Document:

Employment Agreement

 Exhibit 10.3 
 EMPLOYMENT AGREEMENT 
 This Employment Agreement (this “Agreement”) is made as of
March 10, 2008, by and between Monarch Bank, a Virginia corporation (the “Company”), and Edward Neal Crawford, Jr. (the “Officer”). 
 The parties, intending to be legally bound, agree as follows: 
 1. Employment and Acceptance. The
Officer shall be employed as Norfolk President of the Company and Executive Vice President of Monarch Financial Holdings, Inc, the parent company of Monarch Bank. The Officer shall have the duties and responsibilities that are commensurate with his
position and shall also render such other services and duties as may be reasonably assigned to him from time to time by the Company, consistent with his position with the Company. The Officer hereby accepts and agrees to such employment and agrees
to carry out his duties and responsibilities to the best of his ability in a competent, efficient and businesslike manner. During the term of this Agreement the Officer: (i) shall devote all his time, attention, skill, and efforts to the
faithful performance of his duties hereunder; provided, however, that from time to time with the prior approval of the Company, the Officer may serve on the boards of directors of, and hold any other offices or positions in, companies or
organizations which will not present any conflict of interest with the Company or unfavorably affect the performance of Officer’s duties pursuant to this Agreement or violate any applicable statute or regulation; and (ii) shall not engage
in any business or activity contrary to the business affairs or interests of the Company. 
 2. Term of Employment. This Agreement is
effective March 10, 2008 (the “Commencement Date”) and will end on the third anniversary of the Commencement Date, unless sooner terminated as provided herein (the “Employment Period”). Beginning on each anniversary
following the Commencement Date, and on each year thereafter, the Employment Period shall automatically be extended an additional year, unless ninety days prior to such extension the Company gives written notice to the Officer that the Employment
Period will not thereafter be extended. The last day of the Employment Period, as extended from time to time, is sometimes referred to as the “Expiration Date.” 
 3. Compensation and Benefits. 
 (a) Base Salary. The Company shall pay the Officer an annual
base salary of $128,000 (the “Base Salary”), which will be payable in accordance with the payroll practices of the Company applicable to all officers. The Base Salary will be reviewed annually by the Board of Directors and any increase in
salary plus the old base salary will equal the new Base Salary. In no event, however, will the Base Salary be lower than the Base Salary in the previous year. 
 (b) Bonus. The Officer may be entitled to receive cash bonus payments in such amounts as may be determined in accordance with the terms and conditions of the applicable incentive plans as may be adopted from
time to time in the sole discretion of the Board of Directors of the Company. 

 (c) Stock Compensation. The Officer may be entitled to receive stock awards under the
Company’s 2006 Equity Incentive Plan, or any successor plan, in such amounts and subject to such terms and conditions as determined in the sole discretion of the Board of Directors of the Company. 
 (d) Benefits. The Officer will be entitled to participate in and receive the benefits of any retirement benefit plan, life insurance, profit
sharing, employee stock ownership, and other plans, benefits and privileges of the Company that may be in effect from time to time, to the extent the Officer is eligible under the terms of those plans and programs. 
 (e) Business Expenses. The Company will reimburse Officer or otherwise provide for or pay for all reasonable expenses incurred by Officer in
furtherance of, or in connection with, the business of the Company, including, but not by way of limitation, travel expenses, club fees and dues, and memberships in professional organizations, subject to such reasonable documentation and other
limitations as may be established from time to time by the Board of Directors of the Company. The Company will reimburse Officer for spousal travel expenses related to business functions attended by Officer and spouse. The Company will also provide
the Officer with either an appropriate monthly automobile allowance or an appropriate automobile, and will cover all costs associated with the operation of the automobile, including insurance, maintenance, and fuel. 
 (f) Vacation. The Officer will be entitled to 26 days of paid time off per year, or a higher amount based on the Company’s then current paid
time off guidelines, to be taken at such times and intervals as shall be determined by the Officer with the approval of the Company, which approval shall not be unreasonably withheld. Due to the demands of the position up to ten days of paid time
off may be carried over from one calendar year into the next year. 
 (g) Deferred Compensation Benefits. The Company may enter into
one or more deferred compensation arrangements with the Officer to provide for certain supplemental nonqualified cash benefits in such amounts and on such terms and conditions as the parties may agree. 
 4. Termination and Termination Benefits. Notwithstanding the provisions of Section 2, the Officer’s employment hereunder shall terminate
under the following circumstances and shall be subject to the following provisions: 
 (a) Death. If the Officer dies while employed
by the Company, the Company will continue to pay an amount equal to the Officer’s then current Base Salary to the Officer’s beneficiary designated in writing to the Company prior to his death (or to his estate, if he fails to make such
designation) for six months after the Officer’s death, with such payments to be made on the same periodic dates as salary payments would have been made to the Officer had he not died. 

