rights, privileges and perquisites available to the
      Employee immediately prior to such reduction; (iii) without the Employee’s
      express written consent, a material diminution in the authority,
      responsibilities, duties or reporting lines held or possessed by the Employee
      prior to the Change of Control; (iv) without the Employee’s express written
      consent, a reduction by the Company of the Employee’s base salary or target
      bonus as in effect immediately prior to such reduction; (v) without the
      Employee’s express written consent, a material reduction by the Company in the
      kind or level of employee benefits to which the Employee is entitled immediately
      prior to such reduction with the result that the Employee’s overall benefits
      package is significantly reduced; (vi) without the Employee’s express written
      consent, the relocation of the regular offices of the Employee to a facility
      or
      a location more than thirty (30) miles further from the Employee’s current
      location (unless such new facility or location is closer to the Employee’s
      residence); (vii) any purported termination of the Employee by the Company
      which
      is not effected for Cause or for which the grounds relied upon are not valid;
      or
      (viii) the failure of the Company to obtain the assumption of this Agreement
      by
      any successors contemplated in Section 7 below.

     

    2.  Term
      of Agreement.  This Agreement shall terminate upon the date that
      all obligations of the parties hereto under this Agreement have been satisfied
      or, if earlier, on the date, prior to a Change of Control Protection Period,
      the
      Employee is no longer employed by the Company.

     

    3.  At-Will
      Employment.  The Company and the Employee acknowledge that the
      Employee’s employment is and shall continue to be at-will, as defined under
      applicable law.  If the Employee’s employment terminates for any
      reason, the Employee shall not be entitled to any payments, benefits, damages,
      awards or compensation other than as provided by this Agreement or the Existing
      Agreement or as may otherwise be established under the Company’s then existing
      employee benefit plans or policies at the time of termination.

     

    4.  Change
      of Control and Severance Benefits.

     


    
      
              

          
            	 


          
      

                       
    

        
        

      

      
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    (a)  Option
      Acceleration and Extended Exercise Period.  If the Employee’s
      employment with the Company terminates as a result of an Involuntary Termination
      at any time within a Change of Control Protection Period, then the
      exercisability of all options granted to the Employee by the Company (including
      any such options granted or assumed by the surviving or continuing entity of
      the
      Change of Control) and still outstanding (the “Options”) shall
      automatically be accelerated so that all the Options may be exercised
      immediately upon such Involuntary Termination for any or all of the shares
      subject thereto and the post-termination exercise period of each Option shall
      be
      extended to sixty (60) months (but in no event beyond the remainder of the
      maximum term of the Option).  The Options shall continue to be subject
      to all other terms and conditions of the Company’s share option plans and the
      applicable option agreements between the Employee and the Company.

     

    (b)  Outplacement
      Program.  If the Employee’s employment with the Company terminates
      as a result of an Involuntary Termination at any time within a Change of Control
      Protection Period, the Employee will immediately become entitled to participate
      in a twelve (12) month executive outplacement program provided by an executive
      outplacement service, at the Company’s expense not to exceed fifteen thousand
      dollars ($15,000).

     

    (c)  Termination
      Following a Change of Control.

     

