OPTION AGREEMENT

 OPTION AGREEMENT

          THIS OPTION AGREEMENT, dated as of March 27, 1996, is
between XOMA Corporation, a Delaware corporation (the "Com-
pany") and Michael Arnouse (the "undersigned").

                           RECITALS

          WHEREAS, the Company has consummated a financing (the
"Financing") pursuant to which the Company sold 5,000 shares of
its Non-Voting Cumulative Convertible Preferred Stock,
Series D, par value $.05 per share, and 606,061 shares of its
common stock, par value $.0005 per share (the "Common Stock");
and

          WHEREAS, the Company is willing to grant to the
undersigned, as compensation for services rendered to the Com-
pany in connection with the Financing, and the undersigned
desires to receive, an option to purchase 133,333 shares of
Common Stock (subject to adjustment as set forth herein, the
"Optioned Securities") on the terms and subject to the condi-
tions set forth herein;

          NOW, THEREFORE, on the basis of the representations,
warranties and covenants set forth herein, the parties hereto
agree as follows:

          1.   Grant of Option; Terms.  Subject to the terms
and conditions hereof, as payment for services rendered to the
Company pursuant to the Financing, the receipt of which is
hereby acknowledged, the Company hereby grants to the under-
signed the irrevocable right and option (the "Option") to sub-
scribe for and purchase from the Company the Optioned Securi-
ties for an exercise price of $5.00 per share (subject to
adjustment as provided herein, the "Exercise Price").  The
Option is exercisable with respect to 100% of the Optioned
Securities beginning on the date hereof and may be exercised in
whole or in part and, to the extent not exercised, will be
exercisable at any time on or before the Expiration Date (as
hereinafter defined).  The term of the Option shall expire on
the third anniversary of the date hereof (the "Expiration
Date").  The Option is neither transferable nor assignable by
the undersigned without the prior written consent of the Com-
pany, which consent shall not be unreasonably withheld.

                                    -2-

            2.    Manner of Exercise; Adjustments.

            (a)   In order to exercise the Option with respect to
all or any part of the Optioned Securities for which the Option
is at the time exercisable, the undersigned must (i) provide
the Secretary of the Company with written notice of such exer-
cise, specifying the number of Optioned Securities with respect
to which the Option is being exercised; and (ii) pay the full
Exercise Price, in cash or by certified or bank check payable
to the Company's order, for the Optioned Securities being
purchased.

            (b)   In no event may the Option be exercised for any
fractional shares.

            (c)   If the number of shares of the Company as a
whole is increased, decreased or changed into, or exchanged
for, a different number or kind of shares or securities of the
Company, whether through reclassification, stock dividend,
stock split, combination of shares, exchange of shares, change
in corporate structure or the like, an appropriate and propor-
tionate adjustment will be made in the number, kind and Exer-
cise Price of the Optioned Securities.  Any such adjustment
will be made without a change in the total price applicable to
the unexercised portion of the Option but with a corresponding
adjustment in the price for each share covered by the Option.

            (d)   If the Company is the surviving entity in any
merger or other business combination, then the Option will be
appropriately adjusted to apply and pertain to the number and
class of securities which the holder of the number of shares of
Common Stock subject to the Option immediately prior to such
merger or other business combination would have been entitled
to receive in the consummation of such merger or other business
combination, and appropriate adjustment will be made to the
Exercise Price payable per share, provided the aggregate Exer-
cise Price will remain the same.

            3.    Representations and Warranties of the Company.
The Company represents and warrants that:

            (a)   The Company is duly incorporated, validly exist-
      ing and in good standing under the laws of the state of
      Delaware, with full power and authority to conduct its
      business as it is currently being conducted and to own its
      assets.

                                    -3-

            (b)   The Company has duly authorized the issuance and
      sale of the Option and the Optioned Securities upon the
      terms set forth herein by all requisite corporate action.

            (c)   The Optioned Securities have been duly and val-
      idly authorized, and, upon issuance following receipt of
      the consideration referred to in Section 1 of this Option
      Agreement, will be validly issued, fully paid and non-
      assessable.

            4.    Representations and Warranties of the Under-
signed.  The undersigned hereby represents and warrants to the
Company and to each officer, director and agent of the Company
that:

            (a)   General:

            (i)  The undersigned has all requisite authority to
      enter into this Option Agreement and to perform all the
      obligations required to be performed by the undersigned
      hereunder.

