ex10_7new.htm


    Ex.
      10.7

     


    XOMA
      Ltd.

    Non-Qualified
      Share Option Agreement

    


    
      	
              (A)

            	
              Optionee:

            	
              (E)

            	
              Payroll
                Number:

            
	 	
              Steven
                B. Engle

            	 	 
	
              (B)

            	
              Grant
                Date:

            	
              (F)

            	
              Expiration
                Date:

            
	 	
              August
                3, 2007

            	 	
              August
                3, 2017

            
	
              (C)

            	
              Shares:

            	
              (G)

            	
              Exercise
                Price:

            
	 	
              1,100,000

            	 	
              $2.17

            
	
              (D)

            	
              Share
                Installments:

            	
              (H)

            	
              Option
                Type:

            
	 	
              275,000
                shares become excerisable beginning August 3, 2008

              825,000
                shares become exercisable in 36 monthly installments beginning September
                3, 2008

            	 	
              Non-Qualified
                Share Option

            


    

    


     

    XOMA
      Ltd.
      (the "Company") has granted you a non-qualified option to purchase the number
      of
      Common Shares shown in item (C) above (the "Optioned Shares") at the Exercise
      Price per share shown in item (G) above.  Although this option was not
      granted under the Company's Restricted Share Plan, as amended through May 23,
      2006 (the "Plan"), Sections 3, 4 and 5 of Article I, Sections 1 and 3 of Article
      II and Sections 1, 3, 5, 6 and 7 of Article IV of the Plan are expressly
      incorporated herein by reference, together with any other provisions of the
      Plan
      which the Plan Administrator (as defined in the Plan) determines are necessary
      for the proper administration of this option (collectively, the “Incorporated
      Terms”).  This option is subject to the Incorporated Terms and to the
      terms and conditions set forth in this XOMA Ltd. Non-Qualified Share Option
      Agreement (the "Agreement").

     

    The
      details of your option are as follows:

     

    1.  Term;
      Transfer.  The term of this option commences on the Grant
      Date shown in item (B) above and, except as provided in Section 3 and Subsection
      5(a) hereof, expires at the close of business on the Expiration Date shown
      in
      item (F) above, which is 10 years from the Grant Date.

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    This
      option may be transferred or assigned to your spouse or descendent (any such
      spouse or descendent, your "Immediate Family Member") or a corporation,
      partnership, limited liability company or trust so long as all of the
      shareholders, partners, members or beneficiaries thereof, as the case may be,
      are either you or your Immediate Family Member, provided that (i) there may
      be
      no consideration for any such transfer and (ii) subsequent transfers of the
      transferred option will be prohibited other than by will or the laws of descent
      and distribution.  Following transfer, the option will continue to be
      subject to the same terms and conditions as were applicable immediately prior
      to
      transfer, provided that for purposes of this Agreement any references to "you"
      will refer to the transferee.  The events of termination of employment
      will continue to be applied with respect to you, following which the option
      will
      be exercisable by the transferee only to the extent, and for the periods
      specified, in this Agreement.

     

    2.  Exercise
      Schedule.   Provided that you remain an
      employee of or consultant to the Company (as determined in accordance with
      Subsection 3(f) hereof), the option granted herein will become exercisable
      (a)
      as to 25% of such number of shares (rounded to the nearest whole integer),
      upon
      the first anniversary of this date of grant, and (b) as to the remaining 75%
      of
      such number of shares (rounded to the nearest whole integer), in thirty-six
      (36)
      equal and consecutive monthly installments beginning one year and one month
      after this date of grant.

     

    Exercisable
      installments may be exercised in whole or in part in increments of 25 or more
      shares and, to the extent not exercised, will accumulate and be exercisable
      at
      any time on or before the Expiration Date or sooner termination of the option
      term.