    (i)  Cash
      Severance Payment Upon Involuntary Termination.  If the Employee’s
      employment with the Company terminates as a result of an Involuntary Termination
      at any time within a Change of Control Protection Period, then the Employee
      shall be entitled to receive a severance payment equal to the sum of (A) an
      amount equal to 2.0 times the Employee’s annual base salary as in effect
      immediately prior to the Involuntary Termination, plus (B) an amount equal
      to
      2.0 times Employee’s target bonus as in effect for the fiscal year in which the
      Involuntary Termination occurs.  Such severance payments shall be in
      lieu of any other severance payment to which the Employee shall be entitled
      as a
      result of such termination pursuant to this Agreement, any employment agreement
      with or offer letter from the Company or any of its affiliates or the Company’s
      or any of its affiliate’s then existing severance plans and
      policies.  The severance payment described in Section 4(c)(i)(A) shall
      be paid in monthly installments over twenty-four (24) months, beginning within
      thirty (30) days of the termination, and the severance payment described in
      Section 4(c)(i)(B) shall be paid in a lump sum within thirty (30) days of the
      termination, in each case subject to the requirements of Section 4(c)(iii)
      below.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    (ii)  Provision
      of Group Health and Certain Other Benefits.  In addition, during a
      period of twenty-four (24) months following the termination of Employee’s
      employment as a result of an Involuntary Termination at any time within a Change
      of Control Protection Period, (A) the Company shall make available and pay
      for
      the full cost of the coverage (plus an additional amount to pay for the taxes
      on
      such payments, if any, plus any taxes on such additional amount, such amount
      to
      be paid no later than ten (10) days prior to the date such taxes are due) of
      the
      Employee and Employee’s spouse and eligible dependents under any group health
      plans of the Company on the date of such termination of employment at the same
      level of health (i.e., medical, vision and dental) coverage and benefits as
      in
      effect for the Employee or such covered dependents on the date immediately
      preceding the date of the Employee’s termination; provided,
however, that (1) the Employee and Employee’s spouse and eligible
      dependents each constitutes a qualified beneficiary, as defined in Section
      4980B(g)(1) of the Internal Revenue Code of 1986, as amended; and (2) the
      Employee elects continuation coverage pursuant to the Consolidated Omnibus
      Budget Reconciliation Act of 1985, as amended (“COBRA”), within the time period
      prescribed pursuant to COBRA; and (B) if Employee is, at the time of such
      termination, an eligible participant in the Company’s mortgage differential
      program, the Company shall continue to make mortgage assistance payments to
      Employee pursuant to such program as in effect at the time of such
      termination.  Notwithstanding the foregoing, the payments by the
      Company for such group health coverage and/or mortgage assistance, as
      applicable, shall cease prior to the expiration of the twenty-four (24) month
      period in this Section 4(c)(ii) upon the employment of the Employment by another
      employer.  Furthermore, if, at the time of the termination of
      Employee’s employment as a result of an Involuntary Termination at any time
      within a Change of Control Protection Period, Employee is the obligor of a
      “forgivable” loan (i.e., a loan which by its terms is to be considered forgiven
      by the Company and paid by the obligor in circumstances other than actual
      repayment) from the Company, then, notwithstanding any provisions of such loan
      to the contrary, such loan shall remain outstanding, and the forgiveness thereof
      shall continue, for a period of twenty-four (24) months following such
      termination in accordance with the terms of such loan in effect at the time
      of
      such termination; provided, however, that at the end of such period of
      twenty-four (24) months, the outstanding balance of such loan shall be
      immediately due and payable, together with any accrued and unpaid interest
      thereon.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    (iii)  Section
      409A of the Code.  Notwithstanding the foregoing clauses (i) and
      (ii), to the extent any of the severance payments, mortgage assistance payments
      or loan forgiveness referred to therein, or any taxes payable on the health
      benefits referred to therein, would be deemed made in connection with a
“separation from service” within the meaning of the term in Section
      409A(a)(2)(A)(i) of the Code to a “specified employee” within the meaning of the
      term in Section 409A(a)(2)(B)(i) of the Code, and not exempt from the
      requirements of Section 409A of the Code, then such payments or forgiveness,
      as
      the case may be, shall be postponed until six (6) months following the
      Employee’s termination from employment as required by Section 409A of the Code,
provided, however, if prior to the expiration of such six-month
      period, the Employee dies, then such payments or forgiveness, as the case may
      be, shall commence prior to expiration of the six month period according to
      the
      original payment schedule for such payments to the extent permitted by Section
      409A of the Code.  Thus, for example, if the provision in the
      preceding sentence applies, the first six (6) monthly installments of the
      severance payments provided for in clause (i) above shall be paid immediately
      following the six (6) month period in a lump sum and the seventh (7th) through
      twenty-fourth (24th) installments
      shall be paid according to their original schedule provided that the Employee
      does not die during such six-month period.

     

    (iv)  Voluntary
      Resignation or Termination for Cause.  If the Employee’s
      employment with the Company terminates as a result of the Employee’s voluntary
      resignation which is not an Involuntary Termination or if the Employee is
      terminated for Cause at any time after a Change of Control, then the Employee
      shall not be entitled to receive severance or other benefits hereunder, but
      may
      be eligible for those benefits (if any) as may then be established under the
      Company’s then existing severance and benefits plans and policies at the time of
      such termination.