           (ii)  The execution and delivery of this Option Agree-
      ment and any other agreement, instrument and document exe-
      cuted and delivered by the undersigned in connection here-
      with and consummation of the Financing and the transac-
      tions contemplated hereby and thereby do not violate any
      law or regulation applicable to it or result in the breach
      of any other contractual obligation or judicial or regula-
      tory decree to which it is subject.

          (iii)  The undersigned understands that no United
      States federal or state agency or any other government or
      governmental agency has passed on or made any recommend-
      ation or endorsement of the Option or the Optioned
      Securities.

            (b)  Information Concerning the Company:

            (i)  The undersigned is familiar with the business
      and financial condition, properties, operations and pros-
      pects of the Company.  The undersigned and its advisors,
      if any, have been furnished with all materials relating to
      the business, finances and operations of the Company and
      materials relating to the offer and sale of the Option and
      the Optioned Securities which have been requested by the
      undersigned.  The undersigned and its advisors, if any,

                                    -4-

      have been afforded the opportunity to ask questions of the
      Company and have received complete and satisfactory
      answers to any such inquiries.  Without limiting the
      generality of the foregoing, the undersigned has had the
      opportunity to obtain and to review the Company's Annual
      Report on Form 10-K for the fiscal year ended December 31,
      1995 as filed with the Commission (as defined below).

           (ii)  The undersigned understands that the acquisition
      of the Option and the Optioned Securities involves a high
      degree of risk, including the risks outlined in this
      Option Agreement.

            (c)  Status of Undersigned:

            (i)  The undersigned has such knowledge, skill and
      experience in business, financial and investment matters
      to be capable of evaluating the merits and risks of an
      investment in the Option and the Optioned Securities.  The
      undersigned is an "accredited investor" as that term is
      defined in Rule 501 of the General Rules and Regulations
      under the Securities Act (as defined below) by reason of
      Rule 501(a)(5) or (6).  To the extent necessary, the
      undersigned has retained, at its own expense, and relied
      upon, appropriate professional advise regarding the
      investment, tax and legal merits and consequences of this
      Option Agreement and owning the Option and the Optioned
      Securities.

           (ii)  The undersigned agrees to furnish any additional
      information requested to assure compliance with applicable
      federal and state securities laws in connection with the
      purchase and sale of the Option and the Optioned
      Securities.

            (d)  Restrictions on Transfer or Sale of the
      Securities:

            (i)  The undersigned is acquiring the Option solely
      for its own beneficial account, for investment purposes,
      and not with a view to, or for resale in connection with,
      any distribution of the Option or the Optioned Securities.
      The undersigned understands that the Option and the
      Optioned Securities have not been registered under the
      Securities Act of 1933, as amended (the "Securities Act"),
      or any state securities or blue sky laws, by reason of
      specific exemptions under the provisions thereof which

                                    -5-

      depend in part upon the intent of the undersigned and the
      truth and accuracy of the representations made by the
      undersigned in this Option Agreement.  The undersigned
      understands that the Company is relying upon the represen-
      tations and agreements contained in this Option Agreement
      (and any supplemental information) for the purpose of
      determining whether this transaction meets the require-
      ments for such exemptions.

           (ii)  The undersigned understands that the Option and
      the Optioned Securities are "restricted securities" under
      applicable federal securities laws and that the Securities
      Act and the rules and regulations of this Securities and
      Exchange Commission (the "Commission") thereunder provide
      in substance that the undersigned may dispose of the
      Optioned Securities only pursuant to an effective regis-
      tration statement under the Securities Act or an exemption
      therefrom.

          (iii)  The undersigned agrees:  (A) that the under-
      signed will not, directly or indirectly, sell, assign,
      pledge, give, transfer or otherwise dispose of the
      Optioned Securities or any interest therein, or make any
      offer or attempt to do any of the foregoing, except pursu-
      ant to a registration of such Optioned Securities under
      the Securities Act and all applicable state securities and
      blue sky laws or in a transaction which is exempt from the
      registration provisions thereunder; and (B) that the cer-
      tificates for the Optioned Securities will bear a legend
      making reference to the foregoing restrictions.

           (iv)  The undersigned has not offered or sold any por-
      tion of the Option or the Optioned Securities and has no
      present intention of further dividing the Option or the
      Optioned Securities with others or of reselling or other-
      wise disposing of any portion of the Option or the
      Optioned Securities, except as previously disclosed to the
      Company.

