Document:

Secured Note Agreement

 Exhibit 10.3 
  
 [*] indicates that a confidential portion of the text of this agreement has been omitted. The non-public information has been filed
separately with the Securities and Exchange Commission. 
  
 THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT
COVERING THE TRANSFER, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SAID ACT. 
  
 Berkeley, California 
 May 26, 2005 
  
 $50,000,000 
  
 XOMA (US) LLC 
  
 SECURED NOTE AGREEMENT 
  
 WHEREAS, XOMA (US) LLC, a Delaware limited liability company having an office at 2910 Seventh Street, Berkeley, California 94710 (the “Company”), and CHIRON CORPORATION, a Delaware corporation having
its principal office at 4560 Horton Street, Emeryville, California 94080 (the “Lender”), desire to further the collaboration arrangements embodied in that certain Research, Development and Commercialization Agreement, dated as of
May 26, 2005, between the Company and the Lender (the “Collaboration Agreement”); 
  
 WHEREAS, the Lender has agreed to make semi-annual loans to the Company to fund up to seventy-five percent (75%) of the Company’s Research and
Development Costs and Commercialization Costs (as each such term is defined in the Collaboration Agreement), all such loans (to the extent not repaid) to be evidenced by this Secured Note Agreement which shall, together with that certain Security
Agreement (the “Security Agreement”) concurrently being entered into as of the date hereof, between the Company and Lender, supersede any prior agreement with respect to the subject matter hereof (this “Note”);

  
 WHEREAS, the Company has agreed to repay any such loans in
accordance with the terms of this Note; and 
  
 WHEREAS, in
connection with the Collaboration Agreement, the Company and the Lender desire to set forth in this Note the terms and conditions on which the Company may borrow from and repay to the Lender loans (the “Loans”) in an aggregate
principal amount (including capitalized interest as provided herein) not to exceed FIFTY MILLION DOLLARS ($50,000,000) (the “Commitment Amount”) to be lent to the Company by the Lender. 
  
 NOW, THEREFORE, FOR VALUE RECEIVED, the Company promises to repay to the
order of the Lender the outstanding principal amount of Loans evidenced by this Note together with interest thereon, all as set forth below. 

 1. Definitions. In addition to definitions contained in the Recitals to this Note, as used in this
Note, the following terms shall have the meanings set forth below: 
  
 “Advance Date” means each June 20 and December 20, beginning with December 20, 2004 and ending with June 20, 2011; provided, that the Company has designated such date an Advance Date by exercising its option to
borrow on such date in accordance with Section 2(b); provided, further, that if any such date is not a business day, the applicable Advance Date shall be the immediately following business day. 
  
 “Available Amount” means, with respect to a particular
Advance Date, 75% of either (i) the Research and Development Costs to be borne by the Company according to the R&D Plan and Budget in effect pursuant to Section 3.5 of the Collaboration Agreement for the next succeeding two (2) calendar quarters
following such Advance Date or (ii) the Commercialization costs to be borne by the Company according to the commercialization plan and budget in effect pursuant to Section 4.3(c) of the Collaboration Agreement for the next succeeding two (2)
calendar quarters following such Advance Date, whichever is applicable; provided, that the applicable Available Amount shall be adjusted to the extent of any estimated over- or under-borrowing with respect to the immediately preceding Loan.

  
 “Borrowing Notice Date” means the tenth
(10th) business day prior to each June 20 and December 20, beginning with December 20, 2004 and ending with June 20,
2011. 
  
 “Capital Lease Obligations” means the
obligations of the Company under leases of property which are capitalized on the balance sheet of the Company in accordance with GAAP that are shown as a liability on a balance sheet of the Company prepared in accordance with GAAP. 
  
 “Collaboration” has the meaning given such term in the
Collaboration Agreement. 
  
 “Collateral” has the
meaning given such term in the Security Agreement. 
  
 “Commercialization Costs” has the meaning given such term in the Collaboration Agreement. 
  
 “Commitment Period” means the period from the date hereof until the earlier of (i) June 20, 2011, and (ii) such time as an Event of
Default has occurred with respect to XOMA. 
  
 “GAAP” means generally accepted accounting principles in the United States as in effect from time to time. 
  
 “Indebtedness” means any outstanding indebtedness evidenced by this Note. 
  
 “Insolvency Event” means any of the following events: (i) the Company shall have had an order for relief
entered with respect to it or shall commence a voluntary case under any applicable bankruptcy, insolvency or similar law, or shall consent to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to a
voluntary case, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or the Company shall make any assignment for the 

  

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benefit of creditors; (ii) the Company shall be unable to pay its debts as such debts become due; (iii) a court of competent jurisdiction shall enter a
decree or order for relief in respect of the Company in an involuntary case under applicable bankruptcy, insolvency or similar law, which decree or order is not stayed; or (iv) an involuntary case shall be commenced against the Company under
applicable bankruptcy, insolvency or similar law; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the
Company or any of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of the Company for all or a substantial part of its property; or a warrant of
attachment, execution or similar process shall have been issued against any substantial part of the property of the Company, and such event described in clauses (i) through (iv) shall continue for 60 days without having been dismissed, bonded or
discharged. 
  
 “Interest Period” means, with
respect to any Loan and subject to the custom and practice of the [*], a period beginning on the date such Loan is made and on each June 20 and December 20 thereafter and ending on the earlier of the next June 19, December 19 or the scheduled
maturity date of such Loan. 
  
 “[*] Rate” means,
[*]. 
  
 “[*] Rate Determination Date” means the
first day of each Interest Period, it being understood that, in accordance with the custom and practice of the [*], the [*] Rate effective as of the [*] Rate Determination Date may be based on calculations made as a result of market conditions and
quotations made two [*] business days prior to the [*] Rate Determination Date. 
  
 “Permitted Liens” means the following types of liens: 
  
 (i) liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings, if
a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; 
  
 (ii) statutory liens of landlords and liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; 
  
 (iii) liens incurred or deposits made in the ordinary course of business in
connection with workers’ compensation, unemployment insurance and other types of social security, including any lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or
to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed
money); 
  

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 (iv) judgment liens not giving rise to an Event of Default so long as such lien is adequately bonded and
any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; 
  
 (v) easements, rights-of-way, zoning restrictions and other similar charges
or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company; 
  
 (vi) liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof; 
  
 (vii)
liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company, including rights of offset and set-off; and 
  
 (viii) liens existing as of the date hereof to the extent and in the manner such liens are in effect on the date hereof.

  
 “Research and Development Costs” has the
meaning given such term in the Collaboration Agreement. 
  
 “R&D Plans and Budgets” has the meaning given such term in the Collaboration Agreement. 
  
 “Tranche” means the designation given a Loan pursuant to Section 2(d) and “Tranches” means two or more of such
designations collectively. 
  
 2. Principal. 
  
 (a) Commitment. In accordance with, and subject to the terms and
conditions of, this Note and the Security Agreement, the Lender agrees during the Commitment Period to make Loans to the Company in an aggregate principal amount not to exceed the Commitment Amount. This is not a revolving loan arrangement. Any
Loans that are made hereunder and any interest capitalized pursuant to Section 3 permanently reduce the portion of the Commitment Amount available for later Loans; and any Loans repaid hereunder may not be reborrowed. 
  
 (b) Borrowing and Funding Procedures. On or prior to each Borrowing
Notice Date, the Company may elect to borrow from the Lender hereunder by delivering a written notice to that effect to the Lender, indicating the portion of the Available Amount that it desires to borrow on the next succeeding Advance Date. Subject
to satisfaction or waiver of the conditions referred to Section 2(c) below, the Lender shall make a Loan to the Company on each Advance Date in the amount set forth in the applicable notice of borrowing. The Lender and the Company shall meet
not later than each June 13 and December 13 to review the estimated spending by the parties in the then-current borrowing period in comparison to the applicable Loan, to determine any adjustments to be applied to the next Loan. Each time a Loan is
made 

  

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hereunder, the Company shall be deemed to have given the representations and warranties set forth in the Security Agreement and in Exhibit A hereto.

  
 Each Loan shall be made by wire transfer of immediately
available funds to an account in the United States designated by the Company denominated in the currency of the United States of America. 
  
 (c) Conditions to Loans. The Lender’s obligation to make any Loan to the Company on any Advance Date is subject to the condition that no Event
of Default or event which with the giving of notice or the passage of time would become an Event of Default shall have occurred and be continuing and to the fulfillment on or prior to the date such Loan is to be made of the following conditions (and
by requesting or accepting a Loan, the Company shall be deemed to have represented to the Lender that such conditions have been satisfied): 
  
 (i) such Loan shall be legally permitted by all laws and regulations to which the Company is subject; 
  
 (ii) each of the representations and warranties of the
Company set forth in Exhibit A to this Note and Section 4 of the Security Agreement shall be true and correct as of the date such Loan is to be made as if made on and as of such date; 
  
 (iii) such Loan will not occur within the period during
which the Company is not permitted to borrow, as described in the last sentence of Section 4(d) below; 
  
 (iv) the Company shall have performed and complied in all material respects with all agreements, obligations and conditions contained in
this Note, the Security Agreement and the Collaboration Agreement that are required to be performed or complied with by it on or prior to the making of such Loan; and 
  
 (v) the Company shall have obtained all consents (including all governmental and regulatory consents,
approvals or authorizations required in connection with such Loan), permits and waivers necessary or required in connection with such Loan. 
  
 (d) Tranches. The principal amount of each Loan shall be recorded by the Lender and endorsed by the Lender and the Company on Exhibit B
attached hereto, which is hereby made a part of this Note. Each such Loan shall be treated as a separate Loan hereunder, and, as such, shall be designated a separate “Tranche” hereunder. The first Loan, to be made as contemplated by
Section 2(b) above, is hereby designated “Tranche A”. Each subsequent Loan made hereunder, as contemplated by Section 2(b) above, shall be similarly designated with consecutive letter designations, such as
“Tranche B”, “Tranche C”, etc., and the applicable designation shall be recorded by the Lender and endorsed by the Lender and the Company on Exhibit B attached hereto at the time any such Loan is made.
Notwithstanding the foregoing, any failure of the Lender to make any notation on Exhibit B shall not affect the obligation of the Company to repay Loans actually made with interest in accordance with this Note. 
  
 (e) Maturity Date. Unless earlier accelerated by reason of the
occurrence of an Event of Default (as provided in Section 5 below), any unpaid principal amount of any Loan 

  

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owed by the Company to the Lender, together with accrued and unpaid interest thereon, shall be due and payable in full on the tenth (10th) anniversary of the
Advance Date on which the first Loan was made. 
  
 (f) Use of
Proceeds. The proceeds of the Loans shall be used by the Company solely to finance the Company’s share of expenses of the Collaboration. 
  
 3. Interest. Interest on the unpaid balance of the principal amount of each Loan hereunder shall accrue at a rate per annum equal to the applicable
[*] (calculated on the basis of a year of 360 days) from the date disbursed to but not including the date repaid and shall be due and payable on the last day of each Interest Period and on the date each Loan is repaid or matures; provided that any
such due and unpaid interest may, at the election of the Company (or shall, if the Company does not notify Lender of such election), in lieu of cash payment, be added to the principal amount of this Note on the date due (thereby reducing portion of
the Commitment Amount available for later Loans). If on the last day of any Interest Period the Company’s cumulative outstanding principal (including capitalized interest) exceeds (i) the Commitment Amount minus (ii) the principal amount of any
Loans that have been repaid, interest will then be payable in cash at the end of such Interest Period to the extent of such excess. 
  
 4. Payment. 
  
 (a) Form of Payment. The principal amount of and accrued interest on each Loan hereunder when due or otherwise paid or payable hereunder shall be
payable in cash denominated in the currency of the United States of America. 
  
 (b) Method, Application. Payments of principal and accrued interest shall be made at the address of the Lender set forth in the Recitals to this Agreement, or at such other place as the Lender shall have
notified the Company in writing at least five (5) business days before such payment is due. Unless an Event of Default shall have occurred, all payments in respect of any Loan shall be applied first to accrued and unpaid interest thereon, and
thereafter to the unpaid principal amount thereof. After the occurrence of an Event of Default, payments shall be applied as determined by the Lender in its discretion. 
  
 (c) Recordation; Return of Note. All payments of interest and principal in respect of each Loan (or portion thereof)
hereunder shall be recorded by the Lender and endorsed by the Lender and the Company on Exhibit B. Upon final payment in full of all principal of and interest on this Note and each Loan hereunder, and termination of any commitment of the
Lender to make Loans hereunder, the Lender shall return this Note to the Company for cancellation. 
  
 (d) Optional Prepayments. This Note and any Loan (or portion thereof) hereunder may be prepaid by the Company, at any time and from time to time
without penalty upon ninety (90) days prior written notice to the Lender, in whole or in part, in the manner prescribed for repayment in this Section 4 (which prepayment shall be accompanied by interest on the amount so prepaid). In the event
of any prepayment of less than all of the amounts outstanding under this Note, the Company may designate the Loan or Loans to which such 

  

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payment shall apply. In the event of any optional prepayment of all of the Loans, the Company may not borrow hereunder until nine (9) months after such
prepayment. 
  
 (e) Mandatory Prepayment. The Company shall
use 25% of its share of the Pre-Tax Profits and royalties under the Collaboration Agreement received by it to repay the Loans, in the manner prescribed for repayment in this Section 4, within five (5) business days of receipt of such
proceeds; provided that during an Event of Default, Lender may apply amounts of such Pre-Tax Profits and royalties payable to the Company to such prepayment without first remitting such amount to the Company. In the event of any prepayment of less
than all of the amounts outstanding under this Note, the Company may designate the Loan or Loans to which such payment shall apply. 
  
 (f) Full Recourse. For the avoidance of doubt, the obligations of the Company represented by this Note shall be full recourse to the Company, and
the Lender’s recourse in satisfaction of the Indebtedness shall not be limited to the Collateral. 
  
 5. Events of Default. 
  
 (a) It shall constitute an “Event of Default” under this Note if (i) the Company materially breaches the Collaboration Agreement, this
Note or the Security Agreement and such breach continues for a period of sixty (60) days after the Lender has provided written notice of such breach to the Company; or (ii) an Insolvency Event occurs; or (iii) any representation or warranty of the
Company made in this Note, the Security Agreement or the Collaboration Agreement shall be materially inaccurate or untrue when made. 
  
 (b) Automatically upon the occurrence of an Insolvency Event and, at the option of the Lender, upon the occurrence of any other Event of Default (so long
as such Event of Default shall be continuing on the date the Lender exercises such option), all principal, interest and other amounts payable by the Company to the Lender hereunder shall be immediately due and payable, the commitment of the Lender
to make Loans in accordance with Section 2 above shall terminate, and the Lender may exercise such rights and remedies in respect thereof and the Collateral as may be provided in this Note, in the Security Agreement, and as are permitted by
law or equity. 
  