     

    (d)  Disability
      or Death.  If the Employee’s employment with the Company
      terminates due to the Employee’s death or disability following a Change of
      Control, then the Employee shall not be entitled to receive severance or other
      benefits hereunder, except for those (if any) as may be then established under
      the Company’s then existing severance and benefits plans and policies at the
      time of such disability or death.  In the event of the Employee’s
      death or disability after the termination of the Employee’s employment with the
      Company as a result of an Involuntary Termination within a Change of Control
      Protection Period, the Employee’s personal or legal representatives, executors,
      administrators, successors, heirs, distributees, devisees and legatees shall
      be
      entitled to receive severance or other benefits hereunder.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    (e)  Accrued
      Wages and Vacation; Expenses.  Without regard to the reason for,
      or the timing of, the Employee’s termination of employment (and without
      duplication of any similar benefits under any employment agreement with the
      Company or any of its affiliates):  (i) the Company shall pay the
      Employee any unpaid base salary due for periods prior to the date of
      termination; (ii) the Company shall pay the Employee all of the Employee’s
      accrued and unused vacation through the date of termination; and (iii) following
      submission of proper expense reports by the Employee, the Company shall
      reimburse the Employee for all expenses reasonably and necessarily incurred
      by
      the Employee in connection with the business of the Company prior to the date
      of
      termination.  These payments shall be made promptly upon termination,
      within the period of time mandated by law, and in no event later than ten (10)
      days after the date of termination.

     

    5.  Conditional
      Nature of Severance Payments.

     

    (a)  Non-Compete.  The
      Employee shall not, to the detriment of the Company or any of its affiliates,
      disclose or reveal to any unauthorized person any trade secret or other
      confidential information relating to the Company or its affiliates or to any
      businesses operated by them, and the Employee confirms that such information
      constitutes the exclusive property of the Company. The Employee shall not
      otherwise act or conduct her/himself to the material detriment of the Company
      or
      its affiliates, or in a manner which is inimical or contrary to the interests
      thereof, and, for a period of twenty-four (24) months following the termination
      of Employee’s employment as a result of an Involuntary Termination at any time
      within a Change of Control Protection Period, shall not, directly or indirectly,
      engage in or render any service (whether to a person, firm or business) in
      direct competition with the Company; provided, however, that the
      Employee’s ownership of less than five percent (5%) of the outstanding stock of
      a corporation shall not itself be deemed to constitute such competition. The
      Employee recognizes that the possible restrictions on her/his activities which
      may occur as a result of her/his performance of her/his obligations under this
      Section 5(a) are required for the reasonable protection of the Company and
      its
      investments.  For purposes hereof, “in direct competition” means
      engaged in the research, development and/or production of biological materials
      intended for use as therapeutic, prophylactic or diagnostic products in one
      or
      more of the same indications, and that utilize one or more of the same
      scientific bases (e.g., in the case of a therapeutic antibody, targets the
      same
      signal initiating pathway), as a product or product candidate the research,
      development and/or production of which is an active part of the Company’s
      business plan at the time of Employee’s termination.

     

    (b)  Non-Disparagement.  The
      Employee and the Company agree to refrain from any defamation, libel or slander
      of the other and its respective officers, directors, employees, representatives,
      investors, shareholders, administrators, affiliates, divisions, subsidiaries,
      predecessor and successor corporations and assigns or tortious interference
      with
      the contracts and relationships of the other and its respective officers,
      directors, employees, representatives, investors, shareholders, administrators,
      affiliates, divisions, subsidiaries, predecessor and successor corporations
      and
      assigns.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    (c)  Understanding
      of Covenants.  The Employee represents that the Employee (i) is
      familiar with the foregoing covenants not to compete and not to disparage,
      and
      (ii) is fully aware of the Employee’s obligations hereunder, including, without
      limitation, the reasonableness of the length of time, scope and geographic
      coverage of the covenant not to compete.