            (e)  Manner of Offering:

            (i)  The undersigned confirms that the securities
      offered in the Financing were offered by it on the Compa-
      ny's behalf only to the purchasers thereof and to no other
      potential investors and that immediately prior to making
      the offer of such securities to each offeree, it had

                                    -6-

      reason to believe that such offeree was an "accredited
      investor" (as that term is defined in the Securities Act).

           (ii)  In connection with the offering of the securi-
      ties offered in the Financing, no form of general solici-
      tation or general advertising was used by the undersigned
      or by anyone on its behalf, including, but not limited to,
      advertisements, articles, notices or other communications
      published in any newspaper, magazine or similar media or
      broadcast over radio or television, or any seminar or
      meeting whose attendees were invited by any general
      solicitation or general advertising.

            5.    Privilege of Stock Ownership; Tax Arrangements.
The undersigned will not have any rights of a shareholder with
respect to the Optioned Securities until such individual has
exercised the Option, paid the Exercise Price and been issued a
stock certificate for the purchased portion of the Optioned
Securities.  The undersigned hereby agrees to make appropriate
arrangements with the Company for the satisfaction of all Fed-
eral, State or local income tax withholding requirements appli-
cable to the exercise of the Option.

            6.    Registration Rights.

            (a)   Right to Piggyback.  Whenever the Company pro-
poses to register any shares of Common Stock (or securities
convertible into or exchangeable or exercisable for Common
Stock) under the Securities Act (a "Proposed Registration"),
and the registration form to be used maybe used for the regis-
tration of the Registrable Securities (as defined below) (a
"Piggyback Registration"), the Company will give prompt written
notice to the undersigned of its intention to effect such a
registration, which notice will specify among other things the
proposed offering price, the kind and number of securities pro-
posed to be registered, the distribution arrangements and such
other information that at the time would be appropriate to
include in such notice, and will, subject to Section 6(b)
below, include in such Piggyback Registration all Registrable
Securities with respect to which the Company has received a
written request for inclusion therein within 15 business days
after receipt of the Company's notice.  Except as may otherwise
be provided in this Option Agreement, Registrable Securities
with respect to which such request for registration has been
received shall be registered by the Company pursuant to this
Section 6 on the same terms and subject to the same conditions
applicable to the registration in a Proposed Registration of

                                    -7-

such shares of Common Stock (or securities convertible into or
exchangeable or exercisable for Common Stock) to be sold by the
Company or by the person selling under such Proposed
Registration.

            (b)   Priority on Piggyback Registrations.  If the
managing underwriter or underwriters, if any, advise the under-
signed in writing that in its or their opinion, or, in the case
of a Piggyback Registration not being underwritten, if the Com-
pany shall reasonably determine (and notify the undersigned of
such determination) after consultation with an investment
banker of nationally recognized standing, that the number or
kind of securities proposed to be sold in such registration
(including Registrable Securities to be included pursuant to
Section 6(a) above) will adversely affect the success of such
offering, the Company will include in such registration the
number of securities, if any, which, in the opinion of such
underwriter or underwriters, or the Company, as the case may
be, can be sold as follows:  (i) first, the shares of Common
Stock the Company proposes to sell, or, if the registration is
being made pursuant to demand registration rights of any third
party or parties, the shares of Common Stock such other party
or parties propose to sell, (ii) second, the Registrable Secu-
rities requested to be included in such registration by the
undersigned and (iii) third, other shares of Common Stock held
by persons other than the party or parties initiating such
demand registration requested to be included in such
registration.

            (c)   Expenses.  All expenses incident to the perfor-
mance of or compliance with this Section 6, other than fees and
expenses of counsel for the undersigned (if any), will be borne
by the Company, regardless of whether a Registration Statement
(as defined below) becomes effective, including without limita-
tion (i) all registration and filing fees and expenses;
(ii) fees and expenses of compliance with federal securities or
state blue sky laws; (iii) expenses of printing, messenger and
delivery services and telephone; (iv) reasonable fees and dis-
bursements of counsel for the Company; and (v) fees and dis-
bursements of all independent certified public accountants of
the Company.