     

    3.  Effect
      of Termination of Employment.

     

    (a)  If
      you
      cease to be an employee of the Company at any time during the option term for
      any reason other than as provided in Subsections (b), (c), (d) or (e) below,
      then the period for exercising this option will be limited to the three-month
      period commencing with the date of such cessation of employee status; provided
      that, notwithstanding the foregoing, if you cease to be an employee of the
      Company and immediately thereafter become a consultant to the Company at any
      time during the option term, then the period for exercising this option will
      not
      be limited as aforesaid but will be limited to the three-month period commencing
      with the date of cessation of consultant status, if during the option term;
      and
      provided further, that in no event will this option be exercisable at any time
      after the Expiration Date.  During any such limited period of
      exercisability, this option may not be exercised for more than the number of
      Optioned Shares (if any) for which it is exercisable at the date of your
      cessation of employee or consultant status, as the case may be.  Upon
      the expiration of any such limited period of exercisability or (if earlier)
      upon
      the Expiration Date, this option will terminate and cease to be
      outstanding.

     


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    (b)  If
      you
      die and cease by reason thereof to be either an employee of or a consultant
      to
      the Company at any time during the option term, then this option will become
      fully exercisable on the date of death even if the option was not fully
      exercisable prior to death, and will remain exercisable for a twelve-month
      period following the date of death; provided, however, that in no event shall
      this option be exercisable at any time after the Expiration
      Date.  Upon the expiration of such twelve-month period or (if earlier)
      upon the Expiration Date, this option will terminate and cease to be
      outstanding.  Upon your death, the option will be exercisable by the
      personal representative of your estate or by the person or persons to whom
      the
      option is transferred pursuant to Section 1 above, provided any such
      exercise occurs prior to the earlier of (i) the expiration of the
      twelve-month period following the date of your death or (ii) the specified
      Expiration Date of the option term.

     

    (c)  If
      you
      become permanently disabled and cease by reason thereof to be either an employee
      of or a consultant to the Company at any time during the option term, then
      you
      will have a period of twelve months (commencing with the date of such cessation
      of employee or consultant status, as the case may be) during which to exercise
      this option; provided, however, that in no event shall this option be
      exercisable at any time after the Expiration Date.  During such
      limited period of exercisability, this option may not be exercised for more
      than
      the number of Optioned Shares (if any) for which this option is exercisable
      at
      the date of your cessation of employee or consultant status, as the case may
      be.  Upon the expiration of such limited period of exercisability or
      (if earlier) upon the Expiration Date, this option will terminate and cease
      to
      be outstanding.  You will be deemed to be permanently disabled if you
      are, by reason of any medically determinable physical or mental impairment
      expected to result in death or to be of continuous duration of not less than
      twelve consecutive months or more, unable to perform your usual duties for
      the
      Company or its subsidiaries.

     

    (d)  If
      you
      retire at or after age fifty-five (55) and the sum of your age on the date
      of
      retirement plus years of full-time employment or consultancy with the Company
      exceeds seventy (70) ("Retirement") and if by reason thereof you cease to be
      either an employee of or consultant to the Company at any time during the option
      term, then this option will become fully exercisable as of the date of
      Retirement (even if the option was not fully exercisable prior to Retirement)
      and will remain exercisable for a twelve-month period following the date of
      Retirement.  Upon the expiration of such twelve-month or shorter
      period or (if earlier) on the Expiration Date, the option will terminate and
      cease to be outstanding.

     

    (e)  Should
      (i) your status as either an employee or a consultant be terminated for cause
      (including, but not limited to, any act of dishonesty, willful misconduct,
      fraud
      or embezzlement or any unauthorized disclosure or use of confidential
      information or trade secrets), or (ii) you make or attempt to make any
      unauthorized use or disclosure of confidential information or trade secrets
      of
      the Company or its subsidiaries, then in any such event this option will
      terminate and cease to be exercisable immediately upon the date of such
      termination of employee or consultant status, as the case may be, or such
      unauthorized use or disclosure of confidential or secret information or attempt
      thereat.

     


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


    (f)  For
      purposes of this Agreement, you will be deemed to be an employee of the Company
      for so long as you remain in the employ of the Company or one or more of its
      subsidiaries, and you will be deemed to be a consultant to the Company for
      so
      long as you are actively rendering consulting services on a periodic basis
      to
      the Company or one or more of its subsidiaries.  A legal entity will
      be deemed to be a subsidiary of the Company if it is a member of an unbroken
      chain of legal entities beginning with the Company, provided that each such
      legal entity in the chain (other than the last legal entity) owns, at the time
      of determination, shares possessing 50% or more of the total combined voting
      power of all classes of shares in one of the other legal entities in such
      chain.