     

    6.  Golden
      Parachute Excise Tax.  In the event that the benefits provided for
      in this Agreement or otherwise payable to the Employee constitute “parachute
      payments” within the meaning of Section 280G of the Internal Revenue Code of
      1986, as amended (the “Code”) that are subject to the excise tax imposed
      by Section 4999 of the Code (the “Excise Tax”), then the Employee shall
      receive (i) a one-time payment from the Company sufficient to pay such excise
      tax (the “Excise Tax Gross-Up”), and (ii) an additional one-time payment
      from the Company sufficient to pay the additional excise tax and federal, state
      and local income and employment taxes arising from the Excise Tax Gross-Up
      made
      by the Company to the Employee pursuant to this Section 6 (the “Additional
      Gross-Up”).  Unless the Company and the Employee otherwise agree
      in writing, the determination of the Employee’s excise tax liability and the
      amount required to be paid under this Section 6 shall be made in writing in
      good
      faith by the accounting firm serving as the Company’s independent public
      accountants immediately prior to the Change of Control (the
“Accountants”).  The initial Excise Tax Gross-Up and Additional
      Gross-Up payments hereunder, if any, shall either be (x) paid to the Employee
      no
      later than ten (10) days prior to the due date for the payment of any excise
      tax, or (y) paid to the Internal Revenue Service on behalf of the Employee
      no
      later than the due date for the payment of any excise tax.  In the
      event that the Excise Tax incurred by the Employee is determined by the Internal
      Revenue Service to be greater or lesser than the amount so determined by the
      Accountants, the Company and the Employee agree to promptly (but in no event
      later than the end of the calendar year in which the applicable taxes are paid
      to (or received from) the Internal Revenue Service) make such additional
      payment, including interest and any tax penalties, to the other party as the
      Accountants reasonably determine is appropriate.  For purposes of
      making the calculations required by this Section 6, the Accountants may make
      reasonable assumptions and approximations concerning applicable taxes and may
      rely on interpretations concerning the application of the Code for which there
      is a “substantial authority” tax reporting position.  The Company and
      the Employee shall furnish to the Accountants such information and documents
      as
      the Accountants may reasonably request in order to make a determination under
      this Section 6.  The Company shall bear all costs the Accountants may
      reasonably incur in connection with any calculations contemplated by this
      Section 6.

     

    7.  Successors.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    (a)  Company’s
      Successors.  Any successor to the Company (whether direct or
      indirect and whether by purchase, lease, merger, amalgamation, consolidation,
      liquidation or otherwise) to all or substantially all of the Company’s business
      and/or assets shall assume the Company’s obligations under this Agreement and
      agree expressly to perform the Company’s obligations under this Agreement in the
      same manner and to the same extent as the Company would be required to perform
      such obligations in the absence of a succession.  For all purposes
      under this Agreement, the term “Company” shall include any successor to the
      Company’s business and/or assets which executes and delivers the assumption
      agreement described in this subsection (a) or which becomes bound by the terms
      of this Agreement by operation of law.

     

    (b)  Employee’s
      Successors.  Without the written consent of the Company, the
      Employee shall not assign or transfer this Agreement or any right or obligation
      under this Agreement to any other person or entity.  Notwithstanding
      the foregoing, the terms of this Agreement and all rights of the Employee
      hereunder shall inure to the benefit of, and be enforceable by, the Employee’s
      personal or legal representatives, executors, administrators, successors, heirs,
      distributees, devisees and legatees.

     

    8.  Notices.

     

    (a)  General.  Notices
      and all other communications contemplated by this Agreement shall be in writing
      and shall be deemed to have been duly given when personally delivered or when
      mailed by U.S. registered or certified mail, return receipt requested and
      postage prepaid.  In the case of the Employee, mailed notices shall be
      addressed to the Employee at the home address that the Employee most recently
      communicated to the Company in writing.  In the case of the Company,
      mailed notices shall be addressed to its corporate headquarters, and all notices
      shall be directed to the attention of its Secretary.