 6. Negative Covenant. The Company shall
not grant a security interest in any of its assets to any third party, unless the Indebtedness is secured equally and ratably in respect of such assets, other than (a) liens granted to a third party in connection with purely financial transactions
(including, without limitation, a commercial bank line of credit, a mortgage to finance acquisition of real property, purchase money debt and Capital Lease Obligations), (b) liens granted to collaboration or development partners of the Company or
its affiliates in connection with co-funded research and development activities; provided any such lien is limited to the Company’s interest in products developed in such collaboration, and (c) Permitted Liens. 
  
 7. Lost Documents. Upon receipt by the Company of reasonable evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Note, and indemnity satisfactory to the Company (in the case of loss, theft or destruction) or surrender and 

  

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cancellation of the Note (in the case of mutilation), the Company will make and deliver to the Lender a new Note of like tenor and unpaid principal amount
and dated as of the date to which interest has been paid on the unpaid principal balance hereunder. 
  
 8. Notices. All notices and other communications required or appropriate to be given hereunder shall be in writing and shall be delivered by hand
or mailed by certified mail, return receipt requested, or sent by facsimile (in which case a confirming copy shall also be sent by certified mail or courier), to the following respective addresses or to such other addresses as may be specified in
any notice delivered or mailed as above provided: 
  

	 	(a)	If to the Lender, to: 

  
 Chiron Corporation 
 4560 Horton Street

 Emeryville, CA 94608 
 Facsimile: (510) 923-3823 
 Attention: Chief Financial Officer, with a copy to the General Counsel 
  

	 	(b)	If to the Company, to: 

  
 XOMA (US) LLC 
 2910 7th Street 
 Berkeley, CA 94710 
 Facsimile: (510) 649-7571

 Attention: General Counsel, with a copy to Vice President, Finance & Chief Financial Officer 
  
 Any notice or other communication delivered by hand or mail shall be deemed to have been
delivered on the date on which such notice or communication is delivered by hand, or in the case of certified mail deposited with the appropriate postal authorities on the date when such notice of communication is actually received, and in any other
case shall be deemed to have been delivered on the date on which such notice or communication is actually received. 
  
 9. Amendments. No provision of this Note may be waived, changed or modified, or the discharge thereof acknowledged orally, but only by an agreement
in writing signed by the party against which the enforcement of any waiver, change, modification or discharge is sought. 
  
 10. Assignment. 
  
 (a) Except as set forth in this Section 10, none of the rights or obligations of either party hereto may be assigned or transferred without the
prior written consent of the other party hereto; provided that the Lender may assign its rights and obligations hereunder to any Affiliate (as such term is defined in the Collaboration Agreement) of the Lender which is 

  

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sufficiently creditworthy to fund remaining Loans hereunder, and upon any such assignment, and assumption by the assignee, the Lender shall be relieved of
all further obligations hereunder. 
  
 (b) Neither party may
assign any of its rights and obligations under this Note in connection with a merger or similar reorganization or the sale of all or substantially all of its assets. 
  
 (c) This Note shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties. Any
assignment not in accordance with this Note shall be void. 
  
 11.
Set-off. If an Event of Default shall have occurred and be continuing, the Lender shall be entitled to deduct from payments to be made by it to the Company under the Collaboration Agreement any amounts then due and payable by the Company to
it hereunder. If an event of default shall have occurred and be continuing which, with the giving of notice or the passage of time would become an Event of Default, the Lender shall be entitled to withhold payments which would otherwise be owed by
the Lender to the Company under the Collaboration Agreement, pending either cure of such default or, if such default ripens into an Event of Default, setoff as provided herein. 
  
 12. Presentment, Demand, Etc. Except as otherwise provided herein, the Company hereby waives presentment for payment,
demand, protest and notice of protest for nonpayment of this Note, and consents to any extension or postponement of the time of payment or any other indulgence. 
  

13. Governing Law; Venue. The parties have agreed that this Note will be governed by and construed in accordance with the laws of the State of
California. Any action or proceeding brought by either party seeking to enforce any provision of, or based on any right arising out of, this Note must be brought against any of the parties in the courts of the State of California. Each party (i)
hereby irrevocably submits to the jurisdiction of the state courts of the State of California and to the jurisdiction of any United States District Court in the State of California, for the purpose of any suit, action, or other proceeding arising
out of or based upon this Note or the subject matter hereof brought by any party or its successors or assigns, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action, or proceeding, any
claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Note or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction that may be called upon
to grant an enforcement of the judgment of any such California state or federal court. 
  
 14. Counterparts. This Note may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 
  

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 15. Titles. The titles of the Sections of this Note are inserted for reference only, and are not
to be considered as part of this Note in construing this Note. 
  
 (Signature page follows) 
  

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 IN WITNESS WHEREOF, this Note has been executed and delivered on the date first above written by duly
authorized representatives of the Company and the Lender. 
  

			
	 XOMA (US) LLC

		
	By:	 	 /s/    PETER DAVIS

	 	 	 Peter Davis

	 	 	 Vice President, Finance and
 Chief Financial
Officer

	
	 CHIRON CORPORATION

		
	By:	 	 /s/    DAVID SMITH

	 	 	 David Smith

	 	 	Chief Financial Officer

  

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 EXHIBIT A 
  
 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 
  
 The capitalized terms used in this Exhibit A shall have the meanings set forth for each such term in the body of the Note to
which it is attached. 
  
 1. Organization. The Company is a
limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign company in each jurisdiction where failure to qualify would have a material adverse
effect on the business or properties of the Company. The Company has full company power and authority to own its property, to carry on its business as presently conducted and to carry out the transactions contemplated hereby. 
  
 2. Authorization. The Company has requisite company power to execute,
deliver and perform this Note and the Security Agreement, and each such agreement has been duly executed and delivered by the Company and is the legal, valid and, assuming due execution by the Lender as necessary, binding obligation of the Company,
enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors generally, and to general equitable principles. The execution, delivery and performance by the
Company of this Note and the Security Agreement, including the borrowing of Loans as contemplated hereby have been duly and validly authorized by all necessary company action of the Company. 
  
 3. Valid Issuance of Note. This Note is duly authorized and validly
issued. 
  
 4. Governmental Approvals. Based in part on the
representations made by the Lender on Schedule 1 hereof, no authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic
or foreign, under any applicable laws, rules or regulations presently in effect, is or will be necessary to be made or obtained by the Company for, or in connection with the execution and delivery of this Note or consummation of the transactions
contemplated hereby or performance by the Company of its obligations hereunder, except for such other filings under applicable securities laws which will be made by the Company within the prescribed periods, including the filing by the Company of a
notice under Section 25102(f) of the California Corporations Code, as amended, and the payment of any fee relating thereto. 
  
 5. Non-Contravention. The execution, delivery and performance by the Company of this Note and the Security Agreement (i) do not and will not
contravene or conflict with the certificate of formation or other organizational documents of the Company and (ii) do not contravene or conflict with or, based in part on the representations made by the Lender on Schedule 1 hereof, constitute a
violation of any provision of law, regulation, judgment, injunction, order or decree binding upon or applicable to the Company, or result in a breach of or constitute a default under any material agreement of the Company (whether 

 
upon notice or passage of time), in any manner which would materially and adversely affect the Lender’s rights or its ability to realize the intended
benefits to it under this Note or the Security Agreement. 
  
 6.
Use of Proceeds. The Company has applied the proceeds of all Loans made hereunder solely as permitted by Section 2(f) hereof. 
  

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 SCHEDULE 1 TO EXHIBIT A 
  
 REPRESENTATIONS AND WARRANTIES OF THE LENDER 
  
 The Lender hereby makes the following representations and warranties to the Company each time the Company makes the representations and
warranties listed on the Exhibit A to the Note (the capitalized terms used in this Schedule 1 to Exhibit A shall have the meanings set forth for each such term in the body of the Note to which it is attached): 
  
 1. Corporate Power. The Lender is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware. The Lender has full corporate power and authority to carry on its business as presently conducted and to carry out the transactions contemplated hereby. 
  
 2. Authorization. The Lender has full corporate power to execute,
deliver and perform the Note and the Security Agreement and each such agreement has been duly executed and delivered by the Lender and is the legal, valid and, assuming due execution by the Company, binding obligation of the Lender, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors’ rights generally, and to general equitable principles. The execution, delivery and performance by the
Lender of the Note and the Security Agreement, including the making of the loans contemplated thereby, have been duly and validly authorized by all necessary corporate action of the Lender. 
  
 3. Investment Representations. 
  
 (a) The Lender will acquire the Note for its own account for investment only
and not with a view to any resale or distribution thereof, except pursuant to an effective registration statement under the Securities Act of 1933, as amended from time to time (the “Securities Act”), covering the sale, assignment
or transfer or an opinion of counsel in form and substance satisfactory to the Company that such registration is not required. 
  
 (b) The Lender has had the opportunity to obtain, receive and review the Company’s reports and other filings with the U.S. Securities and Exchange
Commission and such other information as it deems necessary to understand the business and financial condition of the Company and to make the investment decision to purchase the Note. 
  
 (c) As an investor in companies in the biopharmaceutical industry and a participant in such industry, the Lender has such
knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment represented by the Note, and it is able to bear the economic risk of such investment. 
  
 (d) The Lender understands that the Note will be issued in a transaction
which is exempt from the registration requirements of the Securities Act by reason of the provisions of Section 4(2) of the Securities Act and that such Note will be subject to transfer restrictions and must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is available. 

 EXHIBIT B 
  
 LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST 
  

											
	 Tranche

	 	 Date

	 	 Principal Amount
Borrowed

	  	Principal Amount
Repaid

	  	Interest Paid

	  	Notation ByLicense Agreement

 Exhibit 10.4 
  
 [*] indicates that a confidential portion of the text of this agreement has been omitted. The non-public information has been filed
separately with the Securities and Exchange Commission. 
  
 Execution Version 
  
 LICENSE AGREEMENT

  
 This License Agreement (this
“Agreement”), effective as of June 20, 2005 (the “Effective Date”), is entered into by and between XOMA Ireland Limited, a company with limited liability organized under the laws of the Republic of Ireland having
offices at Shannon Airport House, Shannon, County Clare, Ireland (“XOMA”), and Merck & Co., Inc., a corporation organized under the laws of the State of New Jersey having offices at One Merck Drive, Whitehouse Station, NJ 08889,
U.S.A. (“Merck”). 
  
 BACKGROUND

  
 A. XOMA is the owner or exclusive licensee of certain
patent rights and know-how relating to bacterial cell expression, and Merck wishes to acquire non-exclusive licenses under such patent rights and a right to receive and use such know-how; and 
  
 B. XOMA is willing to grant Merck, on its own behalf and on behalf of Merck
Affiliates or Merck Collaborators (both as defined below), non-exclusive licenses, on the terms and conditions set forth below, in order to permit Merck, Merck Affiliates and Merck Collaborators to engage in certain research, development, production
and commercial activities. 
  
 NOW, THEREFORE, in consideration of
the promises and the mutual covenants hereinafter recited, the parties agree as follows: 
  
 ARTICLE 1 
  
 DEFINITIONS

  
 In this Agreement, the following terms shall have the
meanings set forth in this Article: 
  
 1.1
“Affiliate” means any corporation or other entity which is directly or indirectly controlling, controlled by or under common control with a party hereto. For purposes of this Section 1.1, “control” (including, with
correlative meanings, the terms “controlled” and “controlling”) means, with respect to a corporation or other entity, the possession, directly or indirectly, of the power to direct or cause the direction of the
management or policies of the subject corporation or other entity, whether through the ownership of voting securities, by agreement or otherwise. 
  
 1.2 “Antibody Expression” means the use of Merck Antibody Phage Display Materials at the Merck Authorized Sites, or the use of Licensed
Antibody Expression Materials to conduct Research and Development. 

 1.3 “Article 2 Product” means a Product in which the Licensed Immunoglobulin was
discovered, isolated, or characterized using materials or methods that constitute the practice of the XOMA Patent Rights or, if any, the use of XOMA Know-How under the licenses granted under Article 2. 
  
 1.4 “Article 3 Product” means a Product in which the
Licensed Immunoglobulin was made or had made by or on behalf of Merck or a Merck Affiliate at a Merck Authorized Site or XOMA Authorized Site under conditions which constitute the practice of the XOMA Patent Rights or, if any, the use of XOMA
Know-How under the licenses granted under Article 3. 
  
 1.5
“Article 2/Article 3 Product” means a Product that is both an Article 2 Product and an Article 3 Product. 
  
 1.6 [*] 
  
 1.7 [*] 
  
 1.8 “Change in Control” as used in Section 9.2 and 9.3 means, with respect to Merck or XOMA Ltd.: (a) any transaction or series of
transactions as a result of which any person or group (as defined under the U.S. Securities Exchange Act of 1934, as amended) becomes, directly or indirectly, the beneficial owner of more than [*] of the total voting power of such entity’s
equity securities or otherwise gains control of such entity, or (b) if such entity is involved in a merger, reorganization or consolidation; provided that, as a result of such merger, reorganization or consolidation, the shareholders of Merck
or XOMA Ltd., as applicable, immediately prior to the closing thereof do not own immediately after such closing at least [*] of the voting power of Merck or XOMA Ltd., as the case may be, or the surviving entity, or the parent of the surviving
entity, or (c) if there is a sale of all or substantially all of such entity’s assets or business relating to this Agreement. 
  
 1.9 “Combination Product” means a Merck Product sold in the form of a combination product containing one or more therapeutically active
ingredients (other than a Licensed Immunoglobulin) in combination with a Licensed Immunoglobulin. All references to Merck Product in this Agreement shall be deemed to include Combination Product. 
  
 1.10 “Commercial Antibody Engineering Business” means, under
conditions which but for the licenses granted hereunder would constitute infringement or would induce the infringement of a Valid Claim, the business of isolating, engineering, modifying or altering antibodies for any purpose (including, without
limitation, to optimize or otherwise modify) on behalf of or for the benefit of a Third Party on a fee for service basis or under conditions where the party providing the service does not retain control and substantial scientific, financial and
marketing risk with respect to the result or subject matter of such services. 
  
 1.11 “Commercial Antibody Evolution Business” means, under conditions which but for the licenses granted hereunder would constitute infringement or would induce the infringement of a Valid Claim, the
business of modifying or altering antibodies discovered by a Third Party for any purpose (including, without limitation, to optimize or humanize or otherwise modify an attribute of the antibody) on behalf of or for the benefit of a Third Party on a
fee for 

  

 -2- 

 
service basis or under conditions where the party providing the service does not retain control and substantial scientific, financial and marketing risk with
respect to the result or subject matter of such services. 
  
 1.12
“Commercial Antibody Display Business” means, under conditions which but for the licenses granted hereunder would constitute infringement or would induce the infringement of a Valid Claim, the business of out-licensing, commercial
manufacturing, selling, (including, to offer, import or export for sale) antibody display services, antibody display libraries, products for use in antibody display, and antibody display materials, including, without limitation, antibody phage
display libraries or antibody phage display materials. 
  