     

    4.  Adjustment
      in Option Shares.

     

    (a)  If
      any
      change is made to the Common Shares issuable under the Incorporated Terms,
      whether by reason of any share dividend, share split, combination of shares,
      recapitalization or other change affecting the outstanding Common Shares as
      a
      class without receipt of consideration, then appropriate adjustments will be
      made to (i) the total number of Optioned Shares subject to this option and
      (ii)
      the Exercise Price payable per share, in order to reflect such change and
      thereby preclude the dilution or enlargement of benefits under this
      Agreement.  The adjustments determined by the Plan Administrator will
      be final, binding and conclusive.

     

    (b)  If
      the
      Company is the surviving or continuing entity in any merger, amalgamation or
      other business combination, then this option, if outstanding immediately after
      such merger, amalgamation or other business combination, will be appropriately
      adjusted to apply and pertain to the number and class of securities which the
      holder of the same number of Common Shares as are subject to this option
      immediately prior to such merger, amalgamation or other business combination
      would have been entitled to receive in the consummation of such merger,
      amalgamation or other business combination, and an appropriate adjustment will
      be made to the Exercise Price payable per share, provided the aggregate Exercise
      Price payable hereunder will remain the same.

     

    5.  Corporate
      Transaction.

     

    (a)  In
      the
      event of one or more of the following transactions ("Corporate
      Transaction"):

     

    (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, or

     

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

     


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


    then
      the
      exercisability of this option will automatically be accelerated so that such
      option may be exercised simultaneously with consummation of such Corporate
      Transaction for the Applicable Percentage (as defined below) of the Optioned
      Shares.  No such acceleration of this option will occur, however, if
      and to the extent: (x) the terms of the agreement for such Corporate Transaction
      provide as a prerequisite to the consummation of such Corporate Transaction
      that
      this option is to be assumed by the successor or parent thereof or are to be
      replaced with the comparable options to purchase shares of capital stock of
      the
      successor or parent thereof, such comparability to be determined by the Plan
      Administrator, or (y) the acceleration of this option would, when added to
      the
      present value of certain other payments in the nature of compensation which
      become due and payable to you in connection with the Corporate Transaction,
      result in the payment to you of excess parachute payments under Section 280G(b)
      of the Internal Revenue Code.  The existence of such excess parachute
      payments will be determined by the Plan Administrator in the exercise of its
      reasonable business judgment and on the basis of tax counsel provided to the
      Company.  Immediately following consummation of the Corporate
      Transaction, this option will, to the extent not previously exercised or assumed
      by the successor or its parent, terminate and cease to be
      exercisable.

     

    As
      used
      herein, “Applicable Percentage” means (i) 33.3% if the Corporate Transaction
      Trigger Event (as defined below) occurs on or before September 30, 2007, (ii)
      66.7% if  the Corporate Transaction Trigger Event occurs on or after
      October 1, 2007 and on or before December 31, 2007 and (iii) 100% in the event
      the Corporate Transaction Trigger Event occurs on or after January 1, 2008,
      and
“Corporate Transaction Trigger Event” means, with respect to a particular
      Corporate Transaction, full execution of a “heads-of-terms”-style agreement
      reflecting a fully-negotiated set of terms for such Corporate Transaction
      intended to lead directly to the drafting and finalization of a definitive
      agreement governing such Corporate Transaction.

     

    (b)  The
      Plan
      Administrator will use its best efforts to provide you with written notice
      of a
      Corporate Transaction at least ten business days prior to the effective
      date.

     

    (c)  This
      Agreement will not in any way affect the right of the Company to adjust,
      reclassify, reorganize or otherwise make changes in its capital or business
      structure or to merge, amalgamate, consolidate, dissolve, liquidate or sell
      or
      transfer all or any part of its business or assets.

     

    6.  Privilege
      of Share Ownership.  The holder of this
      option will not have any rights of a shareholder with respect to the Optioned
      Shares until such individual has exercised the option, paid the Exercise Price
      and been issued a certificate for the purchased shares.

     

    7.  Manner
      of Exercising Option.

     

    (a)  In
      order
      to exercise this option with respect to all or any part of the Optioned Shares
      for which this option is at the time exercisable, you (or in the case of
      exercise after your death, your executor, administrator, heir, legatee or
      transferee as the case may be) must take the following actions:

     


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    


    (i)  Provide
      the Secretary of the Company with written notice of such exercise, specifying
      the number of Optioned Shares with respect to which the option is being
      exercised.