     

    (b)  Notice
      of Termination.  Any termination by the Company for Cause or by
      the Employee as a result of a voluntary resignation or an Involuntary
      Termination shall be communicated by a notice of termination to the other party
      hereto given in accordance with this Section 8.  Such notice shall
      indicate the specific termination provision in this Agreement relied upon,
      shall
      set forth in reasonable detail the facts and circumstances claimed to provide
      a
      basis for termination under the provision so indicated.  The failure
      by the Employee to include in the notice any fact or circumstance which
      contributes to a showing of Involuntary Termination shall not waive any right
      of
      the Employee hereunder or preclude the Employee from asserting such fact or
      circumstance in enforcing the Employee’s rights hereunder.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    9.  Execution
      of Release Agreement Upon Termination.  As a condition of entering
      into this Agreement and receiving the benefits under Section 4, the Employee
      agrees to execute and not revoke a release of claims agreement substantially
      in
      the form attached hereto as Exhibit A upon the termination of the
      Employee’s employment with the Company.  Such release shall not,
      however, apply to the rights and claims of the Employee under this Agreement,
      any indemnification agreement between the Employee and the Company (or its
      successor or acquirer), the bye-laws of the Company (or its successor or
      acquirer), the share award agreements between the Employee and the Company
      (or
      its successor or acquirer), or any employee benefit plan of which the Employee
      is a participant and under which all benefits due under such plan have not
      yet
      been paid or provided.

     

    10.  Arbitration.

     

    (a)  Any
      dispute or controversy arising out of, relating to, or in connection with this
      Agreement, or the interpretation, validity, construction, performance, breach,
      or termination thereof, shall be settled by binding arbitration to be held
      in
      San Francisco or Alameda County, California, in accordance with the National
      Rules for the Resolution of Employment Disputes then in effect of the American
      Arbitration Association (the “Rules”).  The cost of the
      arbitration shall be borne in full by the Company (or its successor or acquirer)
      but each of the Employee and the Company (or its successor or acquirer) shall
      bear his, her or its own legal fees and other cost in such arbitration subject
      to a possible award of attorneys fees and costs by the arbitrator as provided
      in
      the arbitration ruling.  The arbitrator may grant injunctions or other
      relief in such dispute or controversy.  The decision of the arbitrator
      shall be final, conclusive and binding on the parties to the
      arbitration.  Judgment may be entered on the arbitrator’s decision in
      any court having jurisdiction.

     

    (b)  The
      arbitrator(s) shall apply California law to the merits of any dispute or claim,
      without reference to conflicts of law rules.  The arbitration
      proceedings shall be governed by federal arbitration law and by the Rules,
      without reference to state arbitration law.  The Employee hereby
      consents to the personal jurisdiction of the state and federal courts located
      in
      California for any action or proceeding arising from or relating to this
      Agreement or relating to any arbitration in which the parties are
      participants.

     

    (c)  The
      Employee understands that nothing in this Section 10 modifies the Employee’s
      at-will employment status.  Either the Employee or the Company can
      terminate the employment relationship at any time, with or without
      cause.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    (d)  THE
      EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
      ARBITRATION.  THE EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS
      ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
      INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
      THEREOF TO BINDING ARBITRATION TO THE EXTENT PERMITTED BY LAW, AND THAT THIS
      ARBITRATION CLAUSE CONSTITUTES A WAIVER OF THE EMPLOYEE’S RIGHT TO A JURY TRIAL
      AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
      EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING
      CLAIMS:

     

    (i)           ANY
      AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH
      EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING,
      BOTH
      EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS;
      NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL
      INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND
      DEFAMATION.

     

    (ii)           ANY
      AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE,
      INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE
      CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967,
      THE
      AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE
      CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et
      seq;

     

    (iii)           ANY
      AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO
      EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

     

    11.  Miscellaneous
      Provisions.

     

    (a)  Mitigation.  The
      Employee shall not be required to mitigate the amount of any payment
      contemplated by this Agreement, nor shall any such payment be reduced by any
      earnings that the Employee may receive from any other
      source.  However, the Employee shall not be entitled to receive the
      health coverage and benefits contemplated by this Agreement in the event that
      the Employee receives similar health coverage and benefits as a result of new
      employment during the Compensation Continuation Period.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
        11

        
          

        

      

      
        
        

      

    


    (b)  Waiver.  No
      provision of this Agreement may be modified, waived or discharged unless the
      modification, waiver or discharge is agreed to in writing and signed by the
      Employee and by an authorized officer of the Company (other than the
      Employee).  No waiver by either party of any breach of, or of
      compliance with, any condition or provision of this Agreement by the other
      party
      shall be considered a waiver of any other condition or provision or of the
      same
      condition or provision at another time.

