Document:

ex10_4new.htm

    Exhibit
      10.4

     

    Share
      Option Agreement

     

    Under
      the XOMA Ltd.

     

    1981
      Share Option Plan

     

    
      	
              (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:

            
	 	
              184,328

            	 	
              $2.17

            
	
              (D)

            	
              Share
                Installments:

            	
                        (H)

            	
              Option
                Type:

            
	 	
              34,561
                shares become exercisable beginning August 8, 2007

               

              149,767 shares
                become exercisable monthly in accordance with the attached Schedule
                A

            	 	
              Incentive
                Share Option

            

    

    

     

    XOMA
      Ltd.
      (the "Company") has granted you an 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. This option is subject to the terms of the
      Company's 1981 Share Option Plan, as amended through December 8, 2004 (the
      "Plan") and to the terms and conditions set forth in this Share Option Agreement
      under the XOMA Ltd. 1981 Share Option Plan (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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    If
      this
      option is a non-qualified option, it 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.

     

    If
      this
      option is an incentive share option, the option shall be exercisable during
      your
      lifetime only by you and shall not be assignable or transferable otherwise
      than
      by will or by the laws of descent and distribution.

     

     

    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) monthly in accordance
      with the attached schedule A.

     

    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 the full option term until the Expiration Date
      as if you had continued in employment or consultancy.  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.

     

    
      
        
        

      

      
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    (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 Plan, 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 (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 under the Plan
      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
      outstanding options under the Plan (including this option) are 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
      exercisability of this option as an incentive share option under the Federal
      tax
      laws (if designated as such above) will be subject to the applicable dollar
      limitation of Section 16 hereof.

     

    (a)           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.

     

    (d)           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

        
          

        

      

      
        
        

      

    

    (i)  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.

     

    (b)           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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    11.           Liability
      of the Company.

     

    (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 under
      the Plan, then this option will be void with respect to such excess shares
      unless shareholder approval of an amendment sufficiently increasing the number
      of Common Shares issuable under the Plan is obtained in accordance with the
      provisions of the Plan.

     

    (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 Plan 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
      Plan and are in all respects limited by and subject to the express terms and
      provisions of the Plan. 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 Plan 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.           Additional
      Terms Applicable to an Incentive Share Option.  In the
      event this option is an incentive share option, the following terms and
      conditions will apply to the grant:

     

    (a)           This
      option will cease to qualify for favorable tax treatment as an incentive share
      option under the Federal tax laws if (and to the extent) this option is
      exercised for Optioned Shares:  (i) more than three months after the
      date you cease to be an employee for any reason other than death or permanent
      disability (as defined in Section 3) or (ii) more than one (1) year after the
      date you cease to be an employee by reason of permanent disability.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (b)           Except
      in the event of a Corporate Transaction under Section 5, this option will not
      become exercisable in the calendar year in which granted if (and to the extent)
      the aggregate fair market value (determined at the Grant Date) of the Company's
      Common Shares for which this option would otherwise first become exercisable
      in
      such calendar year would, when added to the aggregate fair market value
      (determined as of the respective date or dates of grant) of the Company's Common
      Shares for which this option or one or more other post-1986 incentive share
      options granted to you prior to the Grant Date (whether under the Plan or any
      other option plan of the Company or any parent or subsidiary) first become
      exercisable during the same calendar year, exceed One Hundred Thousand Dollars
      ($100,000) in the aggregate. To the extent the exercisability of this option
      is
      deferred by reason of the foregoing limitation, the deferred portion will first
      become exercisable in the first calendar year or years thereafter in which
      the
      One Hundred Thousand Dollar ($100,000) limitation of this Section 16(b) would
      not be contravened.

     

    (c)           Should
      the exercisability of this option be accelerated upon a Corporate Transaction
      in
      accordance with Section 5, then this option will qualify for favorable tax
      treatment as an incentive share option under the Federal tax laws only to the
      extent the aggregate fair market value (determined at the Grant Date) of the
      Company's Common Shares for which this option first becomes exercisable in
      the
      calendar year in which the Corporate Transaction occurs does not, when added
      to
      the aggregate fair market value (determined as of the respective date or dates
      of grant) of the Company's Common Shares for which this option or one or more
      other post-1986 incentive share options granted to you prior to Grant Date
      (whether under the Plan or any other option plan of the Company or any parent
      or
      subsidiary) first become exercisable during the same calendar year, exceed
      One
      Hundred Thousand Dollars ($100,000) in the aggregate.

     

    (d)           To
      the extent that this option fails to qualify as an incentive share option under
      the Federal tax laws, you will recognize compensation income in connection
      with
      the acquisition of one or more Optioned Shares hereunder, and you must make
      appropriate arrangements for the satisfaction of all Federal, State or local
      income tax withholding requirements and Federal social security employee tax
      requirements applicable to such compensation
      income. 

     

     

    17.           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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    XOMA
      LTD.

     

    By:                                                                                     

     

    Christopher
      J. Margolin

    Vice
      President , General Counsel

    and
      Secretary

     

    Dated:                                                                                     

     

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

     

    By:                                                                                     

     

    Steven
      B.
      Engle

    14891
      De
      La Valle Place

    Del
      Mar,
      CA  92014

     

    Dated:                                                                                     

     

    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 Plan.

     

    By:                                                                                     

     

    Carolyn
      G. Engle

    14891
      De
      La Valle Place

    Del
      Mar,
      CA  92014

     

    Dated:                                                                                

     

    
 

     

     

     

     

     

     

     

    10ex10_5new.htm

    Ex.
      10.5

     

    

 

    Share
      Option Agreement

     

    Under
      the XOMA Ltd.