     

    (ii)  Pay
      the
      Exercise Price for the purchased Optioned Shares in one or more of the following
      alternative forms:  (A) full payment in cash or by check payable to
      the Company's order; (B) full payment in Common Shares of the Company valued
      at
      fair market value on the exercise date (as such terms are defined below); (C)
      full payment in combination of Common Shares of the Company valued at fair
      market value on the exercise date and cash or check payable to the Company's
      order; (D) payment effected through a broker-dealer sale and remittance
      procedure pursuant to which you (I) will provide irrevocable written
      instructions to the designated broker-dealer to effect the immediate sale of
      the
      purchased shares and remit to the Company, out of the sale proceeds, an amount
      equal to the aggregate Exercise Price payable for the purchased shares plus
      all
      applicable Federal and State income and employment taxes required to be withheld
      by the Company by reason of such purchase and (II) will provide written
      directives to the Company to deliver the certificates for the purchased shares
      directly to such broker-dealer; or, to the extent the Plan Administrator
      specifically authorizes such method of payment at the time of exercise, (E)
      payment by a full-recourse promissory note.  Any such promissory note
      authorized by the Plan Administrator will be substantially in the form approved
      by the Plan Administrator, will bear interest at the minimum per annum rate
      necessary to avoid the imputation of interest income to the Company and
      compensation income to you under the Federal tax laws and will become due in
      full (in one or more consecutive annual installments measured from the execution
      date of the note) not later than the Expiration Date of this
      option.  Payment of the note will be secured by the pledge of the
      purchased shares, and the pledged shares will be released only as the note
      is
      paid.

     

    (iii)  Furnish
      to the Company appropriate documentation that the person or persons exercising
      the option, if other than you, have the right to exercise this
      option.

     

    (b)  For
      purposes of Subsection 7(a) hereof, the fair market value per Common Share
      on
      any relevant date will be determined in accordance with Subsections (i) through
      (iii) below, and the exercise date will be the date on which you exercise this
      option in compliance with the provisions of Subsection 7(a).

     

    (i)  If
      the
      Common Shares are not listed or admitted to trading on any stock exchange on
      the
      date in question, but is traded in the over-the-counter market, the fair market
      value will be the closing selling price per share of such shares on such date,
      as such price is reported by the National Association of Securities Dealers
      through its Nasdaq National Market.  If there is no reported closing
      selling price of the shares on the date in question then the closing selling
      price on the last preceding date for which such quotation exists will be
      determinative of fair market value.

     


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    


    (ii)  If
      the
      Common Shares are listed or admitted to trading on any stock exchange on the
      date in question, the fair market value will be the closing selling price per
      share of such shares on such date on the stock exchange determined by the Plan
      Administrator to be the primary market for such shares, as such price is
      officially quoted on such exchange.  If there is no reported closing
      selling price of such shares on such exchange on the date in question, the
      fair
      market value will be the closing selling price on the exchange on the last
      preceding date for which such quotation exists.

     

    (iii)  If
      the
      Common Shares are neither listed nor admitted to trading on any stock exchange
      nor traded in the over-the-counter market on the date in question or if the
      Plan
      Administrator determines that the quotations under Subsections (i) or (ii)
      above
      do not accurately reflect the fair market value of such shares, the fair market
      value will be determined by the Plan Administrator after taking into account
      such factors as the Plan Administrator may deem appropriate, including one
      or
      more independent professional appraisals.

     

    (c)  In
      no
      event may this option be exercised for any fractional share.

     

    8.  Compliance
      with Laws and Regulations.

     

    (a)  The
      exercise of this option and the issuance of Optioned Shares upon such exercise
      will be subject to compliance by the Company and by you with all applicable
      requirements of law relating thereto and with all applicable regulations of
      any
      stock exchange on which the Company's Common Shares may be listed at the time
      of
      such exercise and issuance.

     

    (b)  In
      connection with the exercise of this option, you will execute and deliver to
      the
      Company such representations in writing as may be requested by the Company
      in
      order for it to comply with the applicable requirements of Federal and State
      securities laws.