     

    (c)  Integration.  This
      Agreement represents the entire agreement and understanding between the parties
      with respect to the subject matter herein but shall not supersede any employment
      agreement between the Company or any of its affiliates and the Employee, any
      indemnification agreement between the Employee and the Company (or its successor
      or acquirer), the share award agreements between the Employee and the Company
      (or its successor or acquirer), or any employee benefit plan of which the
      Employee is a participant and under which all benefits due under such plan
      have
      not yet been paid or provided.

     

    (d)  Choice
      of Law.  The validity, interpretation, construction and
      performance of this Agreement shall be governed by the internal substantive
      laws, but not the conflicts of law rules, of the State of
      California.

     

    (e)  Severability.  The
      invalidity or unenforceability of any provision or provisions of this Agreement
      shall not affect the validity or enforceability of any other provision hereof,
      which shall remain in full force and effect.

     

    (f)  Tax
      Withholdings.  All payments made pursuant to this Agreement shall
      be subject to withholding of applicable income and employment
      taxes.

     

    (g)  Compliance
      with Section 409A of the Code.  It is intended that this Agreement
      will comply with Section 409A of the Code (and any regulations and guidelines
      issued thereunder) to the extent the Agreement is subject thereto, and the
      Agreement shall be interpreted on the basis consistent with such
      intent.

     

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

     

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

     

     

    COMPANY:                                                                           XOMA
      LTD.

     

    


    
      	
               

            	
            	 

              By: 
                ____________________________

            


    

    
      	
               

            	
               

              Christopher
                J. Margolin

            


    

    
      	
               

            	
              Vice
                President, General Counsel

            


    

    
      	
               

            	
              and
                Secretary

            


    

     

    
      	
               

            	 


    

     

    
      	
              EMPLOYEE:

            	 	 


    

     

    
      	
               

            	
                  _______________________________

                  Steven
                B. Engle

            


    


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    EXHIBIT
      A

     

    


     

    


     

    FORM
      RELEASE OF CLAIMS AGREEMENT

     

    This
      Release of Claims Agreement (this “Agreement”) is made and entered into
      by and between XOMA Ltd. (the “Company”) and Steven B. Engle (the
“Employee”).

     

    WHEREAS,
      the Employee was employed by the Company; and

     

    WHEREAS,
      the Company and the Employee have entered into a Change of Control Severance
      Agreement effective as of August 3, 2007 (the “Severance
      Agreement”).

     

    NOW
      THEREFORE, in consideration of the mutual promises made herein and other good
      and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the Company and the Employee (collectively referred to as the
      “Parties”) desiring to be legally bound do hereby agree as
      follows:

     

    1.  Termination.  The
      Employee’s employment with the Company terminated on ___________,
      20__.

     

    2.  Consideration.  Subject
      to and in consideration of the Employee’s release of claims as provided herein,
      the Company has agreed to pay the Employee certain benefits and the Employee
      has
      agreed to provide certain benefits to the Company, both as set forth in the
      Severance Agreement.

     

    3.  Release
      of Claims.  The Employee agrees that the foregoing consideration
      represents settlement in full of all currently outstanding obligations owed
      to
      the Employee by the Company.  The Employee, on the Employee’s own
      behalf and the Employee’s respective heirs, family members, executors and
      assigns, hereby fully and forever releases the Company and its past, present
      and
      future officers, agents, directors, employees, investors, shareholders,
      administrators, affiliates, divisions, subsidiaries, parents, predecessor and
      successor corporations, and assigns, from, and agrees not to sue or otherwise
      institute or cause to be instituted any legal or administrative proceedings
      concerning any claim, duty, obligation or cause of action relating to any
      matters of any kind, whether presently known or unknown, suspected or
      unsuspected, that the Employee may possess arising from any omissions, acts
      or
      facts that have occurred up until and including the Effective Date (as defined
      below) of this Agreement including, without limitation:

     

    (a)  any
      and
      all claims relating to or arising from the Employee’s employment relationship
      with the Company and the termination of that relationship;

     

    (b)  any
      and
      all claims relating to, or arising from, the Employee’s right to purchase, or
      actual purchase of shares of the Company, including, without limitation, any
      claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty
      under applicable state corporate law and securities fraud under any state or
      federal law;