 (b) Disability. The Officer’s employment hereunder may be terminated at any time because of
the Officer’s inability to perform his duties with the Company on a full time basis for 180 consecutive days or a total of at least 240 days in any twelve month period as a result of the Officer’s incapacity due to physical or mental
illness (as determined by an independent physician selected by the Board) pursuant to the Company’s long term disability policy provided, however, that the Company shall provide continued medical insurance in the Company’s health plan for
the benefit of the Officer for a period of twelve months after the date of such termination. 
 (c) Termination by the Company for
Cause. The Officer’s employment may be terminated at any time without further liability on the part of the Company effective immediately by a two-thirds vote of the Board of Directors of the Company for Cause by written notice to the
Officer setting forth in reasonable detail the nature of such Cause. Only the following shall constitute “Cause” for such termination: 
 (i) continued failure by the Officer for reasons other than disability to follow reasonable instructions or policies of the Board of Directors of the Company after being advised in writing of such failure, including
specific actions or inaction on the part of the Officer and the particular instruction or policy involved, and being given a reasonable opportunity and period (as determined by the Board of Directors of the Company) to remedy such failure;

 (ii) breach of a material fiduciary duty; 
 (iii) conviction of a felony or a crime of moral turpitude or commission of an act of embezzlement or fraud against the Company or any
subsidiary or affiliate thereof; 
 (iv) dishonesty of the Officer with respect to the Company or any subsidiary or affiliate
thereof. 
 (d) Termination by the Company without Cause. The Officer’s employment may be terminated without Cause by a
two-thirds vote of the Board of Directors of the Company effective immediately by written notice to the Officer. In the event of termination without Cause, the Officer shall be entitled to the benefits specified in Section 4(g). 
 (e) Termination by the Officer. The Officer may terminate his employment hereunder with or without Good Reason (as defined below) by written
notice to the Board of Directors of the Company effective sixty days after receipt of such notice by the Board of Directors. In the event the Officer terminates his employment hereunder for Good Reason, the Officer shall be entitled to the benefits
specified in Section 4(g). The Officer shall not be required to render any further services to the Company. Upon termination of employment by the Officer without Good Reason, the Officer shall be entitled to further compensation or benefits
under this Agreement as detailed in Section 5. “Good Reason” shall be 
 (i) the failure by the Company to
comply with the provisions of Sections 3(a) and (d) or material breach by the Company of any other provision of this Agreement, which failure or breach shall continue for more than thirty days after the date on which the Board of Directors of
the Company receives notice of such failure or breach from the Officer, 

 (ii) the assignment of the Officer without his consent to a position, responsibilities,
or duties of a materially lesser status or degree of responsibility than his position, responsibilities, or duties at the Commencement Date other than as a direct result of the change in control of the Company (which is otherwise addressed herein),