     

    9.  Restrictive
      Legends.  If and to the extent any
      Optioned Shares acquired under this option are not registered under the
      Securities Act of 1933, the certificates for such Optioned Shares will be
      endorsed with restrictive legends, including (without limitation) the
      following:

     

    "The
      Shares represented by this certificate have not been registered under the
      Securities Act of 1933.  The shares have been acquired for investment
      and may not be sold or offered for sale in the absence of (a) an effective
      registration statement for the shares under such Act, (b) a 'no action' letter
      of the Securities and Exchange Commission with respect to such sale or offer,
      or
      (c) an opinion of counsel to the Company that registration under such Act is
      not
      required with respect to such sale or offer."

     

    10.  Successors
      and Assigns.  Except to the extent
      otherwise provided in Section 1 and Subsection 5(a), the provisions of this
      Agreement will inure to the benefit of, and be binding upon your successors,
      administrators, heirs, legal representatives and assigns and the successors
      and
      assigns of the Company.

     

    11.  Liability
      of the Company.

     


    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    


    (a)  If
      the
      Optioned Shares covered by this Agreement exceed, as of the Grant Date, the
      number of Common Shares which may without shareholder approval be issued, then
      this option will be void with respect to such excess shares unless shareholder
      approval of this option is obtained.

     

    (b)  The
      inability of the Company to obtain approval from any regulatory body having
      authority deemed by the Company to be necessary to the lawful issuance and
      sale
      of any Common Shares pursuant to this option will relieve the Company of any
      liability in respect of the non-issuance or sale of such shares as to which
      such
      approval will not have been obtained.

     

    12.  No
      Employment or Consulting
      Contract.  Nothing in this Agreement or
      in the Incorporated Terms will confer upon you any right to continue in the
      employ or service of the Company for any period of time or interfere with or
      otherwise restrict in any way the rights of the Company (or any subsidiary
      of
      the Company employing or retaining you) or you, which rights are hereby
      expressly reserved by each, to terminate your employee or consultant status
      as
      the case may be, at any time for any reason whatsoever, with or without
      cause.

     

    13.  Notices.  Any
      notice required to be given or delivered to the Company under the terms of
      this
      Agreement will be in writing and addressed to the Company in care of its
      Secretary at its principal offices.  Any notice required to be given
      or delivered to you will be in writing and addressed to you at the address
      indicated below your signature line herein.  All notices will be
      deemed to be given or delivered upon personal delivery or upon deposit in the
      U.S. mail, postage prepaid and properly addressed to the party to be
      notified.

     

    14.  Construction.  This
      Agreement and the option evidenced hereby are made and granted pursuant to
      the
      Incorporated Terms and are in all respects limited by and subject to the express
      terms and provisions of the Incorporated Terms.  Any dispute regarding
      the interpretation of this Agreement will be submitted to the Plan Administrator
      for resolution.  The decision of the Plan Administrator will be final,
      binding and conclusive.  Questions regarding this option or the
      Incorporated Terms should be referred to the Legal Department of the
      Company.

     

    15.  Governing
      Law.  The interpretation, performance,
      and enforcement of this Agreement will be governed by the laws of the State
      of
      California.

     

    16.  Tax
      Arrangements.  You hereby agree to make
      appropriate arrangements with the Company or subsidiary thereof by which you
      are
      employed or retained for the satisfaction of all Federal, State or local income
      tax withholding requirements and Federal social security employee tax
      requirements applicable to the exercise of this option.

     


    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    


     

    XOMA
      Ltd.

     

    By:                                                                                

     

    Christopher
      J. Margolin

    Vice
      President , General Counsel

    and
      Secretary

     

    Date:                                                                                

     

    I
      hereby
      agree to be bound by the terms and conditions of this Agreement and the
      Incorporated Terms.

     

     

    By:                                                                                

     

    Steven
      B.
      Engle

    14891
      De
      La Valle Place

    Del
      Mar,
      CA  92014

     

    Date:                                                                                

     

    If
      the
      optionee resides in California or another community property jurisdiction,
      I, as
      the optionee's spouse, also agree to be bound by the terms and conditions of
      this Agreement and the Incorporated Terms.

     

     

    By:                                                                                

     

    Carolyn
      G. Engle

    14891
      De
      La Valley Place

    Del
      Mar,
      CA  92014

     

    Date:                                                                                

    
 

     

     

     

     

    9