     


    
      
        
        

      

      
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    (c)  any
      and
      all claims for wrongful discharge of employment, termination in violation of
      public policy, discrimination, breach of contract (both express and implied),
      breach of a covenant of good faith and fair dealing (both express and implied),
      promissory estoppel, negligent or intentional infliction of emotional distress,
      negligent or intentional misrepresentation, negligent or intentional
      interference with contract or prospective economic advantage, unfair business
      practices, defamation, libel, slander, negligence, personal injury, assault,
      battery, invasion of privacy, false imprisonment and conversion;

     

    (d)  any
      and
      all claims for violation of any federal, state or municipal statute, including,
      but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights
      Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans
      with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee
      Retirement Income Security Act of 1974, The Worker Adjustment and Retraining
      Notification Act, the California Fair Employment and Housing Act, and Labor
      Code
      Section 201, et seq. and Section 970, et seq. and all
      amendments to each such Act as well as the regulations issued
      thereunder;

     

    (e)  any
      and
      all claims for violation of the federal or any state constitution;

     

    (f)  any
      and
      all claims arising out of any other laws and regulations relating to employment
      or employment discrimination; and

     

    (g)  any
      and
      all claims for attorneys’ fees and costs.

     

    The
      Employee agrees that the release set forth in this Section 4 shall be and remain
      in effect in all respects as a complete general release as to the matters
      released.  Notwithstanding the foregoing, this release does not extend
      to any obligations now or subsequently incurred under this Agreement, the
      Severance Agreement, the Indemnification Agreement between the Employee and
      the
      Company (or its successor or acquirer), the outstanding share award agreements
      between the Employee and the Company (or its successor or acquirer), or any
      employee benefit plan of which the Employee is a participant and under which
      all
      benefits due under such plan have not yet been paid or provided.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    4.  Acknowledgment
      of Waiver of Claims under ADEA.  The Employee acknowledges that
      the Employee is waiving and releasing any rights the Employee may have under
      the
      Age Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and
      release is knowing and voluntary.  The Employee and the Company agree
      that this waiver and release does not apply to any rights or claims that may
      arise under the ADEA after the Effective Date of this Agreement.  The
      Employee acknowledges that the consideration given for this waiver and release
      agreement is in addition to anything of value to which the Employee was already
      entitled.  The Employee further acknowledges that the Employee has
      been advised by this writing that (a) the Employee should consult with an
      attorney prior to executing this Agreement; (b) the Employee has at least
      twenty-one (21) days within which to consider this Agreement; (c) the Employee
      has seven (7) days following the execution of this Agreement by the Parties
      to
      revoke the Agreement; and (d) this Agreement shall not be effective until the
      revocation period has expired.  Any revocation should be in writing
      and delivered to the Company by the close of business on the seventh (7th) day from
      the date
      that the Employee signs this Agreement.

     

    5.  Civil
      Code Section 1542.  The Employee represents that the Employee is
      not aware of any claims against the Company other than the claims that are
      released by this Agreement.  The Employee acknowledges that the
      Employee has been advised by legal counsel and is familiar with the provisions
      of California Civil Code Section 1542, which provides as follows:

     

    A
      GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
      OR
      SUSPECT TO EXIST IN HER OR HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
      WHICH
      IF KNOWN BY HER OR HIM MUST HAVE MATERIALLY AFFECTED HER OR HIS SETTLEMENT
      WITH
      THE DEBTOR.

     

    The
      Employee, being aware of said code section, agrees to expressly waive any rights
      the Employee may have thereunder, as well as under any other statute or common
      law principles of similar effect.