 (iii) Mr. Crawford is no longer in his position as listed in this contract, or in a future position of higher
authority and or responsibility, unless due to his death, disability or removal by the Company for just cause, or by the Officer without good reason, or the Company has named an individual other than William F. Rountree, Jr. as President of Monarch
Bank, or 
 (iv) failure of the Officer to be elected or re-elected to the Board of Directors, or; 
 (v) the requirement by the Company that the Officer be based at any office that is greater than thirty-five miles from where the
Officer’s office is located at the Commencement Date or a requirement that the Officer spend more than sixty normal working days away from South Hampton Roads in any twelve month period. 
 (f) Termination via retirement or acceptance of a lesser position. Should the Officer elect to retire from service with the Company it will be
considered termination by the Officer without Cause and he shall receive no additional compensation under this agreement and this agreement will be terminated at his retirement date. Should the Officer elect to accept another position with the
company, with board approval, it will not be considered termination by the Officer with or without Cause or termination by the Company for good reason. Officer understands that his Base Salary in Section 3.(a) may be adjusted and a reduction in
Base Salary and or other benefits upon the acceptance of this new position by the Officer shall not be considered termination by the Officer for good reason. 
 (g) Certain Termination Benefits. In the event of termination by the Company without Cause and other than for death or disability, or by the Officer with Good Reason, the Officer shall be entitled to the
following benefits, subject to the provisions of Section 5(c): 
 (i) Subject to subsection (iii) below, for the
remaining term of this contract immediately following the date of termination the Company shall continue to pay the Officer his Base Salary, and any unpaid bonus relating to a fiscal year of the Company 

 
completed prior to the date of termination, at the rate in effect on the date of termination, such payments to be made on the same periodic dates as salary
payments would have been made to the Officer had he not been terminated. 
 (ii) Subject to subsection (iv) below, for
the remaining term of this contract immediately following the date of termination the Officer shall continue to receive medical and life insurance benefits pursuant to plans made available by the Company to its employees at the expense of the
Company to substantially the same extent the Officer received such benefits on the date of termination (it being acknowledged that the post-termination plans may be different from the plans in effect on the date of termination). For purposes of
application of such benefits, the Officer shall be treated as if he had remained in the employ of the Company, with a Base Salary at the rate in effect on the date of termination. 
 (iii) During the final period of the contract that begins on the first anniversary date of the termination of employment and ends on the
expiration date, the Company’s obligation to continue to pay the Base Salary to the Officer pursuant to subsection 4(g)(i) during said period shall terminate thirty days after the Officer obtains full-time employment with another employer that
provides an annualized base salary that is at least equal to 75% of the Base Salary being paid by the Company. 
 (iv) The
Company’s obligation to provide the Officer with medical and life insurance benefits pursuant to subsection 4(g)(ii) hereof shall terminate in the event the Officer obtains new employment and is eligible to participate in substantially
comparable medical and life insurance programs made available to him and similarly situated employees by or through his new employer. If only one type of insurance (e.g., medical) is made available to the Officer and similarly situated employees,
the Company will continue to provide the Officer with the other insurance coverage for the remainder of the contract period or until such type of insurance is made available to him and similarly situated employees by his new employer, whichever
occurs sooner. 
 (v) During the contract period following the date of termination, the Officer shall provide the Company with
at least ten days written notice before the starting date of any employment, identifying the prospective employer and its affiliated companies and the job description, including a description of the proposed geographic market area associated with
the new position. The Officer shall notify in writing any new employer of the existence of the restrictive covenants set forth in Section 5 of this Agreement. 
 5. Covenants of the Officer. 
 (a) Non-competition. The Officer agrees that during the
Employment Period and for a one-year period following the termination of his employment for any reason, the Officer will not as a principal, agent, employee, employer, investor, co-partner or in any 