 1.13
“Confidential Information” means any proprietary or confidential information, data or material disclosed by a party to the other party pursuant to this Agreement, which is (a) disclosed in tangible form hereunder and is designated
thereon as “Confidential” at the time it is delivered to the receiving party, or (b) disclosed orally hereunder and identified as confidential or proprietary when disclosed and such disclosure of confidential information [*]. 

 
 1.14 “Control” and “Controlled By” With
respect to any item of or right under patent rights, know how or other intellectual property, “Control” or “Controlled by” means the possession of (whether by ownership or license) the ability of a party to grant access to, or a
license or sublicense of, such item or right subject to and without violating the terms of any agreement or other arrangement with any Third Party. With respect to the practice of any method of a Valid Claim or any composition of matter or article
of manufacture arising out of this Agreement, “Control” or “Controlled by” means that such composition of matter, article of manufacture or method was or is, as applicable, created, owned, licensed, used and/or practiced by Merck
and/or a Merck Affiliate on their own behalf, or on behalf of or with a Merck Collaborator under conditions where Merck or a Merck Affiliate retains decision-making power and substantial scientific and financial risk with respect to such composition
of matter or article of manufacture. 
  
 1.15 “Development
Service Provider” means a Third Party who, under an agreement with and at the direction of Merck, a Merck Affiliate or a Merck Collaborator, provides bona fide development services in support of activities otherwise authorized by and in
conformity with this Agreement. No Third Party may be deemed a Development Service Provider under this Agreement if it has an economic interest or stake (other than a reasonable fee for service), including, without limitation, a royalty interest, in
the outcome of the services it provides. 
  
 1.16
“Dispose” means to transfer, assign, lease, or in any other fashion, dispose of control, ownership or possession, but shall not mean to license or sell. “Disposition” shall have the correlative meaning. 

 
 1.17 “Existing Merck Collaborators” means those Merck
Collaborators meeting the criteria set out in Section 1.27 (b) and (c) as of the Effective Date that are also listed on Schedule 1.17. 
  
 1.18 “First Commercial Sale” means, with respect to any Merck Product, the first sale for end use or consumption of such Merck Product in
a country after Marketing Authorization, 

  

 -3- 

 
excluding, however, any sale for use in a clinical trial or for demonstration, testing or promotional purposes. 
  
 1.19 “Immunoglobulin” means any molecule, including, without
limitation, full immunoglobulin molecules (e.g., IgG, IgM, IgE, IgA and IgD molecules) and ScFv, Fv and Fab molecules, that has an amino acid sequence by virtue of which it specifically interacts with an antigen and wherein that amino acid
sequence comprises a functionally operating region of an antibody variable region including, without limitation, any naturally occurring or recombinant form of such a molecule. 
  
 1.20 “Licensed Antibody Expression Materials” means any composition of matter or article of manufacture,
other than Merck Antibody Phage Display Materials, Controlled by, as applicable, Merck or a Merck Affiliate that comprises: 
  
 (a) any polynucleotide sequence encoding: 
  
 (i) an Immunoglobulin that is capable of being translocated to the periplasm of a bacterial host cell; and/or 
  
 (ii) an Immunoglobulin that is operably linked to a
bacterially functional signal sequence; and/or 
  
 (iii) an Immunoglobulin that is capable of being secreted and/or expressed in a prokaryote and retain its binding or other function without subsequent refolding; or 
  
 (b) any vector containing any polynucleotide sequence described in clause 1.20 (a); or 
  
 (c) any prokaryote transformed with any vector or
polynucleotide described in clause 1.20 (a) or (b); or 
  
 (d) any material covered by the XOMA Patent Rights, which is used to make and use any: polynucleotide described in clause 1.20 (a); vector described in clause 1.20 (b); or prokaryote described in clause 1.20 (c). 
  
 For the avoidance of doubt, and without expanding the definition thereof, specifically
excluded from the definition of Licensed Antibody Expression Materials are (a) any materials used for or suitable for use to display a specific Immunoglobulin in or from any organism or system other than in a prokaryote or (b) any article of
manufacture or composition of matter when used for the expression or secretion of an Immunoglobulin in or from any organism or system other than in a prokaryote. 
  

 -4- 

 1.21 “Licensed Immunoglobulin” means, to the extent Controlled by Merck or a Merck
Affiliate, any Immunoglobulin: 
  
 (a)
discovered, isolated or characterized by Merck or a Merck Affiliate directly out of the use of (i) Merck Antibody Phage Display Materials at a Merck Authorized Site or (ii) Licensed Antibody Expression Materials; or 
  
 (b) discovered, isolated or characterized, by a Merck
Collaborator directly out of the use of Licensed Antibody Expression Materials; or 
  
 (c) acquired or in-licensed by Merck or a Merck Affiliate in accordance with the provisions set forth in Section 9.3. 
  
 1.22 “Manufacturing Field” means the production by Merck of
an Immunoglobulin for the treatment, diagnosis, prevention and/or prophylaxis of a human or animal disease state or condition, other than via active immunization or vaccination, in quantities which exceed Research Quantities, and shall include
commercial, industrial or clinical scale production, including process validation batches or supplies suitable for a clinical trial. Specifically excluded from the Manufacturing Field is any Immunoglobulin which, at the time of manufacture and
thereafter, is not Controlled by Merck or a Merck Affiliate. 
  
 1.23 “Marketing Authorization” means any approval (including applicable pricing and governmental reimbursement approvals) required from the relevant regulatory or other competent authority to market or sell a Merck Product
in any country. 
  
 1.24 “Merck Affiliate” means,
with respect to the provisions of Article 2 any Affiliate of Merck as of the Effective Date or as provided in Section 9.3, and with respect to the remainder of this Agreement any Affiliate of Merck. Expressly excluded from the definition of Merck
Affiliate is [*]. For the avoidance of doubt, the grant, if any, of any rights or licenses under XOMA Patent Rights or XOMA Know-How pursuant to this Agreement to any Merck Affiliate shall be effective only as of the date such entity becomes an
Affiliate of Merck. Any rights or licenses granted to a Merck Affiliate automatically terminate upon the effective date of any Change of Control of such Merck Affiliate. 
  
 1.25 “Merck Antibody Phage Display Materials” means, when Controlled by Merck or a Merck Affiliate, (i) any
collection or library of polynucleotide sequences which encodes at least one Immunoglobulin and which is contained in bacteriophage and/or bacteriophage or phagemid cloning vectors capable of propagation in bacteria; or (ii) any collection or
library of bacteriophage wherein an Immunoglobulin is expressed as a fusion protein comprising an Immunoglobulin, or at least a functionally operating region of an antibody variable region, and an outer surface polypeptide of a bacteriophage,
excluding any articles of manufacture or compositions of matter when used for display, expression or secretion of an Immunoglobulin in or from any organism or system other than a prokaryote. 
  
 1.26 “Merck Authorized Sites” means (a) as it relates to
Research and Development, any location(s) under the exclusive management of Merck or a Merck Affiliate and (b) as it relates to activities within the Manufacturing Field, where each of up to three (3) locations are 

  

 -5- 

 
under the exclusive management of Merck or a Merck Affiliate and are specified in writing to XOMA, but shall not include a XOMA Authorized Site. 

 
 1.27 “Merck Collaborator” means a Third Party:

  
 (a) who has complied with the requirements of
Section 2.5; 
  
 (b) who has entered into a
written arrangement with Merck under which Merck or a Merck Affiliate retains Control with respect to the research, development and commercialization of any composition of matter or article of manufacture, including, without limitation, any Licensed
Immunoglobulin or Merck Product, which is the subject of such a written arrangement; and 
  
 (c) (i) on whose behalf Merck or a Merck Affiliate engages in Antibody Expression or 
  
 (ii) to whom Merck or Merck Affiliates transfers Licensed
Antibody Expression Materials or Licensed Immunoglobulins; or 
  
 (iii) from whom Merck in-licenses a target for development or commercialization; or 
  
 (iv) to whom XOMA has granted a license under XOMA Patent Rights to make, have made, use and/or transfer Immunoglobulins under conditions
which constitute the practice of the XOMA Patent Rights, provided, however, that (A) the activities under this Agreement are not inconsistent with or violate the terms of such license and (B) the terms of this Agreement shall govern
any activities undertaken by or on behalf of a Merck Collaborator. 
  
 No Third
Party shall be deemed to be a Merck Collaborator to the extent such Third Party is engaged in activities constituting a Commercial Antibody Engineering Business, Commercial Antibody Evolution Business or Commercial Antibody Display Business unless
such Third Party has entered into a written agreement with XOMA pursuant to which XOMA grants to such Third Party a license or covenant not to sue under the XOMA Patent Rights to make, have made, use and/or transfer Immunoglobulins under conditions
which constitute a Commercial Antibody Engineering Business, Commercial Antibody Evolution Business or Commercial Antibody Display Business, provided, [*]. 
  
 1.28 “Merck Field” means (a) Research and Development; and (b) any and all human and animal uses, other
than any Non-Approved Uses. For the avoidance of doubt, activities within the veterinary or animal field are included in the definition of the term Merck Field. 
  

1.29 “Merck Product” means, collectively, an Article 2 Product, an Article 3 Product and an Article 2/Article 3 Product. 

 
 1.30 “Net Sales” means the gross invoice price of Merck
Product sold by Merck, Merck Affiliates and Merck Selling Entities (which term does not include Third Parties that 

  

 -6- 

 
function as distributors) to the first Third Party (other than a Merck Selling Entity) after deducting, if not previously deducted, from the gross amount
invoiced by Merck, the Merck Affiliate, or the Merck Selling Entity the following items: 
  
 (a) trade, cash and quantity discounts actually allowed and taken directly with respect to such sales; 
  
 (b) excises, sales taxes or other taxes imposed upon and
paid directly with respect to such sales (excluding national, state or local taxes based income); 
  
 (c) amounts repaid or credited by reason of rejections, defects, recalls, allowances or returns or because of rebates or retroactive price
reduction; 
  
 (d) freight, transportation and
insurance; and 
  
 (e) [*]. 
  
 With respect to sales of Combination Products and on a country-by-country basis, the
“Net Sales” for royalty purposes shall be calculated by [*]. All invoice prices of the Merck Product and the Combination Product shall be calculated as the average invoice price of such active ingredients during the applicable accounting
period for which the Net Sales are being calculated. 
  
 If a Merck Product is
sold in any country only in the form of a Combination Product, Net Sales for royalty purposes shall be calculated on the basis of [*]. 
  
 1.31 “Non-Approved Uses” means (a) catalog or on-line sales of cloning or expression vectors, reagents or research or commercial kits
other than diagnostic or therapeutic products; (b) plant science or agricultural applications, other than the expression of an Immunoglobulin in a plant for use within the Merck Field; (c) other than Merck Antibody Phage Display Materials, the
creation or expression of peptides or polypeptides associated with any replicable genetic package, including, without limitation, display on a bacteriophage and/or (d) identification, selection or expression of proteins, reagents, and/or enzymes or
compositions of matter for purely industrial uses, other than the use of a Licensed Immunoglobulin in the process of making a Merck Product, or which are solely useful in the chemical industry and/or industrial manufacturing processes, including,
without limitation, the identification, selection or expression of catalytic antibodies. 
  
 1.32 “Phase I Trial” means a human clinical trial in any country that is intended to initially evaluate the safety and/or pharmacological or antigenic effect of a Merck Product in human subjects or
that would otherwise satisfy the requirements of 21 CFR 312.21(a). 
  
 1.33 “Phase III Trial” means a pivotal human clinical trial in any country the results of which could be used to established safety and efficacy of a Merck Product as a basis for a Marketing Authorization application that
would satisfy the requirements of 21 CFR 312.21(c). 
  
 1.34
“Product” means a pharmaceutical, diagnostic or biological preparation (including, without limitation, any diagnostic, prophylactic or therapeutic product) containing a 

  

 -7- 

 
Licensed Immunoglobulin in final form ready for sale and, with respect to the obligations under Sections 4.4 (Article 2 Product Milestone Payments), 4.5
(Article 3 Product Milestone Payments) and 4.6 (Milestone Payments - General), such a preparation administered to human patients in a clinical trial. 
  
 1.35 “Research and Development” means pre-clinical creation, identification, analysis, research, characterization or development of
actual or potential products (including, without limitation, antibody arrays or chips) for any purpose, including the discovery and development of therapeutics. Included within the definition of Research and Development, without limiting such
definition, shall be the identification, selection, isolation, purification, characterization, study and/or testing of an Immunoglobulin and all in vitro screening or assays customarily performed in pre-clinical research. Research and
Development shall not include clinical, commercial or industrial manufacture of Immunoglobulins or any activities primarily directed to the creation of such capacities. 
  
 1.36 “Research Quantities” means those quantities required for Research and Development purposes.

  
 1.37 “Third Party” means any person or entity
other than Merck, XOMA, or their respective Affiliates. 
  
 1.38
“Valid Claim” means a claim of an issued and unexpired patent included within the XOMA Patent Rights which claim has not been revoked, held unenforceable, or held invalid in a final decision of a court of competent jurisdiction,
unappealed or from which no appeal may be taken, and which has not been disclaimed or admitted to be invalid or unenforceable through reissue, re-examination, disclaimer or otherwise. 
  
 1.39 “XOMA Know-How” means unpatented and/or unpatentable technical information, including ideas, concepts,
inventions, discoveries, data, designs, formulas, specifications, procedures for experiments and tests and other protocols, results of experimentation and testing, fermentation and purification techniques, and assay protocols that are: (a)
Controlled by XOMA (or its Affiliates) as of the date such information is transferred to Merck in accordance with this Agreement; (b) not generally known and (c) that constitutes the then standard package of materials and information generally
provided by XOMA to its manufacturing licensees and/or research licensees (as applicable). XOMA Know-How shall not include the XOMA Patent Rights. All XOMA Know-How shall be Confidential Information of XOMA. 
  
 1.40 “XOMA Ltd.” means XOMA Ltd., a company organized under
the laws of Bermuda having its registered office at Clarendon House, 2 Church Street, Hamilton HMII, Bermuda. 
  
 1.41 “XOMA Patent Rights” means the patent applications and patents listed on Schedule 1.41 hereto, and all divisions,
continuations, continuations-in-part, applications claiming priority thereto, and substitutions thereof and all patents issuing on any of the preceding applications, including extensions, reissues and re-examinations; and any patents or patent
applications, whether now existing or obtained in the future, owned or Controlled by XOMA (or its 

  

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Affiliates) containing a claim that is dominating over the foregoing patent rights (i.e., is necessarily infringed by the practicing of a claim in one
of the foregoing applications or patents). 
  