     

    1981
      Share Option Plan

     

    
      	
              (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:

            
	 	
              315,672

            	 	
              $2.17

            
	
              (D)

            	
              Share
                Installments:

            	
              (H)

            	
              Option
                Type:

            
	 	
              78,918
                shares become exercisable beginning August 8, 2007

              236,754 shares
                become exercisable in accordance with the attached

              Schedule
                A

            	 	
              Non-Qualified
                Share Option

            

    

    

     

    XOMA
      Ltd.
      (the "Company") has granted you an 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. This option is subject to the terms of the
      Company's 1981 Share Option Plan, as amended through December 8, 2004 (the
      "Plan") and to the terms and conditions set forth in this Share Option Agreement
      under the XOMA Ltd. 1981 Share Option Plan (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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    If
      this
      option is a non-qualified option, it 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.

     

    If
      this
      option is an incentive share option, the option shall be exercisable during
      your
      lifetime only by you and shall not be assignable or transferable otherwise
      than
      by will or by the laws of descent and distribution.

     

     

    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) monthly in accordance
      with the attached schedule A.

     

     

    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 the full option term until the Expiration Date
      as if you had continued in employment or consultancy.  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 Plan, 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 (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 under the Plan
      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
      ou tstanding options under the Plan (including this option) are 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
      exercisability of this option as an incentive share option under the Federal
      tax
      laws (if designated as such above) will be subject to the applicable dollar
      limitation of Section 16 hereof.

     

    (a)           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.

     

    (d)           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

        
          

        

      

      
        
        

      

    

    (i)  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.

     

    (b)           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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    11.           Liability
      of the Company.

     

    (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 under
      the Plan, then this option will be void with respect to such excess shares
      unless shareholder approval of an amendment sufficiently increasing the number
      of Common Shares issuable under the Plan is obtained in accordance with the
      provisions of the Plan.

     

    (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 Plan 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
      Plan and are in all respects limited by and subject to the express terms and
      provisions of the Plan. 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 Plan 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.           Additional
      Terms Applicable to an Incentive Share Option.  In the
      event this option is an incentive share option, the following terms and
      conditions will apply to the grant:

     

    (a)           This
      option will cease to qualify for favorable tax treatment as an incentive share
      option under the Federal tax laws if (and to the extent) this option is
      exercised for Optioned Shares:  (i) more than three months after the
      date you cease to be an employee for any reason other than death or permanent
      disability (as defined in Section 3) or (ii) more than one (1) year after the
      date you cease to be an employee by reason of permanent disability.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (b)           Except
      in the event of a Corporate Transaction under Section 5, this option will not
      become exercisable in the calendar year in which granted if (and to the extent)
      the aggregate fair market value (determined at the Grant Date) of the Company's
      Common Shares for which this option would otherwise first become exercisable
      in
      such calendar year would, when added to the aggregate fair market value
      (determined as of the respective date or dates of grant) of the Company's Common
      Shares for which this option or one or more other post-1986 incentive share
      options granted to you prior to the Grant Date (whether under the Plan or any
      other option plan of the Company or any parent or subsidiary) first become
      exercisable during the same calendar year, exceed One Hundred Thousand Dollars
      ($100,000) in the aggregate. To the extent the exercisability of this option
      is
      deferred by reason of the foregoing limitation, the deferred portion will first
      become exercisable in the first calendar year or years thereafter in which
      the
      One Hundred Thousand Dollar ($100,000) limitation of this Section 16(b) would
      not be contravened.

     

    (c)           Should
      the exercisability of this option be accelerated upon a Corporate Transaction
      in
      accordance with Section 5, then this option will qualify for favorable tax
      treatment as an incentive share option under the Federal tax laws only to the
      extent the aggregate fair market value (determined at the Grant Date) of the
      Company's Common Shares for which this option first becomes exercisable in
      the
      calendar year in which the Corporate Transaction occurs does not, when added
      to
      the aggregate fair market value (determined as of the respective date or dates
      of grant) of the Company's Common Shares for which this option or one or more
      other post-1986 incentive share options granted to you prior to Grant Date
      (whether under the Plan or any other option plan of the Company or any parent
      or
      subsidiary) first become exercisable during the same calendar year, exceed
      One
      Hundred Thousand Dollars ($100,000) in the aggregate.

     

    (d)           To
      the extent that this option fails to qualify as an incentive share option under
      the Federal tax laws, you will recognize compensation income in connection
      with
      the acquisition of one or more Optioned Shares hereunder, and you must make
      appropriate arrangements for the satisfaction of all Federal, State or local
      income tax withholding requirements and Federal social security employee tax
      requirements applicable to such compensation
      income. 

     

     

    17.           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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    XOMA
      LTD.

     

    By:                                                                                     

     

    Christopher
      J. Margolin

    Vice
      President , General Counsel

    and
      Secretary

     

    Dated:                                                                                

     

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

     

    By:                                                                                     

     

    Steven
      B.
      Engle

    14891
      De
      La Valle Place

    Del
      Mar,
      CA  92014

     

    Dated:                                                                                

     

    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 Plan.

     

    By:                                                                                     

     

    Carolyn
      G. Engle

    14891
      De
      La Valle Place

    Del
      Mar,
      CA  92014

     

    Dated:                                                                                     

     

    

 

     

    10

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