 
other individual or representative capacity whatsoever, engage in a Competitive Business anywhere in the Market Area (as such terms are defined below) in any
capacity that requires him to hold a similar office or to engage in similar duties which he held on behalf of the Company and any of its Affiliates during the Employment Period. Notwithstanding the foregoing, the Officer may purchase or otherwise
acquire up to (but not more than) 1% of any class of securities of any business enterprise (but without otherwise participating in the activities of such enterprise) that engages in a Competitive Business in the Market Area and whose securities are
listed on any national or regional securities exchange or have been registered under Section 12 of the Securities Exchange Act of 1934. 
 (b) Non-solicitation. The Officer further agrees that during the Employment Period and for a one-year period following the termination of his employment for any reason, he will not directly or indirectly: (i) solicit, induce or
attempt to solicit or induce any customer or client of the Company or its Affiliates with whom the Officer had direct contact or whose identity the Officer learned as a result of his employment with the Company, to terminate, diminish, or materially
alter in a manner harmful to the Company the relationship of such customer or client with the Company or its Affiliates; (ii) solicit, induce, encourage, or participate in soliciting, inducing, or encouraging any employee to terminate his or
her employment with the Company or any of its Affiliates; or (iii) hire, employ, or engage in business with or attempt to hire, employ, or engage in business with any person employed by the Company or any of its Affiliates or who has left the
employment of the Company or any of its Affiliates within the preceding three months. 
 (c) Termination without Cause or for Good
Reason. During the twelve month period that begins on the date of termination of employment and ends on the first anniversary date, the Officer will continue to receive the termination pay and insurance benefits set forth in Section 4(g),
for a period of twelve months, as a result of the termination of his employment by the Company without Cause or by the Officer for Good Reason for so long as the Officer elects to comply with the non-competition provisions of Sections 5(a) of this
Agreement during the twelve month period; it being understood and agreed that the Officer is obligated to comply with the non-solicitation provisions of Section 5(b) for a full twelve months following the date of termination regardless of the
basis of his termination. 
 (d) Termination without Good Reason. During the twelve month period that begins on the date of
termination of employment and ending on the first anniversary date, the Officer will continue to receive the termination pay and insurance benefits set forth in Section 4(g), for a period of twelve months, for so long as the Officer elects to
comply with the non-competition provisions of Sections 5(a) of this Agreement during the twelve month period; it being understood and agreed that the Officer is obligated to comply with the non-solicitation provisions of Section 5(b) for a full
twelve months following the date of termination. 
 (e) Non-renewal of the Agreement. In the event the Company elects not to renew
this Agreement in accordance with Section 2, the provisions of Sections 5(a) and (b) shall not apply in connection with the termination of the Officer’s employment after the Expiration Date. 

 (f) Definitions. As used in this Agreement, the term “Competitive Business” means the
financial services business, which includes one or more of the following businesses: consumer and commercial banking, residential and commercial mortgage lending, securities brokerage and asset management, and any other business in which the Company
or any of its Affiliates are engaged at the time of termination of the Officer’s employment; the term “Market Area” means the area within a thirty-five mile radius of the Bank’s headquarters or within ten miles of any banking
office (excluding for purposes of this Agreement an office providing residential mortgage loans or a loan production office) that the Company has established and is continuing to operate at the time of termination of the Officer’s employment;
the term “Affiliate” means a Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company; and the term “Person” means any person, partnership,
corporation, company, group or other entity. 
 (g) Confidentiality. During the Employment Period and thereafter, and except as
required by any court, supervisory authority or administrative agency or as may be otherwise required by applicable law, the Officer shall not, without the written consent of a person duly authorized by the Company, disclose to any person (other
than his personal attorney, or an employee of the Company or an Affiliate, or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Officer of his duties as an employee of the Company) or
utilize in conducting a business any confidential information obtained by him while in the employ of the Company, unless such information has become a matter of public knowledge at the time of such disclosure. For purposes of this Agreement,
“Confidential Information” shall include, but not be limited to, trade secrets, methods of operation, names and lists of customers, prospective customers and their agents, advertising and promotional materials and methods, cost and pricing
information, the special requirements of any Company customer or prospective customer, price quotations to customers and prospective customers, sales records, profit and loss information, computer programs, management information systems and data,
training materials, selling and pricing procedures, financing methods, personnel records and data and related information, business plans, internal financial statements and projections, legal documents, including but not limited to contracts, sample
legal forms, standard operating procedures and policies, and any other information which would or reasonably could be used by an enterprise competing with the Company to gain a competitive advantage over the Company. Officer agrees that the
Confidential Information has independent economic value and that the Company takes steps to maintain and protect the Confidential Information. Officer agrees that all of the Company’s Confidential Business Information shall be deemed as Trade
Secrets as defined under the Virginia Uniform Trade Secrets Act as set forth in Va. Code Ann. §§ 59.1-336 
 (h) Change in
Control; Disability. Notwithstanding anything to the contrary contained in this Agreement, in the event of a change in control of the Company (as such term is defined in the Change in Control Agreement, dated September 27, 2005, between