 [*]  
  
 In addition, the following terms are defined in the corresponding sections
indicated below: 
  

			
	 Term

	  	 Section

	 AAA
	  	9.12(a)
	 Acquired Immunoglobulins
	  	9.3(b)
	 Acquisition Entity
	  	9.3(a)
	 Annual Maintenance Fee
	  	4.2
	 Article 2 Milestone Payment
	  	4.4
	 Article 3 Milestone Payment
	  	4.5
	 [*]
	  	4.7(e)
	 Closing
	  	9.3(a)
	 Merck Selling Entity
	  	2.1(b)
	 Pending Patent Claim
	  	4.7(d)
	 Records
	  	2.6(c)
	 Release
	  	2.9
	 Release Fee
	  	9.3(b)
	 Retrospective Period
	  	4.7(d)
	 Title XI
	  	9.9
	 Transferred Materials
	  	2.5(a)
	 XOMA Authorized Site
	  	3.2
	 XOMA Indemnified Party
	  	7.1
	 XOMA Liability
	  	7.1

  
 All of the above
definitions are intended to encompass the defined terms in both the singular and plural forms. 
  
 ARTICLE 2 
  
 GRANT OF
RIGHTS 
  
 2.1 License Grants. 
  
 (a) Subject to the other terms and conditions of this Agreement, XOMA hereby
grants to Merck a non-exclusive worldwide, non-transferable (other than as provided in Section 9.2) license within the Merck Field, without any right to sublicense (except to Merck Affiliates), under the XOMA Patent Rights and the XOMA Know-How:

  
 (i) solely on behalf of Merck, or on behalf
of Merck Affiliates and Merck Collaborators, to: 
  
 (A) engage in Antibody Expression; 
  

 -9- 

 (B) make and use Merck Antibody Phage Display Materials for Research and Development
purposes at the Merck Authorized Sites, including to discover Immunoglobulins; 
  
 (C) make and use Licensed Antibody Expression Materials for Research and Development purposes, including to discover, isolate,
characterize, modify, make (but not commercially manufacture) or develop Immunoglobulins; 
  
 (D) engage in Research and Development; 
  
 (E) make, have made or use Research Quantities of Licensed Immunoglobulins; and 
  
 (F) transfer to and receive from Merck Collaborators and
Development Service Providers, Licensed Antibody Expression Materials, Merck Antibody Phage Display Materials (but only at the Merck Authorized Sites), and Research Quantities of Licensed Immunoglobulins; and 
  
 (ii) use, sell, offer to sell, import and export any Merck
Product and to seek approvals from regulatory agencies in any country of the world to market and sell Merck Products. 
  
 (b) Merck is entitled to grant a license to Third Parties solely as is necessary for such Third Parties to sell Merck Product(s) on behalf of Merck and
Merck Affiliates, and any such licensee shall be referred to in this Agreement as a “Merck Selling Entity.” The term “Merck Selling Entity” shall not include Third Parties that function as distributors. Merck shall remain
responsible for the performance of any Merck Selling Entities and for any failure of a Merck Selling Entity to abide by the terms of this Agreement applicable to such Merck Selling Entity, including, without limitation, Sections 4.7 (Royalties), 4.9
(Payments; Currency), 4.10 (Payment Reports and Timing) and 4.11 (Payment Records and Audits). 
  
 (c) For the avoidance of doubt, but without limiting the scope of the license granted above, the license granted to Merck under this Section 2.1: 
  
 (i) does not permit Merck or any Merck Collaborator to manufacture, other than Research Quantities, Merck
Products using any process which would infringe a Valid Claim (it being understood that manufacturing rights are covered by Article 3 of this Agreement, and are separate and independent from the licenses and rights granted pursuant to this Section
2.1); 
  
 (ii) neither limits or applies to the
conduct by Merck or its Affiliates, on their own behalf, or on behalf of their research or development collaborators (including Merck Collaborators), of any of the activities described in subsections 2.1 (a)(i) through (a)(ii) to the extent that the
conduct of such activities, absent the license granted in this Section 2.1 would not infringe any of the XOMA Patent Rights or result in the misappropriation of XOMA Know-How; 
  

 -10- 

 (iii) does not permit Merck to make or use Merck Antibody Phage Display Materials at any
location other than the Merck Authorized Sites; and 
  
 (iv) is personal to Merck, Merck Affiliates and, as applicable, Merck Collaborators, and is to be used on behalf of any Merck Collaborator only in respect of or in connection with the activities that such Merck Collaborator is engaged in
that are the basis for meeting the definition of Merck Collaborator, as the case may be, and not any other activities. Notwithstanding that such license is personal, the parties intend that such license rights: (A) transfer with any assignment or
sale of, or grant of an exclusive license (with the right to enforce) under, the applicable XOMA Patent Rights and (B) without limiting or expanding the provisions of Section 9.2, shall be binding upon any permitted successors or assigns of XOMA
(and its Affiliates). 
  
 2.2 Covenant Not To Sue. In
partial consideration of the payments set out in Article 4, XOMA covenants that it shall not initiate or permit any XOMA Affiliate or any Third Party over whom it has control or who obtains from XOMA a right to enforce the XOMA Patent Rights to
initiate or assist in any way in the initiation or prosecution of any action asserting a claim of infringement under the XOMA Patent Rights or misappropriation of the XOMA Know-How, if any, against Merck, a Merck Affiliate, a Merck Selling Entity or
any Merck Collaborator with respect to activities permitted under the provisions of this Agreement. For the avoidance of doubt, this covenant not to sue extends to Merck Collaborators who, solely on their own behalf, but only as a Merck
Collaborator, or on behalf of Merck or Merck Affiliates, make or use Research Quantities of a Licensed Immunoglobulin under conditions otherwise authorized by this Agreement or make or use a Licensed Immunoglobulin in accordance with the provisions
of Article 3 where such activities are reasonably related to a Licensed Immunoglobulin. For the avoidance of doubt, this covenant not to sue extends only to compositions of matter or articles of manufacture Controlled by Merck, a Merck Affiliate or
a Merck Collaborator (but in the case of a Merck Collaborator only to the extent such Control by such Merck Collaborator is otherwise authorized under this Agreement). The parties agree that the covenant not to sue provided by this Section 2.2 (a)
is a covenant that transfers with any assignment or sale of, or grant of an exclusive license (with the right to enforce) under, the applicable XOMA Patent Rights and (b) without limiting or expanding the provisions of Section 9.2, shall be binding
upon any permitted successors or assigns of XOMA (and its Affiliates). The covenant not to sue provided by this Section 2.2: 
  
 (i) shall not preclude a claim of infringement or misappropriation of the XOMA Know-How, if any, arising out of making or the means or
methods used to make any amount other than Research Quantities of Licensed Immunoglobulin or Merck Product under conditions which are outside the grant of rights and licenses under Article 3; 
  
 (ii) shall become voidable by XOMA as to any Third Party
who, as a Merck Collaborator, claims its benefit but fails to materially discharge or comply with any term of its written agreement with Merck provided for in Section 2.5, but only with respect to such entity or person. Merck will use commercially
reasonable efforts to keep itself apprised of facts which would put a reasonable person on notice of such a failure or lack of compliance. If Merck becomes aware or otherwise determines that a Merck Collaborator 

  

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fails to materially discharge or comply with any term of its written agreement with Merck provided for in Section 2.5, Merck shall inform such Merck
Collaborator of such failure or lack of compliance and request that such Merck Collaborator cure such failure or lack of compliance. If such Merck Collaborator does not cure any actual failure or lack of compliance within [*] of so being informed by
Merck, then such Merck Collaborator shall lose its status as a Merck Collaborator under this Agreement and all applicable licenses and rights granted to such Merck Collaborator under this Agreement (but not any licenses or rights so granted to
Merck) shall be deemed void as of the date of such actual failure or lack of compliance; 
  
 (iii) is personal to Merck, Merck Affiliates and, as applicable, any Merck Collaborator and, except as provided for in Section 9.2, cannot
be assigned or transferred by Merck; and 
  
 (iv)
subject to and without prejudice to the release set out in Section 2.9, does not constitute a release or waiver of any infringement of the XOMA Patent Rights or misappropriation of the XOMA Know-How by Merck, any Merck Affiliate, or any Third Party
(including a Merck Selling Entity), including, without limitation, any Merck Collaborator acting outside of the scope of the written agreement with Merck provided for in Section 2.5 or the grant of rights or licenses provided for by this Agreement.

  
 2.3 No Implied Rights. Only the rights and licenses
granted pursuant to the express terms of this Agreement shall be of any legal force. No license or other rights shall be deemed to have been granted by Merck to XOMA or its Affiliates, or by XOMA to Merck, a Merck Affiliate, a Merck Selling Entity
or a Merck Collaborator other than as expressly provided for in this Agreement. For the avoidance of doubt, the grant of rights made pursuant to Section 2.1 and the covenant not to sue pursuant to Section 2.2: 
  
 (a) do not include, and expressly exclude, the following:

  
 (i) any right or license to engage in any
activities on behalf of or in collaboration with any Third Party, other than a Merck Collaborator or a Merck Selling Entity; 
  
 (ii) any right or license to engage in a Commercial Antibody Engineering Business, Commercial Antibody Evolution Business or Commercial
Antibody Display Business; 
  
 (iii) any right to
release any Third Party, including a Merck Collaborator, from any claim of infringement under the XOMA Patent Rights or misappropriation of the XOMA Know-How; 
  

(iv) any right or license under the XOMA Patent Rights or the XOMA Know-How to sell, license or Dispose of to a Third Party any
materials suitable for phage display, including Merck Antibody Phage Display Materials or to permit a Third Party to make or use phage display materials, including Merck Antibody Phage Display Materials; and/or 
  

 -12- 

 (v) any right or license to use or cause any Third Party, other than a Merck Affiliate or
Merck Collaborator, to use any composition of matter or article of manufacture covered by the XOMA Patent Rights other than Licensed Antibody Expression Materials to identify, select, characterize, study or test a polypeptide, including but not
limited to an Immunoglobulin; and 
  
 (b) extend
rights to Merck Collaborators, but do not confer any rights to such Merck Collaborator which are independent of the rights and licenses granted to Merck or Merck Affiliates. 
  
 2.4 Transfer of XOMA Know-How to Merck. At the written request of Merck, XOMA shall transfer to Merck, at a mutually
agreed place and time, XOMA Know-How and the materials identified on Schedule 2.4 (which materials shall constitute XOMA Know-How unless at the time of such transfer, the materials are not Controlled by XOMA or are generally known). XOMA
Know-How transfer is included in the fee paid pursuant to Section 4.1, and includes up to two person-days of XOMA scientific staff time at XOMA’s (or XOMA Affiliate) facilities. Thereafter, Merck may request and XOMA shall provide consult with
XOMA scientific staff at such facilities at $[*]/person-day (based on an eight hour day) beyond the two person-days. There shall be no requirement that Merck take any such XOMA Know-How and any references to such XOMA Know-How in this Agreement
shall only be to the extent that Merck actually requests and receives such XOMA Know-How. The parties acknowledge that the materials to be transferred to Merck shall be limited to XOMA’s then standard package of materials provided to its
bacterial expression licensees. Notwithstanding anything herein to the contrary, no right or license is granted pursuant to this Article 2 under the XOMA Know-How unless and until Merck makes the request referred to in the first sentence of this
Section 2.4. 
  
 2.5 Transfer Restrictions. 
  
 (a) To the extent the following activities involve or will involve the
practice of any XOMA Patent Rights and/or XOMA Know-How pursuant to, or any claim to benefit of, any license or right granted under this Agreement, Merck shall not [*] (“Transferred Materials”) to any Third Party until (in the case
of either clause (i) or clause (ii)) such time as it has provided to such Third Party the redacted copy of this Agreement referred to in Section 5.2 and the form of notice set out at Schedule 2.5. Merck covenants that it shall not Dispose of
or sell to a Third Party any Merck Antibody Phage Display Materials except as otherwise expressly permitted under this Agreement. For any entity that is an Existing Merck Collaborator, Merck shall use commercially reasonable efforts to comply with
the provisions of this Section 2.5(a) as soon as practicable after the Effective Date. Any transfers of the XOMA Know-How to any Merck Collaborator shall only be as reasonably necessary for the activities to be undertaken by the Merck Collaborator
as a Merck Collaborator and shall occur only after such Merck Collaborator agrees to keep such XOMA Know-How confidential. 
  
 (b) Except with respect to Existing Merck Collaborators, if Merck enters into a written arrangement after the Effective Date with any Third Party for
activities as to which Merck or such Third Party, as a Merck Collaborator, claims or intends to claim the benefits of any of the licenses or other grants provided for by this Agreement, such written arrangement shall contain provisions (i) pursuant
to which the recipient of any Transferred Materials agrees to abide by 

  

 -13- 

 
each of the limitations, restrictions and other obligations pertaining to the Transferred Materials applicable to Merck Collaborators contained in this
Agreement; (ii) implementing a covenant not to use Transferred Materials for any purpose other than for Research and Development otherwise authorized by this Agreement; (iii) providing that the payment of any amounts by such Merck Collaborator is
not in consideration for the use of any of the XOMA Patent Rights and (iv) permitting the recipient of such Transferred Materials to further Dispose of such Transferred Materials only to a Third Party who otherwise meets the definition of Merck
Collaborator and who executes a written agreement in which it undertakes all of the obligations applied to the transferring party. [*] For the avoidance of doubt, the right of a Merck Collaborator, shall, as it relates to Research and Development,
encompass any product or process claims contained within the XOMA Patent Rights, but only to the extent such activities are reasonably necessary to the collaboration as to which such person or entity is a Merck Collaborator and then only to the
extent Merck or a Merck Affiliate Controls any composition(s) of matter or article(s) of manufacture arising out of such practice of such claims. For any entity that is an Existing Merck Collaborator, Merck shall use commercially reasonable efforts
to comply with the provisions of this Section 2.5(b) as soon as practicable after the Effective Date. Notwithstanding any other provision of this Agreement, Merck’s failure to have secured the written agreement of any such Existing Merck
Collaborator to comply with this Section 2.5(b) shall not give rise to a breach of this Agreement by Merck (provided that Merck has exercised commercially reasonable efforts in the attempt to secure the agreement of the Existing Merck
Collaborator) but shall result in the loss by such Existing Merck Collaborator of all of its rights under this Agreement. 
  
 (c) The provisions of Section 2.5(a) shall not apply to (i) any Development Service Provider, provided, however, that no customer, client or
user of the Development Service Provider’s services or materials generated thereby (other than, as applicable, as properly used by Merck, a Merck Affiliate or a Merck Collaborator under this Agreement) shall be deemed to have been granted any
rights or licenses under the XOMA Patent Rights or the XOMA Know-How as a result of the application of this Section 2.5(c); or (ii) the XOMA Authorized Site with which Merck has entered into a manufacturing agreement in accordance with the
provisions of Section 3.2. 
  