     

    6.  No
      Pending or Future Lawsuits.  The Employee represents that the
      Employee has no lawsuits, claims or actions pending in the Employee’s name, or
      on behalf of any other person or entity, against the Company or any other person
      or entity referred to herein.  The Employee also represents that the
      Employee does not intend to bring any claims on the Employee’s own behalf or on
      behalf of any other person or entity against the Company or any other person
      or
      entity referred to herein except, if necessary, with respect to the agreements
      listed in the last sentence of Section 4 of this Agreement.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
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    7.  Confidentiality.  The
      Employee agrees to use the Employee’s best efforts to maintain in confidence the
      existence of this Agreement, the contents and terms of this Agreement, and
      the
      consideration for this Agreement (hereinafter collectively referred to as
“Release Information”).  The Employee agrees to take every reasonable
      precaution to prevent disclosure of any Release Information to third parties
      and
      agrees that there will be no publicity, directly or indirectly, concerning
      any
      Release Information.  The Employee agrees to take every precaution to
      disclose Release Information only to those attorneys, accountants, governmental
      entities and family members who have a reasonable need to know of such Release
      Information.

     

    8.  No
      Adverse Cooperation.  The Employee agrees the Employee will not
      act in any manner that might damage the business of the Company.  The
      Employee agrees that the Employee will not counsel or assist any attorneys
      or
      their clients in the presentation or prosecution of any disputes, differences,
      grievances, claims, charges or complaints by any third party against the Company
      and/or any officer, director, employee, agent, representative, shareholder
      or
      attorney of the Company, unless compelled under a subpoena or other court order
      to do so.

     

    9.  Costs.  The
      Parties shall each bear their own costs, expert fees, attorneys’ fees and other
      fees incurred in connection with this Agreement.

     

    10.  Authority.  The
      Company represents and warrants that the undersigned has the authority to act
      on
      behalf of the Company and to bind the Company and all who may claim through
      it
      to the terms and conditions of this Agreement.  The Employee
      represents and warrants that the Employee has the capacity to act on the
      Employee’s own behalf and on behalf of all who might claim through the Employee
      to bind them to the terms and conditions of this Agreement.

     

    11.  No
      Representations.  The Employee represents that the Employee has
      had the opportunity to consult with an attorney, and has carefully read and
      understands the scope and effect of the provisions of this
      Agreement.  Neither party has relied upon any representations or
      statements made by the other party hereto which are not specifically set forth
      in this Agreement.

     

    12.  Severability.  In
      the event that any provision hereof becomes or is declared by a court of
      competent jurisdiction to be illegal, unenforceable or void, this Agreement
      shall continue in full force and effect without said provision.

     

    13.  Entire
      Agreement.  This Agreement and the Severance Agreement and the
      agreements and plans referenced therein represent the entire agreement and
      understanding between the Company and the Employee concerning the Employee’s
      separation from the Company, and supersede and replace any and all prior
      agreements and understandings concerning the Employee’s relationship with the
      Company and the Employee’s compensation by the Company.  This
      Agreement may only be amended in writing signed by the Employee and an executive
      officer of the Company.

     


    
      
              

          
            	 


          
      

                        
    

        
        

      

      
        A-4

        
          

        

      

      
        
        

      

    


    14.  Governing
      Law.  This Agreement shall be governed by the internal substantive
      laws, but not the choice of law rules, of the State of California.

     

    15.  Effective
      Date.  This Agreement is effective eight (8)
      days after it has been signed by the Parties (the “Effective Date”) unless it is
      revoked by the Employee within seven (7) days of the execution of this Agreement
      by the Employee.

     

    16.  Counterparts.  This
      Agreement may be executed in counterparts, and each counterpart shall have
      the
      same force and effect as an original and shall constitute an effective, binding
      agreement on the part of each of the undersigned.

     

    17.  Voluntary
      Execution of Agreement.  This Agreement is executed voluntarily
      and without any duress or undue influence on the part or behalf of the Parties
      hereto, with the full intent of releasing all claims.  The Parties
      acknowledge that:

     

    (a)  they
      have
      read this Agreement;

     

    (b)  they
      have
      been represented in the preparation, negotiation and execution of this Agreement
      by legal counsel of their own choice or that they have voluntarily declined
      to
      seek such counsel;

     

    (c)  they
      understand the terms and consequences of this Agreement and of the releases
      it
      contains; and

     

    (d)  they
      are
      fully aware of the legal and binding effect of this Agreement.

     

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

     

     

    XOMA
      LTD.

     

     

    By:     __________________________                                                         

     

    Title:   __________________________

     

    Date:   __________________________

     

     

    EMPLOYEE

     

                                                                  


                                                                                       
      ___________________________

    Name

     

    Date: 
      __________________________

    


    
A-5