 
the Company and the Officer) or the termination of the Officer as a result of his disability as determined pursuant to Section 4(b), the restrictions
imposed by Sections 5(a) and (b) shall not apply to the Officer after he ceases to be employed by the Company. 
 (i)
Officer and the Company have examined in detail these restrictive covenants and agree that the restraints imposed on Officer are reasonable in light of the legitimate interests of Officer, and it will not have an unduly adverse impact on
Officer’s ability to earn a livelihood. Officer agrees that if suit is brought to enforce the restrictive covenants contained in this Agreement, a previous breach by the Company of the Agreement shall not serve as a defense to the suit or any
requested relief. 
 6. Change in Control of the Company. This Agreement will terminate in the event there is a change in control of
the Company, and the Change in Control Agreement, dated September 27, 2005, as it may hereafter be amended, between the Company and the Officer will become effective and any termination benefits will be determined and paid solely pursuant to
such Change in Control Agreement. 
 7. Mitigation; Exclusivity of Benefits. 
 (a) The Officer shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise. 
 (b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Officer upon a termination
of employment with the Company pursuant to employee benefit plans of the Company or otherwise. 
 8. Withholding. All payments
required to be made by the Company hereunder to the Officer shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine should be withheld pursuant to any
applicable law or regulation. 
 9. Assignability. The Company may assign this Agreement and its rights and obligations hereunder in
whole, but not in part, to any corporation, company or other entity with or into which the Company may hereafter merge or consolidate or to which the Company may transfer all or substantially all of its assets, if in any such case said corporation,
company or other entity shall by operation of law or expressly in writing assume all obligations of the Company hereunder as fully as if it had been originally made a party hereto, to the extent that any such transaction does not trigger the
operation of Section 6 above. The Officer may not assign or transfer this Agreement or any rights or obligations hereunder. 
 10.
Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set forth below: 

					
	To the Company:	  		  	 Chairman of the Board
 1101 Executive
Boulevard
 Chesapeake, Virginia 23320

			
	To the Officer:	  		  	 E. Neal Crawford, Jr.
 1401 Old Brandon
Avenue
 Norfolk, Virginia 23507

 11. Indemnification. The Bank agrees to indemnify the Officer (and his heirs, executors,
and administrators) to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be
involved by reason of his having been a director or officer of the Bank or any subsidiary of it (whether or not he continues to be a director or officer at the time of incurring any such expenses or liabilities) such expenses and liabilities to
include, but not be limited to, judgments, court costs, and attorney’s fees and the cost of reasonable settlements, such settlements to be approved by the Board, if such action is brought against the Officer in his capacity as an officer or
director of the Bank or any of its subsidiaries. Indemnification for expense shall not extend to matters for which the Officer has been terminated for Just Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by
applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section XII shall survive the term of this Agreement by a period of seven years. During the period in which indemnification of the Officer is
required under this Section, the Bank shall provide the Officer (and his heirs, executors, and administrators) with coverage under a directors’ and officers’ liability policy at the expense of the Bank, with such coverage and features as
is customary for businesses of like size and nature. 
 12. Reimbursement of Officer’s Expenses to Enforce this Agreement. The
Company shall reimburse the Officer for all out-of-pocket expenses, including, without limitation, reasonable attorney’s fees, incurred by the Officer in connection with successful enforcement by the Officer of the obligations of the Company to
the Officer under this Agreement up to a maximum of $30,000. Successful enforcement shall mean the grant of an award of money or the requirement that the Company take some action specified by this Agreement (i) as a result of court order; or
(ii) otherwise by the Company following an initial failure of the Company to pay such money or take such action promptly after written demand therefore from the Officer stating the reason that such money or action was due under this Agreement
at or prior to the time of such demand. 
 13. Restrictive Covenants of the Essence. The restrictive covenants on the Employee set
forth herein are of the essence of this Agreement; they shall be construed as independent of any other provision in this Agreement. The existence of any claim or cause of action of the Employee against the Employer, whether predicated on this
Agreement or not, shall not constitute a defense to the enforcement by the Employer of the restrictive covenants contained herein. 