 2.6 Reports, Records and
Audits. 
  
 (a) [*] days after the end of each calendar
quarter, commencing with the first calendar quarter after the Effective Date, Merck shall deliver to XOMA a written report which shall specify the name, address and contact person for each Merck Collaborator receiving Licensed Antibody Expression
Materials or Licensed Immunoglobulin(s), in each case solely to the extent the activities conducted by Merck for or with such Merck Collaborator involve any claim to the benefit of any license or right under XOMA Patent Rights and XOMA Know-How
granted under this Agreement, provided, however, that, solely with respect to Existing Merck Collaborators, such disclosure does not violate any confidentiality obligations existing prior to the Effective Date that Merck has to such
Existing Merck Collaborator. [*] The reports delivered by Merck to XOMA pursuant to this Section 2.6(a) shall be Confidential Information of Merck. 
  
 (b) Not later than [*] days after the end of each calendar year, commencing with the first calendar year to commence after the Effective Date, as and to
the extent publicly disclosed 

  

 -14- 

 
by Merck (whether in press releases, government filings or similar written disclosure), Merck shall deliver to XOMA written materials pertaining to the
current status of activities as to which Merck, any Merck Affiliate or any Merck Collaborator claims the right of license hereunder but only to the extent that Merck has made public disclosure of such activities. 
  
 (c) Merck shall, maintain records fully and properly reflecting those
activities to be reported to XOMA pursuant to Sections 2.6 (a) and (b) (the “Records”), in reasonable detail and in good scientific manner for at least [*], and shall cause Merck Affiliates to, and contractually require that all
Merck Collaborators do the same. If XOMA believes that Merck, a Merck Affiliate and/or the Merck Collaborators are not in compliance with the requirements of Section 2.6(a) and (b), XOMA will send Merck a written notice specifying the suspected
noncompliance. Within [*] of such notice, Merck will provide XOMA with a written response addressing the issues raised in XOMA’s notice. If following XOMA’s consideration of Merck’s response in good faith, it is not satisfied, then,
within [*] of written notice by XOMA, the parties shall meet to discuss the matter in good faith, provided, however, that if the matter is not resolved to XOMA’s satisfaction within [*] of such meeting, XOMA may declare an impasse
and exercise any other rights it might have under this Agreement. 
  
 2.7 Rights of Merck Affiliates. Merck shall be fully responsible for the performance of Merck Affiliates and for any failure of any Merck Affiliate to abide by the terms of this Agreement. If XOMA believes that any Merck Affiliate is
undertaking activities which are outside the scope of the rights granted under this Agreement or that such Merck Affiliate is not in compliance with the terms of this Agreement, XOMA shall, at its option, provide written notice thereof to Merck.
Merck shall promptly investigate the activities of such Merck Affiliate and shall take prompt remedial action, if required and report to XOMA the specifics of such remedial action. If Merck believes no such remedial action is required, it shall so
notify XOMA in writing and state its basis for such a conclusion. In the event that any Merck Affiliate undertakes activities outside the scope of the rights granted by this Agreement or fails to abide by the terms of this Agreement, or if Merck
fails to correct activities of such a nature otherwise properly identified by XOMA, then, in addition to its other rights under this Agreement, XOMA, at its option, may terminate all licenses granted to such Merck Affiliate on [*] written notice and
such Merck Affiliate would no longer be entitled to operate under the XOMA Patent Rights and XOMA Know-How licensed under this Agreement, provided, however, that in the event of a good faith dispute with respect to the existence of a
material breach, the [*] cure period shall be tolled until such time as the dispute is resolved pursuant to Section 9.12, provided, further, however, that in the event the arbitral panel decides in accordance with Section 9.12 that there
exists a material breach and XOMA subsequently terminates the licenses granted to such Merck Affiliate as provided in this Section 2.7, such termination shall be retroactive to, and the licenses granted to such Merck Affiliate shall be void as of,
the date on which such material breach first occurred. 
  
 2.8
Ownership; Enforcement. At all times XOMA will retain ownership of the XOMA Patent Rights and may use and commercialize such XOMA Patent Rights itself or with any Third Party. XOMA retains the right, at its sole discretion, to enforce,
maintain and otherwise protect the XOMA Patent Rights. 
  

 -15- 

 2.9 Release. For consideration set forth herein (including payment in full of the amount set out
in Section 4.1), XOMA (on its own behalf, and behalf of its Affiliates) permanently and forever and without further payment or conditions releases Merck, any current Merck Affiliate and their respective officers, directors, shareholders and
employees from any claims, causes of action, liabilities, demands, rights of action and damages of any nature, existing as of the Effective Date and arising out of and/or based upon or relating in any way to any act or omission prior to the
Effective Date that arises under or relates to the XOMA Patent Rights, including, without limitation, any claim of infringement of the XOMA Patent Rights (the “Release”), provided, however, that the Release shall not
extend to any composition of matter or article of manufacture which Merck or the Merck Affiliate does not, as of and after the Effective Date, Control. For the avoidance of doubt, the Release in no way modifies Merck’s payment obligations set
out in Article 4 with respect to a Licensed Immunoglobulin or Merck Product that may be subject to the Release. Nothing in this Section 2.9 shall be deemed to be a release of any claim, demand or right of action XOMA or its Affiliates may now or in
the future have against any entity or person other than Merck or such Merck Affiliates, including, without limitation, any entity or person engaged in a Commercial Antibody Display Business, Commercial Antibody Evolution Business, or Commercial
Antibody Engineering Business utilizing bacterial expression of an Immunoglobulin, except in the case of an Existing Merck Collaborator, but only to the extent of compositions of matter or articles of manufacture created prior to the Effective Date
and Controlled by Merck or a Merck Affiliate that arose directly out of the collaboration which forms the basis for the Merck Collaborator’s status as a Merck Collaborator. The Release shall become irrevocable only upon receipt by XOMA of
payment in full by Merck of the amount set forth in Section 4.1 and shall be voidable by XOMA if upon written notice to Merck such amount is not received by XOMA on or prior to the [*] following written notice to Merck from XOMA of Merck’s
breach in the payment of the full amount thereof, but shall be ratified by XOMA and become irrevocable upon XOMA’s acceptance of any payment received thereafter. XOMA expressly waives the benefits of any statutory provision or common law rule
that provides, in sum or substance, that a release does not extend to claims which the party does not know or suspect to exist in its favor at the time of executing the release that, if known by it, would have materially affected its agreement to
release the other party. For the avoidance of doubt, Merck, on its own behalf and on behalf of the Merck Affiliates, acknowledges that the Release does not waive or constitute a waiver of any obligation to pay any of the amounts payable under
Article 4 with respect to Licensed Immunoglobulins or Merck Products [*] prior to the Effective Date. 
  
 ARTICLE 3 
  
 PRODUCTION LICENSE 
  
 3.1 Production
License. In addition to the other licenses granted by this Agreement, within the Manufacturing Field, XOMA hereby grants to Merck a non-exclusive, non-assignable and non-transferable (other than as provided in Section 9.2), right and license
under the XOMA Patent Rights and the XOMA Know-How, without the right to sublicense (except as provided in Section 3.2), to: 
  
 (a) make and have made Merck Products at the Merck Authorized Sites and/or the XOMA Authorized Sites for itself and/or for Merck
Affiliates or Merck Selling Entities; and 
  

 -16- 

 (b) to use, sell, have sold, offer to sell, import and/or export Merck Products.

  
 The license granted in this Section 3.1 shall not be effective unless and
until Merck makes the payment provided for in Section 4.3 in accordance with the terms thereof. The license granted in this Section 3.1 shall not extend to any claims in any of the XOMA Patent Rights for the production of Immunoglobulins outside of
bacterial hosts or bacterial cells or to any composition of matter or article of manufacture discovered, isolated, characterized, modified, made or developed by a Third Party other than a Merck Collaborator. The rights granted to Merck pursuant to
this Section 3.1 shall be extended to sites managed by Merck or a Merck Affiliate in addition to the Merck Authorized Sites upon payment to XOMA of the fee set forth in the proviso to Section 4.3, whereupon the rights and obligations of Merck with
respect to the license granted in this Section 3.1 shall also be extended to each such additional site and such Merck Affiliate, if applicable, mutatis mutandis. 
  
 3.2 XOMA Authorized Site. Merck may “have made” Licensed Immunoglobulins or Merck Products under the XOMA
Patent Rights and the XOMA Know-How in the Manufacturing Field at the XOMA Authorized Site. All activities at the XOMA Authorized Site in the Manufacturing Field shall be pursuant to a contract manufacturing agreement with Merck pursuant to which
the XOMA Authorized Site contractually agrees with Merck to: (i) implement such customary and usual safeguards as may be necessary to insure that any XOMA Know-How that Merck provides to the manufacturer is accessed and utilized by that manufacturer
on a “need to know” basis only; (ii) limit the right to transfer or use Licensed Immunoglobulins, XOMA Patent Rights and XOMA Know-How to any Third Party, except to a Development Service Provider or as necessary to perform under the
manufacturing agreement; (iii) undertake the activities solely on behalf of Merck or a Merck Affiliate and as a result of such activities shall not claim any license or right under the XOMA Patent Rights or XOMA Know-How for the benefit of itself or
any other Third Party; (iv) abide by similar terms of confidentiality as those set forth in Article 5 of this Agreement; (v) represent that to the best of its knowledge, after reasonable investigation, it is not currently infringing any of the XOMA
Patent Rights; (vi) name XOMA as a third party beneficiary of those provisions dealing with the permitted use of XOMA Confidential Information, and the restriction or use Licensed Immunoglobulins, XOMA Patent Rights and XOMA Know-How; and (vii)
abide by the terms and conditions of any manufacturing agreement in place between such XOMA Authorized Site and XOMA, provided, however, that such XOMA Authorized Site shall not disclose to XOMA any confidential information of Merck or
any Merck Affiliate. Merck shall provide XOMA a reasonable opportunity prior to execution of any such agreement to review a redacted version of such agreement that is sufficient to confirm the foregoing obligations. Merck shall remain fully and
primarily liable for all actions of, or failures to act by, such XOMA Authorized Site in connection therewith and agrees to hold XOMA harmless with respect to any such action(s) or failure(s) to act and the requirements set out in subclauses (i)
through (vii) of this Section 3.2. For the avoidance of doubt, Merck acknowledges that no such delegation of rights shall relieve Merck of its responsibilities for performance of any of its obligations hereunder. For the purposes of this Section
3.2, the “XOMA Authorized Site”  

  

 -17- 

 
shall mean, at any given time, the single contract manufacturer designated in writing from time to time by Merck. None of [*] may be a XOMA Authorized Site,
absent the prior written consent of XOMA, such consent to be in the sole discretion of XOMA. 
  
 3.3 XOMA Transfer to Merck. Upon Merck’s written request at any time after payment of the fee provided for in Section 4.3 in accordance with
its terms, XOMA shall transfer to Merck, at a mutually agreed place and time, XOMA Know-How and the materials identified on Schedule 3.3 (which materials shall constitute XOMA Know-How unless at the time of such transfer, the materials are
not Controlled by XOMA, or are generally known). Technology transfer is included in the license fee paid pursuant to Section 4.3 and includes up to two person-days of XOMA scientific staff time at XOMA’s (or its Affiliate’s) facilities
within ninety (90) days of payment of the fee provided for in Section 4.3 in accordance with its terms (which period may be extended by mutual consent of the parties, which consent shall not be unreasonably withheld). Thereafter, Merck will be able
to consult with XOMA scientific staff at $[*]/person-day (based on an eight hour day) beyond the two person-days. The cost of all reasonable travel-related expenses will be fully reimbursed to XOMA by Merck. The parties acknowledge that the
materials to be transferred to Merck shall be limited to XOMA’s then standard package of materials provided to its manufacturing licensees. Notwithstanding anything herein to the contrary, no right or license is granted pursuant to this Article
3 under the XOMA Know-How unless and until Merck makes the request referred to in the first sentence of this Section 3.3. 
  
 3.4 No Implied Rights. Only the rights and licenses granted pursuant to the express terms of this Article 3 shall be of any legal force or effect
with respect to any activities within the Manufacturing Field, and the grant of rights pursuant to this Article 3 shall confer no right or license to engage in any of the activities covered by Article 2, including, without limitation, Research and
Development or Antibody Phage Display. The rights and license granted by this Article 3 shall be read as being separate and independent from the licenses and rights granted pursuant to Article 2. 
  
 ARTICLE 4 
  
 PAYMENTS 
  
 4.1 Technology Access, Release and Third Party Release Fee. In consideration for the rights granted to Merck and the obligations of XOMA under this
Agreement, Merck shall pay XOMA, no later than [*] days after the Effective Date, a fee of [*] United States Dollars (US$[*]). 
  
 4.2 Annual License Maintenance Fee. To maintain the licenses granted in Article 2 and Article 3 of this Agreement, Merck shall pay to XOMA an
annual maintenance fee in advance due on each of the first [*] anniversaries of the Effective Date (“Annual Maintenance Fee”). No Annual Maintenance fee is due for the first year of this Agreement. The first Annual Maintenance Fee
is payable on the first anniversary of the Effective Date. Upon payment by Merck of the [*] Annual Maintenance Fee, Merck shall no longer have any annual maintenance fee obligations to XOMA, it being understood that the foregoing in no way modifies
Merck’s payment obligations set out in Section 4.4, Section 4.5 and Section 4.7. The amount of such Annual Maintenance Fee shall be as follows: 
  
 (a) [*] United States Dollars (US$[*]), for each of the [*] payments where Merck had not paid the fee provided for in Section 4.3 in
accordance with its terms prior to the due date of such payment; or 
  

 -18- 

 (b) [*] United States Dollars (US$[*]) for each of the [*] years where Merck had paid the
fee provided for in Section 4.3 in accordance with its terms prior to the due date of such payment. 
  
 4.3 Manufacturing License Fee. To make the license granted under Section 3.1 effective, in consideration for the rights granted to Merck and the
obligations of XOMA under Article 3, Merck shall pay XOMA a one-time, non-refundable fee of [*] United States Dollars (US$[*]) within [*] days following delivery to XOMA of written notice of Merck’s intention to do so, provided,
however, that the grant of rights to Merck pursuant to Section 3.1 shall be extended as set forth therein to one or more additional (i.e., in addition to Merck Authorized Sites) sites controlled by Merck or a Merck Affiliate upon
payment to XOMA of an additional one time, non-refundable fee of [*] United States Dollars (US$[*]) per site, beyond the Merck Authorized Sites. 
  
 4.4 Article 2 Product Milestone Payments. Merck shall pay to XOMA the applicable payments below (each, an “Article 2 Product Milestone
Payment”) only once if the corresponding milestones with regard to each Article 2 Product are satisfied: 
  

				
	 Event

	  	Payment

	 
	 Initiation (i.e., dosing of a first human patient) of the first Phase I Trial
	  	US$	[*]
	 Initiation (i.e., dosing of a first human patient) of the first Phase III Trial
	  	US$	[*]
	 First Marketing Authorization
	  	US$	[*]

  
 For the avoidance of doubt, for any
Product sold only in the animal health field, Merck shall only pay the milestone fee due upon the first [*] for such Product. 
  