 14. Injunctive Relief. 
 (a) The Company and Officer agree that irreparable injury will result to the Company in the event Officer violates any obligation contained in paragraph 5
of this Agreement, and Officer acknowledges that the remedies at law for any breach by Officer of such provisions will be inadequate and that the Company shall be entitled to injunctive relief against Officer, in addition to any other remedy that is
available, at law or in equity. 
 (b) Officer agrees that should injunctive relief be sought to restrain such violation(s) by Employee
and/or others acting in concert or participating with Officer, such relief will not require the posting of an injunction bond. 
 (c) Officer
agrees that the confidentiality, non-competition, and non-solicitation obligations contained herein shall be extended by the length of time which Officer shall have been in breach of any of said provisions. Accordingly, Officer recognizes that the
time periods included in the restrictive covenants contained herein shall begin on the date a court of competent jurisdiction enters an order enjoining Officer from violating such provisions. 
 15. Amendment Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Officer and such officer or officers as may be specifically designated by the Board of Directors of the Company to sign on their behalf. No waiver by any party hereto at any time of any breach by any other party
hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 
 16. Entire Agreement. This Agreement, together with the Change in Control Agreement, dated September 27, 2005, and as it may hereafter be
amended, entered into between the parties hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and no agreements or representations, oral or otherwise, express or implied, with respect to the subject
matter hereof have been made by either party which are not expressly set forth in this Agreement or in the Management Continuity Agreement. 
 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. 
 18. Nature of Obligations. Nothing contained herein shall create or require the Company to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Officer acquires a right to receive
benefits from the Company hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company. 
 19.
Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 

 20. Validity. The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. It is the intention of the parties that the provisions of the restrictive covenants herein shall be enforceable to the
fullest extent permissible under the applicable law. If any clause or provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, then the remainder of this Agreement
shall not be affected thereby, and in lieu of each clause or provision of this Agreement which is illegal, invalid or unenforceable, there shall be added, as part of this Agreement, a clause or provision as similar in terms to such illegal, invalid
or unenforceable clause or provision as may be possible and as may be legal, valid and enforceable. 
 21. Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 

 IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. 
  

	
	COMPANY:
	
	MONARCH BANK
	
	 /s/ Jeffrey F. Benson

	Jeffrey F. Benson
	Chairman of the Board
	
	Date signed: 3/10/2008
	
	OFFICER:
	
	 /s/ Edward Neal Crawford, Jr.

	Edward Neal Crawford, Jr.
	
	Date signed: 3/10/2008Form of Share Option Agreement for 1981 Share Option Plan

 Exhibit 10.1A 
 Share Option Agreement 
 Under the XOMA Ltd. 
 1981 Share Option Plan 
  

							
				
	 (A)
	  	Optionee:	  	(E)	  	Payroll Number:
				
	 (B)
	  	Grant Date:	  	(F)	  	Expiration Date:
				
	 (C)
	  	Shares:	  	(G)	  	Exercise Price:
				
		  		  		  	$
				
	 (D)
	  	Share Installments:	  	(H)	  	Option Type:
				
		  	 _____ shares vest _____
 _____ shares become
exercisable in 36
monthly installments beginning
_____
	  		  	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 October 31,
2007 (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-statutory share 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 

  

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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), 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. 
 (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 

  

 2 

 
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. 
 (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

  

 3 

 
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 incorporation; 
 (ii) the
sale, transfer or other disposition of all or substantially all of the assets of the Company; or 
 (iii) any other business
combination in which fifty percent (50%) or more of the Company’s outstanding voting shares is transferred to different holders in a single transaction or a series of related transactions, 
 then each option at the time outstanding under the Plan and not then otherwise fully exercisable shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable for up to the total number of Common Shares purchasable under such option and may be exercised for all or any portion of the shares for which the option is so accelerated. However, an outstanding
option shall not be so accelerated if and to the extent such option is in connection with the Corporate Transaction either to be assumed by the successor corporation or parent thereof or to be replaced with comparable options to purchase capital
stock of the successor corporation or parent thereof, such comparability to be determined by the Plan Administrator. 
  

 4 

 (a) 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. 
 (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: 
 (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 

  

 5 

 
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. 
 (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. 
  

 6 

 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.

 (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. 
  

 7 

 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. 
 (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. 
  

 8 

 (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. Additional Terms
Applicable to a Non-Statutory Share Option. In the event this option is a non-statutory share option, 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:	 	 
		 	Steven B.Engle
		 	Chairman of the Board
		 	Chief Executive Officer and President
		
	Dated:	 	 

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

  

			
		
	By:	 	 
		
	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:	 	 
		
	Dated:	 	 

  

 10

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