 4.5 Article 3 Product Milestone Payments. In addition to the Article 2 Product Milestone Payment payments set out in Section 4.4, Merck shall pay
XOMA the following amounts (each, an “Article 3 Product Milestone Payment”) only once if the corresponding milestones with regard to each Article 3 Product are satisfied: 
  

				
	 Event

	  	Payment

	 
	 Initiation (i.e., dosing of a first human patient) of the first Phase I Trial
	  	US$	[*]

  

 -19- 

				
	 Event

	  	Payment

	 
	 Initiation (i.e., dosing of a first human patient) of the first Phase III Trial
	  	US$	[*]
	 First Marketing Authorization
	  	US$	[*]

  
 For the avoidance of doubt, for any
Product sold in the animal health field, Merck shall only pay the milestone fee due upon the first [*] for such Product. 
  
 4.6 Milestone Payments – General. Each Article 2 Product Milestone Payment and Article 3 Product Milestone Payment is payable only upon the
initial achievement of each applicable milestone, and no amounts are due for subsequent or repeated achievement of such milestone by an Article 2 Product(s) or an Article 3 Product(s) containing the same Licensed Immunoglobulin. For the purpose of
this Section 4.6, a Licensed Immunoglobulin(s) is the same if the binding characteristics of the Licensed Immunoglobulin(s) have not been materially altered through the practice of the XOMA Patent Rights, the XOMA Know-How or any composition of
matter or article of manufacture claimed in the XOMA Patent Rights, or arising out of the use of XOMA Know-How. 
  
 An Article 2 and/or Article 3 Product Milestone Payment shall only be due under Sections 4.4 and 4.5 on Combination Products to the extent such Combination Products
contain a Licensed Immunoglobulin for which the applicable milestone has not previously been achieved and paid. 
  
 4.7 Royalties. In consideration for the rights and licenses granted to Merck in this Agreement and for XOMA’s performance of its obligations
under this Agreement, upon the terms and conditions contained herein, Merck will pay to XOMA royalties on a Merck Product-by-Merck Product and country-by-country basis, as set forth in this Section 4.7: 
  
 (a) Subject to the provisions of this Agreement, Merck shall
pay XOMA royalties in an amount equal to the following percentage of Net Sales of a Merck Product by Merck, Merck Affiliates or Merck Selling Entities, provided that the [*] of such Merck Product would have, but for the licenses granted in
this Agreement, infringed a Valid Claim at the time of [*] and provided further that such Valid Claim constitutes a Valid Claim at the time of sale in the country of sale as follows: 
  
 (i) [*] percent ([*]%) of Net Sales of such Merck Product
that is an Article 2 Product; 
  
 (ii) [*]
percent ([*]%) of Net Sales of such Merck Product that is an Article 3 Product; or 
  
 (iii) [*] ([*]%) percent of Net Sales of such Merck Product that is an Article 2/Article 3 Product. 
  
 (b) [*] 
  

 -20- 

 (c) [*] 
  
 (d) [*].  
  

(e) [*] 
  
 (f) Royalty Period. Royalties on a Merck Product at the applicable rate set forth in Section 4.7 (a), (b) or (c) shall begin in
each country on the date of First Commercial Sale for such Merck Product and shall end as follows: 
  
 (i) With respect to each Article 2 Product, on the later of (x) the tenth anniversary of such First Commercial Sale date for such product
in such country; or (y) the expiration of the last-to-expire Valid Claim in such country covering the [*] in such Article 2 Product. 
  
 (ii) With respect to each Article 3 Product, the later of (x) the tenth anniversary of such First Commercial Sale date for such product in
such country; or (y) the expiration of the last-to-expire Valid Claim in such country covering the [*] in such Article 3 Product. 
  
 (iii) With respect to each Article 2/Article 3 Product, on the later of (x) the tenth anniversary of such First Commercial Sale date for
such product in such country; or (y) the expiration of the last-to-expire Valid Claim in each country covering the [*] in such Article 2/Article 3 Product. 
  
 The parties acknowledge that the royalty rate payable by Merck may change during the life of a Merck Product in accordance with the provisions of Section 4.7 (a), (b),
(c), (d) or (e). A change in royalty rates shall not affect the royalty periods as set forth above. 
  
 (g) If, prior to First Commercial Sale of a Merck Product, Merck pays to XOMA a single payment of [*] United States Dollars (US$[*]),
then, at any time during the term of this Agreement, upon [*] days written notice, the applicable royalty rate hereunder for a total of [*] Merck Products of Merck’s selection and designation shall thereafter be reduced by [*] percent ([*]%),
provided, however, that the option to reduce the royalty obligation to XOMA provided for under this Section 4.7(g) shall expire on [*]. 
  
 (h) All royalties are subject to the following conditions: 
  
 (i) that the royalty rates set forth in Sections 4.7(a), 4.7(b) and 4.7(c) are not cumulative and that only
one royalty shall be due with respect to the same unit of Product; 
  
 (ii) that no royalties shall be due upon the sale or other transfer among Merck, a Merck Affiliate, a Merck Selling Entity or a Merck Collaborator; and 
  
 (iii) that no royalties shall accrue on the Disposition of Merck Product in reasonable quantities as samples
(promotion or otherwise) or as donations (for 

  

 -21- 

 
example, to non-profit institutions or government agencies for a non-commercial purpose). 
  
 4.8 Withholding Tax. 
  
 (a) Withholding of Tax. If applicable laws, rules or regulations require withholding of income or other taxes imposed upon any payments made by
Merck to XOMA under Article 4, including without limitation any access, license, milestone, or royalty payments hereunder, Merck shall make such withholding payments as may be required and shall subtract such withholding payments from such payments;
provided, however, that in regard to any tax so subtracted, Merck shall give or cause to be given to XOMA such assistance as may reasonably be necessary to enable XOMA to claim any available withholding exemptions, rate reductions and/or
credits or refunds in respect of any withholding. If XOMA claims a reduced rate of withholding on such payments under any treaty with the United States, XOMA will provide Merck with a valid certificate of foreign status of beneficial owner for
United States withholding (Form W-8BEN or any other form upon which a withholding agent may rely under the U.S. Treasury Regulations to treat the payment as made to a foreign beneficial owner) after which any subsequent payments will reflect such
reduced rate. Merck shall submit appropriate proof of payment of the withholding taxes to XOMA within a reasonable period of time. 
  
 (b) Indemnification for Withholding Tax. XOMA shall indemnify and hold Merck and Merck Affiliates harmless from, and shall be entitled to any
refund of, all withholding taxes imposed on Merck and Merck Affiliates in respect of payments made under Article 4. To be clear, such indemnification shall be required only with respect to withholding taxes imposed upon any payment made by Merck to
XOMA under Article 4, and not previously withheld from XOMA, as the result of an assessment by a tax authority subsequent to such payment due to the nonapplicability of a tax treaty or other provision reducing such taxes. Notwithstanding the
foregoing, XOMA shall not be required to indemnify or hold Merck or any Merck Affiliates harmless from any withholding taxes imposed on Merck and Merck Affiliates to the extent such taxes arise or result from actions by Merck or any Merck Affiliates
constituting negligence, bad faith or willful misconduct or failures to act by Merck or any Merck Affiliates. 
  
 4.9 Payments; Currency. All payments due under this Article 4 shall be paid by wire transfer in United States dollars in immediately available
funds to an account designated by XOMA. If any currency conversion shall be required in connection with the payment of any royalties hereunder, such conversion shall be made by using the exchange rate used by Merck in its worldwide accounting system
for the calendar quarter to which such payments relate. 
  
 4.10
Payment Reports and Timing. 
  
 (a) Milestone
Reports. Merck shall make a written report to XOMA within [*] days of the achievement of each of the milestones set forth in Sections 4.4 and 4.5 with respect to each Merck Product, stating in each such report the Merck Product to which such
milestone relates and the specific milestone achieved, including for the Marketing Authorization milestone, the relevant agency or other regulatory body issuing such Marketing Authorization. Milestone payments required pursuant to Sections 4.4 and
4.5 shall be due and payable to XOMA within [*] days of the achievement of each of milestone. 
  

 -22- 

 (b) Royalty Reports. After the First Commercial Sale of a Merck Product on which royalties are
required to be paid hereunder, Merck shall make quarterly written reports to XOMA within [*] days after the end of each calendar quarter, stating in each such report, [*], and aggregate Net Sales of each Merck Product sold during the calendar
quarter. XOMA shall treat all such reports as Confidential Information of Merck. Royalties shown to have accrued by each royalty report shall be due and payable on [*]. Merck shall keep – and shall contractually require all Merck Selling
Entities to keep — complete and accurate records in sufficient detail to enable the royalties payable under this Agreement to be determined. 
  
 4.11 Payment Records and Audits. 
  
 (a) Merck shall, and shall contractually require all Merck Selling Entities to, keep complete, true and accurate books of account for, and records of Net
Sales of, Merck Product in sufficient detail to enable the royalties payable under this Agreement to be determined for at least [*] following the end of the calendar quarter after such Net Sales occur. 
  
 (b) Upon the written request of XOMA and not more than [*], Merck shall
permit an internationally recognized auditor appointed by XOMA and reasonably acceptable to Merck to have access during normal business hours to such of the records of Merck as may be reasonably necessary to verify the accuracy of the royalty
reports under this Agreement for [*] ending not more than [*] prior to the date of such request. The auditor shall only disclose to XOMA whether the royalty reports are correct or incorrect and the amount of any discrepancy. No other information
shall be provided to XOMA without the prior consent of Merck unless disclosure is required by law, regulation or judicial order. If XOMA determines that disclosure is required by law, regulation or judicial order, it shall give Merck prior notice
thereof reasonably sufficient for Merck to seek a protective order against or limiting such disclosure. Merck is entitled to require the auditor to execute a reasonable confidentiality agreement prior to commencing any such audit. 
  
 (c) Audits conducted under this Section 4.11 shall be at the expense of XOMA,
unless an underpayment exceeding [*] United States Dollars ($[*]) and [*] percent ([*]%) of the amount stated for the full period covered by the audit is identified, in which case all reasonable out-of-pocket costs incurred by the auditor to perform
the audit will be paid promptly by Merck. Any underpayments or unpaid amounts discovered by such inspections or otherwise will be paid promptly by Merck, [*]. In the event of an overpayment by Merck, Merck shall be entitled to a credit on any
subsequent payment due to XOMA. 
  
 4.12 No Admission.
Merck does not acknowledge or admit that the XOMA Patent Rights are valid or in-fringed, and this license agreement may not be used under any circumstances, whether in litigation or otherwise, as evidence of the validity or infringement of any of
the XOMA Patent Rights or any claims thereof. 
  

 -23- 

 ARTICLE 5 
  

CONFIDENTIALITY 
  
 5.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for [*] thereafter,
the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except for the purposes contemplated by this Agreement any Confidential Information furnished to it by the
disclosing party hereto, except to the extent that it can be established by the receiving party by written proof that such Confidential Information: 
  
 (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure, as documented
by the receiving party’s business records; 
  
 (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; 
  
 (c) became generally available to the public or otherwise part of the public domain after its disclosure other than through any act or
omission of the receiving party in breach of this Agreement; or 
  
 (d) was subsequently developed by the receiving party without use of the Confidential Information as demonstrated by written records, or subsequently lawfully disclosed to the receiving party by a Third Party not
under a confidentiality obligation to the disclosing party. 
  
 5.2 Permitted Use and Disclosures. Each party hereto may use or disclose Confidential Information disclosed to it by the other party to the extent such use or disclosure is reasonably necessary in complying with applicable law or
government regulations; provided, however, that if a party is required to make any such disclosure of another party’s Confidential Information, other than pursuant to a confidentiality agreement, it will give reasonable advance
notice to the latter party of such disclosure. Attached hereto as Schedule 5.2 is a redacted copy of this Agreement which Merck shall be free, without obtaining any consent from XOMA, to provide to Third Parties who indicate an interest in
becoming a Merck Collaborator. 
  
 5.3 Confidential Terms.
Except as expressly provided herein, each party agrees not to disclose any terms of this Agreement to any Third Party without the consent of the other party; provided, that disclosures may be made as required by securities or other applicable
laws, to a party’s accountants, attorneys, other professional advisors or to a bona fide potential acquirer of either party or any actual or potential Merck Collaborators, all of whom agree to be bound by the terms of this Agreement with
respect to such disclosures or who are otherwise subject to the requirements of confidentiality with respect to such disclosure at least as stringent as those required by this Agreement. 
  
 5.4 Agreement Announcement. The parties hereby agree to the release of a press release in the form attached hereto as
Schedule 5.4 upon full execution of this Agreement and that 

  

 -24- 

 
the fact of the consummation of this Agreement as well as such terms as are expressly described in such press release, but not its financial or other terms,
shall be deemed to be in the public domain. 
  
 ARTICLE 6

  
 REPRESENTATIONS AND WARRANTIES 
  
 6.1 Representations and Warranties. 
  
 (a) XOMA represents and warrants to Merck that: (i) it is the sole and
exclusive owner or exclusive licensee of all right, title and interest in the XOMA Patent Rights and XOMA Know-How; (ii) XOMA has the legal right, authority and power to enter into this Agreement; (iii) this Agreement shall constitute a valid and
binding obligation of XOMA enforceable in accordance with its terms; and (iv) the performance of obligations under this Agreement by XOMA shall not result in a breach of any agreements, contracts or other arrangements to which it is a party.

  
 (b) Merck represents and warrants to XOMA that: (i) Merck has
the legal right, authority and power to enter into this Agreement; (ii) this Agreement shall constitute a valid and binding obligation of Merck enforceable in accordance with its terms; (iii) the performance of obligations under this Agreement by
Merck shall not result in a breach of any agreements, contracts or other arrangements to which it is a party; and (iv) it is not engaged in a [*]. 
  
 6.2 Disclaimer. Nothing in this Agreement is or shall be construed as: 
  
 (a) a warranty or representation by XOMA as to the validity or scope of any claim or patent within the XOMA
Patent Rights; 
  
 (b) a warranty or
representation that anything made, used, sold, or otherwise Disposed of under any license granted in this Agreement is or will be free from infringement of any patent rights or other intellectual property right of any Third Party; 
  
 (c) an obligation to bring or prosecute actions or suits
against Third Parties for infringement of any of the XOMA Patent Rights or misappropriation of the XOMA Know-How; 
  
 (d) a grant of any right or license under any claim of any patent or patent application which covers a specific Immunoglobulin,
polypeptide or any method of diagnosing, preventing, treating any disease or condition; 
  
 (e) an obligation to maintain any patent or to continue to prosecute any patent application included within the XOMA Patent Rights in any
country; or 
  
 (f) an admission, acceptance,
acknowledgment, statement, declaration or representation by either party as to the infringement, validity or scope of any claim or patent within the XOMA Patents. 
  

 -25- 

 6.3 No Other Warranties. EXCEPT AS OTHERWISE SET FORTH IN SECTION 6.1 ABOVE, XOMA MAKES NO
WARRANTIES WITH RESPECT TO ANY OF THE XOMA PATENT RIGHTS OR XOMA KNOW-HOW LICENSED HEREUNDER, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND XOMA SPECIFICALLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF
MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE, OF VALIDITY OF SUCH XOMA PATENT RIGHTS AND XOMA KNOW-HOW ARISING FROM COURSE OF DEALING OR OF NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY. 
  
 ARTICLE 7 
  
 INDEMNIFICATION 
  
 7.1 Indemnification of XOMA by Merck. Merck agrees to indemnify, defend and hold XOMA, its Affiliates, and their respective directors, officers,
employees and agents (the “XOMA Indemnified Parties”) harmless from and against any and all liabilities, losses and expenses (including, without limitation, reasonable attorneys and professional fees and other costs of litigation),
resulting from any claims, demands or causes of action brought by any Third Party (each, a “XOMA Liability”) to the extent arising out of (i) the possession, manufacture, use, sale or other Disposition of Merck Product, Licensed
Antibody Expression Materials, Licensed Immunoglobulins or the provision of any service or goods relating thereto by Merck or Merck Affiliates, or any customer, vendor or other representative of Merck or a Merck Affiliate, whether based on breach of
warranty, negligence, product liability or otherwise, or (ii) the exercise of any right granted to Merck pursuant to this Agreement, and to each Merck Affiliate who obtains or claims a right or license under this Agreement, except to the extent, in
each case, that such XOMA Liability is caused by the negligence or willful misconduct of a XOMA Indemnified Party. 
  
 7.2 Procedure. To receive the benefit of indemnification under Section 7.1, a XOMA Indemnified Party must (a) promptly notify Merck in writing of a
claim or suit; provided, that failure to give such notice shall not relieve Merck of its indemnification obligations except where, and solely to the extent that, such failure actually and materially prejudices the rights of Merck; (b) provide
reasonable cooperation (at Merck’s expense); and (c) tender to Merck (and its insurer) full authority to defend or settle the claim or suit; provided that no settlement requiring any admission by the XOMA Indemnified Party or that
imposes any obligation on the XOMA Indemnified Party (except payment of money to be paid by Merck) shall be made without the XOMA Indemnified Party’s consent. Merck shall not have any obligation to indemnify XOMA in connection with any
settlement made without Merck’s written consent. Each XOMA Indemnified Party has the right to participate at its own expense in the claim or suit and in selecting counsel therefor. Each XOMA Indemnified Party shall cooperate with Merck (and its
insurer), as reasonably requested. 
  

 -26- 

 ARTICLE 8 
  

TERM AND TERMINATION 
  
 8.1 Term. Subject to Sections 8.5 and 8.6 hereof, the term of this Agreement will commence on the Effective Date and shall remain in full force and
effect until the last to expire of the XOMA Patent Rights or the tenth anniversary of the First Commercial Sale of any Merck Product, whichever is later, unless earlier terminated pursuant to Section 8.2, 8.3 or 8.4. Upon such expiration, Merck
shall have a fully paid-up, royalty-free right and license to continue to use the XOMA Know-How as permitted by Article 2, and Article 3, if applicable. 
  
 8.2 Termination for Material Breach. 
  
 (a) This Agreement may be terminated by the non-breaching party if the other party is in breach of its material obligations under this Agreement and after
receiving notice describing such breach in reasonable detail and requesting its cure has not cured such breach within [*] business days (in the case of a payment breach) or [*] (in the case of a non-payment breach). Notwithstanding the foregoing
sentence of this Section 8.2: (a) if such breach is cured or shown to be non-existent within the aforesaid [*] days or [*] day period, the notice shall be deemed automatically withdrawn and of no effect and the notifying party shall provide written
notice to the breaching party of the withdrawal; and (b) without limiting the effects of Section 2.7 and the following sentence of this Section 8.2(a), in the event of a good faith dispute with respect to the existence of a material breach, the [*]
day or [*] day cure period shall be tolled until such time as the dispute is resolved pursuant to Section 9.12. For the avoidance of doubt, XOMA shall be entitled to terminate the licenses granted under this Agreement on [*] days notice if Merck or
any Merck Affiliate [*], provided, however that in the event of a good faith dispute with respect to whether Merck or a Merck Affiliate has entered into a [*], such [*] day cure period shall be tolled until such time as the dispute is
resolved pursuant to Section 9.12, provided, further, however, that in the event the arbitral panel decides in accordance with Section 9.12 that Merck or such Merck Affiliate has entered into a [*] and XOMA subsequently terminates the
licenses granted under this Agreement as provided in this Section 8.2(a), such termination shall be retroactive to, and the licenses granted under this Agreement shall be void as of, the date on which Merck or such Merck Affiliate, as the case may
be, first entered into a [*]. Such termination right shall not apply to the extent Merck [*]. 
  
 (b) With respect to Merck Collaborators as of the date of a termination by XOMA of this Agreement due to a material breach by Merck, any such termination shall be effective against each such Merck Collaborator unless,
within [*] days after written notice from XOMA of such termination, such Merck Collaborator executes a written agreement with XOMA directly obligating such Merck Collaborator to comply with all of the provisions of this Agreement applicable to such
Merck Collaborator with respect to any and all compositions of matter or articles of manufacture subject thereto as of the date of such termination. The licenses and other rights granted hereunder shall continue with respect to such Merck
Collaborators, subject to such agreement and subject to all payments payable hereunder with respect to such compositions of matter or articles of manufacture. Upon any termination under this Section 8.2 by XOMA, Merck shall promptly (and in any
event not later than [*] days thereafter) deliver to XOMA a 

  

 -27- 

 
written report specifying as of the date of such termination the information required by Section 2.6(a). 
  
 8.3 Termination for Insolvency. If voluntary or involuntary
proceedings by or against either party are instituted in bankruptcy under any insolvency law, or a receiver or custodian is appointed for either party, or proceedings are instituted by or against either party for corporate reorganization or the
dissolution of such party, which proceedings, if involuntary, shall not have been dismissed within [*] days after the date of filing, or if either party makes an assignment for the benefit of creditors, or substantially all of the assets of either
party are seized or attached and not released within [*] days thereafter, the other party may immediately terminate this Agreement effective upon notice of such termination. 
  
 8.4 Contested Validity. If Merck, a Merck Collaborator or any person or entity controlled by any of the foregoing
contests the validity or enforceability of any of the XOMA Patent Rights licensed hereunder, XOMA shall have the right to terminate all of the rights and licenses hereby granted to Merck and any Merck Collaborator under the XOMA Patent Rights upon
[*] advance written notice from XOMA; provided, however, that in the event a Merck Collaborator contests the validity or enforceability of any of the XOMA Patent Rights licensed hereunder other than at the direction, and without the
knowing assistance, of Merck, then the foregoing termination right of XOMA shall apply only to the rights hereby granted to such Merck Collaborator; and provided further, that such termination shall not be effective if within [*] of its
receipt of written notice from XOMA of such termination, such Merck Collaborator enters into an agreement with XOMA under which the Merck Collaborator agrees to comply with all provisions of this Agreement applicable to Merck Collaborators.

  
 8.5 Effect of Termination. 
  
 (a) Termination of this Agreement shall not release either party hereto from
any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination nor preclude either party from pursuing any rights and remedies it may have hereunder or at
law or in equity with respect to any breach of this Agreement. 
  
 (b) Upon any termination of this Agreement, Merck and XOMA shall promptly return to the other party all Confidential Information received from the other party (except that each party may retain one copy for its files solely for the purpose
of determining its rights and obligations hereunder), except that Merck shall not be required to return to XOMA Confidential Information received from XOMA in the case of a termination for XOMA’s material breach. 
  
 (c) Except as expressly provided in Sections 8.1 and 8.2, all licenses and
rights granted under Articles 2 and 3 hereof shall terminate and be of no further effect upon the termination of this Agreement, provided, however, that in the event that Merck terminates this Agreement for XOMA’s material breach,
then (i) Merck’s rights and licenses under Articles 2 and 3 shall survive together with Merck’s obligation to pay appropriate milestones under Sections 4.4 and 4.5, royalties owed pursuant to Section 4.7 (a), and any payments owed pursuant
to Section 9.3; (ii) all of XOMA’s other rights under this Agreement shall terminate as of such termination date; (iii) Merck, except with respect to Sections 2.5, 2.6(a), 3.2 and 4.9 [*], shall have 

  

 -28- 

 
no further obligations to XOMA under this Agreement; and (iv) Merck shall be entitled to set off any damages caused by XOMA’s breach giving rise to
termination against any payments owed by Merck under this Agreement. 
  
 8.6 Survival. Sections 2.6(c), 2.8, 2.9, 4.11, 4.12, 8.2(b), 8.5 and 8.6, and Articles 1, 5, 6, 7 and 9, of this Agreement shall survive any termination hereof. 
  
 ARTICLE 9 
  
 MISCELLANEOUS PROVISIONS 
  
 9.1 Governing Law. This Agreement and any dispute, including, without limitation, any arbitration, arising from the performance or breach hereof
shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to conflicts of laws principles. 
  
 9.2 Assignment. Neither party may transfer or assign this Agreement, directly or indirectly, or any of its rights hereunder without the prior
written consent of the other party, other than (a) to one or more Affiliates, (b) to a successor of XOMA Ltd. or XOMA under a Change in Control of XOMA Ltd. or to a successor of Merck under a Change in Control of Merck to which Section 9.3 does not
apply, or (c) to a Third Party in connection with the transfer or sale of all or substantially all or its business relating to [*] and the provision of related services (other than with respect to such a transfer or sale by Merck to any person or
entity described in Section 9.3). Any such attempted transfer or assignment in violation of this Section 9.2 shall be void; provided, that in the event of a permitted Change in Control, the original party’s (or its successor’s)
obligations hereunder shall continue. This Agreement shall be binding upon and inure to the benefit of the parties and their permitted successors and assigns. 
  

9.3 Certain Acquisitions, Licenses and Changes in Control. 
  
 (a) In the event of a transaction or series of related transactions to which Merck or an Affiliate of Merck is a party and
which results in either an entity that is not an Affiliate of Merck as of the Effective Date becoming an Affiliate of Merck or the acquisition or control by Merck or an Affiliate of Merck of an operating unit or other substantial amount of assets of
an entity that is not an Affiliate of Merck as of the Effective Date, then, effective as of the closing date of such transaction or series of related transactions (the “Closing”) and solely with respect to such new Affiliate of
Merck or the entity through which Merck or an Affiliate of Merck acquires or controls such operating unit or assets (the “Acquisition Entity”), such Acquisition Entity shall, subject to the other terms and conditions of this
Agreement, be deemed to be a Merck Affiliate and enjoy all of the rights and licenses otherwise enjoyed by Merck and the Merck Affiliates; provided, however, that: 
  
 (i) if such Acquisition Entity is engaged or was engaged in a [*], after a reasonable period of time, Merck
shall either: 
  
 (x) hold such Acquisition Entity as a separate
entity and such Acquisition Entity shall not enjoy the rights and licenses enjoyed by Merck and its Affiliates under 

  

 -29- 

 
this Agreement and no license or grant of rights shall be deemed to have been granted prospectively or retrospectively with respect to such entity; or

  
 (y) cause such Acquisition Entity to cease all activities
constituting [*] and, upon such cessation, such Acquisition Entity shall be deemed to be a Merck Affiliate; 
  
 (ii) any infringement or unauthorized use of the XOMA Patent Rights or, if applicable, the XOMA Know-How, by the Acquisition Entity before
the Closing shall not be deemed to be released or waived; and 
  
 (iii) any composition of matter or article of manufacture, including any Immunoglobulin, other than as provided for by the immediately following sentence of this Section 9.3(a), shall not be licensed under any patent
or patent application owned or controlled by XOMA, including, without limitation, the XOMA Patent Rights, and any claims of infringement or unauthorized use of such patent or patent application shall not be deemed to have been released or waived.
For the avoidance of doubt, it is understood that any composition of matter or article of manufacture which after the Closing, other than with respect to its creation, otherwise meets the definition of Licensed Antibody Expression Materials or Merck
Antibody Phage Display Materials shall, after such Closing and to the extent the other conditions of this Agreement are met, be deemed to be Licensed Antibody Expression Materials or Merck Antibody Phage Display Materials, as the case may be.

  
 (b) In the event that Merck or any Affiliate of Merck, after
the Effective Date, obtains by acquisition of an Acquisition Entity as provided in Section 9.3(a) Control of one or more Immunoglobulins discovered, made, used, sold, offered for sale or imported under conditions which utilized or involved the
practice of the XOMA Patent Rights (all such Immunoglobulins together with their back-ups (i.e. a reasonable number of Immunoglobulins existing as of the date of the Acquisition that principally bind to the same target), “Acquired
Immunoglobulins”), then each such Acquired Immunoglobulin shall be treated, as of the date of the payment of the applicable fee described herein, as if it were a Licensed Immunoglobulin under this Agreement (x) immediately if the
Acquisition Entity was licensed under the XOMA Patent Rights; or (y) upon the satisfaction of the other requirements of this Section 9.3(b). Unless the Acquisition Entity was licensed under the XOMA Patent Rights, in order for Merck or its
Affiliates to obtain the benefit of this Section 9.3(b), [*]. Simultaneously with the delivery of the written notice provided for by this Section 9.3(b), [*] at Closing [*] of such Acquired Immunoglobulin(s), Merck shall pay, for each Acquisition
Entity as to which Merck seeks the benefit of this Section 9.3(b), a one-time fee covering all Acquired Immunoglobulins (a “Release Fee”) provided for in the following table: 
  

				
	             [*] Acquired
Immunoglobulin at Closing

	  	Release Fee

	 
	 [*]
	  	US$	[*]
	 [*]
	  	US$	[*]

  

 -30- 

				
	             [*] Acquired
Immunoglobulin at Closing

	  	Release Fee

	 
	 [*]
	  	US$	[*]
	 [*]
	  	US$	[*]

  
 Notwithstanding the foregoing, in the
event an Acquisition Entity’s principal asset is a single Immunoglobulin, then the applicable Release Fee required by this Section 9.3(b) shall be determined using the table set forth in Section 9.3(c) but the provisions of this Section 9.3(b)
shall otherwise apply in their entirety. 
  
 (c) In the event that
Merck or any Affiliate of Merck, after the Effective Date, obtains, by asset purchase, exclusive license or acquisition of an entity as to which the Release Fee provided for in Section 9.3(b) has not been paid, Control of an Acquired Immunoglobulin
not otherwise licensed under the XOMA Patent Rights, and if the other requirements of this Section 9.3(c) are satisfied, then such Acquired Immunoglobulin shall be treated, as of the date of the payment of the applicable fee described herein, as if
it were a Licensed Immunoglobulin under this Agreement. In order for Merck or its Affiliates to obtain the benefit of this Section 9.3(c), Merck must, within [*] days of the date of obtaining Control of such Acquired Immunoglobulin, provide written
notice to XOMA specifying the identity of the Acquired Immunoglobulin, [*]. Simultaneously with the delivery of the written notice provided for by this Section 9.3(c), [*] of the Acquired Immunoglobulin, Merck shall pay, for each Acquired
Immunoglobulin as to which Merck seeks the benefit of this Section 9.3(c), the Release Fee provided for in the following table: 
  

				
	[*]	  	Release Fee

	 
	 [*]
	  	US$	[*]
	 [*]
	  	US$	[*]
	 [*]
	  	US$	[*]
	 [*]
	  	US$	[*]

  
 Notwithstanding the foregoing
provisions of this Section 9.3(c), in the event Merck or an Affiliate of Merck obtains complete Control of more than one Acquired Immunoglobulin in a single transaction or series of related transactions, then in lieu of complying with the provisions
of this Section 9.3(c) for each such Acquired Immunoglobulin, Merck or such Affiliate of Merck may instead elect to treat all such Acquired Immunoglobulins as if they had been obtained through the acquisition of an Acquisition Entity and comply with
the provisions of Section 9.3(b), which will thereby apply to all such Acquired Immunoglobulins. 
  
 (d) Upon receipt of the applicable fee in accordance with Section 9.3(b) or Section 9.3(c), as applicable, XOMA shall acknowledge in writing receipt of
such payment and that the 

  

 -31- 

 
identified Acquired Immunoglobulin(s) shall, as of that date, be treated as Licensed Immunoglobulin(s) for all purposes under this Agreement. For each
Acquired Immunoglobulin as to which the applicable notice is given and the applicable payment is made, it is understood that (i) the rights granted to Merck or its Affiliates hereunder do not release or waive any claim XOMA may have against any
Third Party from whom Merck or its Affiliates obtained such Acquired Immunoglobulin (other than, where Section 9.3(b) applies and has been complied with, the relevant Acquisition Entity) or any person or entity acting in concert therewith; and (ii)
all of the other rights and obligations of this Agreement, including, without limitation, those provided for in Article 4, shall apply to such Acquired Immunoglobulin as if Merck or its Affiliates, after the Effective Date, had [*], as applicable,
such Acquired Immunoglobulin. 
  
 9.4 Waiver. No waiver of
any rights shall be effective unless consented to in writing by the party to be charged and the waiver of any breach or default shall not constitute a waiver of any other right hereunder or any subsequent breach or default. 
  
 9.5 Severability. In the event that any provisions of this Agreement
are determined to be invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect without said provision. 
  
 9.6 Notices. All notices, requests and other communications hereunder shall be in writing and shall be delivered or
sent in each case to the respective address specified below, or such other address as may be specified in writing to the other party hereto, and shall be effective on receipt: 
  

					
	Merck:	  	 	  	Merck & Co., Inc.
	 	  	 	  	One Merck Drive
	 	  	 	  	P.O. Box 100 [*]
	 	  	 	  	Whitehouse Station, NJ 08889
	 	  	 	  	U.S.A.
	 	  	 	  	Attn: [*]
	 	  	 	  	Fax No: [*]
			
	 	  	and	  	Merck & Co., Inc.
	 	  	 	  	One Merck Drive
	 	  	 	  	P.O. Box 100 [*]
	 	  	 	  	Whitehouse Station, NJ 08889-0100
	 	  	 	  	Attn: [*]
	 	  	 	  	Fax No: [*]
			
	XOMA:	  	 	  	XOMA Ireland Limited
	 	  	 	  	Shannon Airport House
	 	  	 	  	Shannon, County Clare
	 	  	 	  	Ireland
	 	  	 	  	Attn: Company Secretary

  

 -32- 

 with a copy (which shall not constitute notice) to: 
  

					
	 	  	 	  	Cahill Gordon & Reindel LLP
	 	  	 	  	80 Pine Street
	 	  	 	  	New York, NY 10005
	 	  	 	  	U.S.A.
	 	  	 	  	Attn: Geoffrey E. Liebmann

  
 9.7 Independent
Contractors. Both parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor is to be construed so as to constitute XOMA or Merck as partners or joint venturers with respect to this Agreement.
Except as expressly provided herein, neither party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any other contract, agreement,
or undertaking with any Third Party. 
  
 9.8 Compliance with
Laws. In exercising their rights under this license, the parties shall comply in all material respects with the requirements of any and all applicable laws, regulations, rules and orders of any governmental body having jurisdiction over the
exercise of rights under this Agreement. 
  
 9.9
Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by one party to the other are, for all purposes of Section 365(n) of Title XI of the United States Code (“Title XI”), licenses of rights to
“intellectual property” as defined in Title XI. During the term of this Agreement each party shall create and maintain current copies to the extent practicable of all such intellectual property. If a bankruptcy proceeding is commenced by
or against one party under Title XI, the other party shall be entitled to a copy of any and all such intellectual property and all embodiments of such intellectual property, and the same, if not in the possession of such other party, shall be
promptly delivered to it (a) upon such party’s written request following the commencement of such bankruptcy proceeding, unless the party subject to such bankruptcy proceeding, or its trustee or receiver, elects within [*] to continue to
perform all of its obligations under this Agreement, or (b) if not delivered as provided under clause (a) above, upon such other party’s request following the rejection of this Agreement by or on behalf of the party subject to such bankruptcy
proceeding. If a party has taken possession of all applicable embodiments of the intellectual property of the other party pursuant to this Section 9.9 and the trustee in bankruptcy of the other party does not reject this Agreement, the party in
possession of such intellectual property shall return such embodiments upon request. If a party seeks or involuntarily is placed under Title XI and the trustee rejects this Agreement as contemplated under 11 U.S.C. 365(n)(1), the other party hereby
elects, pursuant to Section 365(n) of Title XI, to retain all rights granted to it under this Agreement to the extent permitted by law. 
  
 9.10 Use of Name. Neither party shall use the name or trademarks of the other party, except to the extent that a party is permitted to use the
Confidential Information of the other party pursuant to Article 5, without the prior written consent of such other party. 
  
 9.11 Further Actions. Each party agrees to execute, acknowledge and deliver such further instruments, and do such other acts, as may be necessary
in order to carry out the purposes and intent of this Agreement. 
  

 -33- 

 9.12 Arbitration. 
  
 (a) Solely with respect to any dispute between the parties (other than any dispute which arises out of or relates to
infringement, validity and/or enforceability of the XOMA Patent Rights) the parties shall negotiate in good faith and use reasonable efforts to resolve any such dispute. In the event that the parties, within [*] days do not fully resolve any such
dispute, then either party may declare an impasse and initiate arbitration by giving notice to that effect to the other party and by filing the notice with the American Arbitration Association or its successor organization (“AAA”)
in accordance with its Commercial Arbitration Rules, to which shall be added the provisions of the U.S. Federal Rules of Civil Procedure relating to the production of evidence and discovery. Such dispute shall then be settled by arbitration in New
York, in accordance with the Commercial Arbitration Rules of the AAA or other rules agreed to by the parties, by a panel of three (3) neutral arbitrators experienced in the pharmaceutical business. Within [*] days after notice of initiation of
arbitration, each party shall select one person to act as arbitrator and the two party-selected arbitrators shall select a third arbitrator (who shall be a neutral arbitrator who is an attorney with at least ten (10) years experience in the
pharmaceutical field) within [*] days of their appointment. If the arbitrators selected by the parties are unable or fail to agree upon the third arbitrator, the third arbitrator shall be appointed by the AAA. 
  
 (b) The parties acknowledge that this Agreement evidences a transaction
involving interstate commerce. Insofar as it applies, the United States Arbitration Act shall govern the interpretation of, enforcement of, and proceedings pursuant to the arbitration clause in this Agreement. Except insofar as the United States
Arbitration Act applies to such matters, the agreement to arbitrate set forth in this Section 9.12 shall be construed, and the legal relations among the parties shall be determined in accordance with, the substantive laws of the State of New York.
In addition, the arbitrators shall, with respect to the matter of legal interpretation of this Agreement, be bound by and subject to the relevant decisional law as determined by the Federal and state courts of New York, and the parties agree that
the arbitrators may impose sanctions in their discretion to enforce compliance with discovery and other obligations. 
  
 (c) The panel shall render its decision and award, including a statement of reasons upon which such award is based, within [*] days after the arbitration
hearing. The decision of the panel shall be determined by majority vote among the arbitrators, shall be in writing and shall be binding upon the parties, final and non-appealable. Judgment upon the award rendered by the panel may be entered in any
court having jurisdiction thereof in accordance with Section 9.13(a). 
  
 (d) Except as provided under the United States Arbitration Act and with respect to the infringement, validity and/or enforceability of the XOMA Patent Rights, no action at law or in equity based upon any dispute that is subject to
arbitration under this Section 9.12 shall be instituted. 
  
 (e)
Either party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Either party also may, without waiving any remedy under this Agreement, seek from any court
having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that party pending the arbitration award. 
  

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 (f) Each party shall bear its own costs and expenses and attorneys’ fees and an equal share of the
arbitrators’ fees and any administrative fees of arbitration [*]. 
  
 (g) The arbitrators shall have no authority to award punitive or any other type of damages not measured by a party’s compensatory damages. 
  
 (h) Except to the extent necessary to confirm an award or as may be required by law, neither a party nor an arbitrator may disclose the existence,
content, or results of an arbitration without the prior written consent of both parties. In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim
would be barred by the applicable New York statute of limitations. 
  
 9.13 Venue; Jurisdiction. 
  
 (a) Any action or
proceeding brought by either party seeking to enforce any provision of, or based on any right arising out of, this Agreement must be brought against either party in the courts of the State of New York. Each party (i) hereby irrevocably submits to
the jurisdiction of the state courts of the State of New York and to the jurisdiction of any United States District Court in the State of New York, for the purpose of any suit, action, or other proceeding arising out of or based upon this Agreement
or the subject matter hereof brought by any party or its successors or assigns, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action, or proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action, or proceeding
is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction that may be called upon to grant an enforcement
of the judgment of any such New York state or federal court. 
  
 (b) Process in any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be served on any party anywhere in the world. Each party consents to service of process by registered mail
at the address to which notices are to be given pursuant to Section 9.6. Nothing herein shall affect the right of a party to serve process in any other manner permitted by applicable law. Each party further agrees that final judgment against it in
any such action or proceeding arising out of or relating to this Agreement shall be conclusive and may be enforced in any other jurisdiction within or outside the United States of America by suit on the judgment, a certified or exemplified copy of
which shall be conclusive evidence of the fact and of the amount of its liability. 
  
 (c) Each party agrees that it shall not, and that it shall instruct those in its control not to, take any action to frustrate or prevent the enforcement of any writ, decree, final judgment, award (arbitral or
otherwise) or order entered against it with respect to this Agreement, and shall agree to be bound thereby as if issued or executed by a competent judicial tribunal having personal jurisdiction situated in its country of residence or domicile.

  
 9.14 Force Majeure. Neither party shall be liable for
failure of or delay in performing its obligations set forth in this Agreement, and neither shall be deemed in breach of its 

  

 -35- 

 
obligations, if such failure or delay is due to natural disasters or any causes beyond the reasonable control of such party. In the event of such force
majeure, the party affected thereby shall use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder. 
  
 9.15 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. 
  
 9.16 Entire
Agreement; Amendment. This Agreement constitutes the entire and exclusive Agreement between the parties with respect to the subject matter hereof and supersedes and cancels all previous discussions, agreements, commitments and writings in
respect thereof. No amendment or addition to this Agreement shall be effective unless reduced to writing and executed by the authorized representatives of the parties. 
  

 -36- 

 IN WITNESS WHEREOF, XOMA and Merck have executed this Agreement in duplicate originals by duly
authorized officers. 
  

											
	 MERCK & CO., INC.
	 	 	 	 XOMA IRELAND LIMITED

					
	By:	 	 /s/    JUDY C. LEWENT
	 	 	 	By:	 	 /s/    ALAN KANE

	 	 	 Name:
	 	 Judy C. Lewent
	 	 	 	 	 	Alan Kane, Director
	 	 	 Title:
	 	 EVP & CFO
	 	 	 	 	 	duly authorized for and on behalf of
	 	 	 	 	 Pres., Human Health Asia
	 	 	 	 	 	XOMA Ireland Limited in the presence of:
						
	 	 	 	 	 	 	 	 	 	 	 /S/    GEOFFREY
LIEBMANN

  

 -37- 

 SCHEDULE 1.17 
  
 Existing Merck Collaborators 
  
 [*] 

 SCHEDULE 1.41 
  
 [*] 

 SCHEDULE 2.4 
  
 Materials to be Transferred Pursuant to Section 2.4 
  
 [*] 

 SCHEDULE 2.5  
  
 Form of Notice 
  
 XOMA owns a number of patents covering various aspects of bacterial antibody expression and phage display. 
  
 XOMA has licensed these patents on a non-exclusive basis to Merck. 
  
 Under the license agreement with XOMA: 
  

	 	•	 	Merck cannot provide materials, products or information to you without first showing you a redacted copy of its license from XOMA and this notice. 

  

	 	•	 	If you and Merck enter into a written agreement by which you become a “Merck Collaborator”, then you will be permitted to use Merck services and related products and
information to research, develop and commercialize antibody products. 

  

	 	•	 	Merck Collaborators do not, however, have the right to produce commercial quantities of such antibodies using XOMA’s patented technology. Rather, Merck Collaborators only have
the right to make research and development quantities of antibodies using the XOMA patent rights. Thereafter, unless a Merck Collaborator obtains a commercial production license from XOMA (which may be available), such Merck Collaborator must
produce commercial quantities of antibodies using a method that does not infringe XOMA patent rights. 

  

	 	•	 	Therefore, if you and Merck enter into a written agreement, that agreement must contain certain provisions specified in the license agreement with XOMA, including:

  

	 	•	 	Terms pursuant to which you, as the recipient of any transferred materials, would agree to abide by each of the limitations, restrictions and other obligations provided for by the
license agreement with XOMA, including, without limitation, the restrictions on use of such transferred materials for purposes other than research and development. 

  

	 	•	 	A covenant not to use transferred materials for any purpose other than for research and development purposes otherwise authorized by the license agreement with XOMA.

  

	 	•	 	An agreement by you to further dispose of transferred materials to a third party who otherwise meets the definition of a “Merck Collaborator” set forth in the license
agreement with XOMA only if such third party executes a written agreement in which it undertakes all of the obligations applied to the transferring party. 

 SCHEDULE 3.3 
  
 Materials to be Transferred Pursuant to Section 3.3 
  
 [*] 

 SCHEDULE 5.2 
  
 Redacted Copy of this Agreement 
  
 [*] 
  

 -2-

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