            (d)   Indemnification by the Company.  The Company
agrees to indemnify and hold harmless, to the full extent per-
mitted by law, the undersigned against all losses, claims, dam-
ages, liabilities (or actions or proceedings, whether commenced
or threatened, in respect thereof) and reasonable expenses

                                    -8-

arising out of, based upon or resulting from any untrue or
alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus (as defined below) or pre-
liminary Prospectus, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, including reimbursement of
all such indemnified parties for any legal and other expenses
reasonably incurred by them in investigating or defending any
such loss, claim, liability, action or proceeding, except inso-
far as the same result from or are contained in any information
furnished in writing to the Company by the undersigned
expressly for use therein; provided, however, that the Company
shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such Registration
Statement or preliminary Prospectus if (i) the undersigned
failed to deliver a copy of the Prospectus to the person
asserting such loss, claim, damage, liability or expense after
the Company had furnished the undersigned with copies of the
same and (ii) the Prospectus corrected such untrue statement or
omission; and provided, further, that the Company shall not be
liable in any such case to the extent that any such loss,
claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omis-
sion or alleged omission in the Prospectus (x) if such untrue
statement or alleged untrue statement or omission or alleged
omission is correct in an amendment or supplement to the Pro-
spectus and the undersigned thereafter fails to deliver such
Prospectus as so amended or supplemented prior to or concur-
rently with the sale of the Registrable Securities to the per-
son asserting such loss, claim, damage, liability or expense
after the Company had furnished the undersigned with copies of
the same or (y) if the undersigned received notice from the
Company of the existence of such untrue statement or alleged
untrue statement or omission or alleged omission and the under-
signed continued to dispose of Registrable Securities prior to
the time of receipt of copies of a supplemental or amended Pro-
spectus which corrected such untrue statement or omission.
Such indemnity shall remain in full force and effect and be
available to the undersigned only regardless of any investiga-
tion made by or on behalf of an indemnified party or any trans-
fer of Registrable Securities by the undersigned.

            (e)   Indemnification by the Undersigned.  In connec-
tion with the Piggyback Registration pursuant to the terms of

                                    -9-

this Agreement, the undersigned will furnish to the Company in
writing such information concerning the undersigned as the Com-
pany reasonably requests for use in connection with any Regis-
tration Statement, Prospectus or preliminary Prospectus.  The
undersigned agrees to indemnify and hold harmless, to the full
extent permitted by law, the Company, its officers, directors,
employees and agents and each person who controls the Company
(within the meaning of the Securities Act) against any losses,
claims, damages, liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) and rea-
sonable expenses arising out of, based upon or resulting from
any untrue or alleged untrue statement of a material fact or
any omission or alleged omission of a material fact required to
be stated in the Registration Statement, Prospectus or prelimi-
nary Prospectus or necessary to make the statements therein not
misleading, including reimbursement of all such indemnified
parties for any legal and other expenses reasonably incurred by
them in investigating or defending any such loss, claim, lia-
bility, action or proceeding, to the extent, but only to the
extent, that the same resulted from or are contained in any
information furnished in writing by the undersigned to the Com-
pany expressly for use in such Registration Statement, Prospec-
tus or preliminary Prospectus.  The Company shall be entitled
to receive indemnities from any underwriters, selling brokers,
dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as pro-
vided above with respect to information furnished in writing by
such persons specifically for use in any preliminary Prospec-
tus, Prospectus or Registration Statement.

            (f)   Procedures.  Any person entitled to indemnifica-
tion hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnifica-
tion, provided that the failure to deliver such notice shall
not relieve the indemnifying party of its indemnification obli-
gations hereunder except, and only to the extent, such party is
materially prejudiced with respect to its rights or defenses by
the failure to deliver such notice and (ii) permit such indem-
nifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party (including, to
the extent any settlement involves the payment of money, the
right to settle any such claim or proceeding); provided, how-
ever, that any person entitled to indemnification hereunder
shall have the right to employ separate counsel and to partici-
pate in the defense of such claim, but the fees and expenses of
such counsel shall be at the expense of such person unless
(a) the indemnifying party has agreed to pay such fees or

                                   -10-

expenses, or (b) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably
satisfactory to such person or (c) in the reasonable judgment
of any such person, based upon advice of independent counsel, a
conflict of interest may exist between such person and the
indemnifying party in respect of such claims, in which case, if
the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such
person, it being understood, however, that the Company shall
not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdic-
tion arising out of the same general allegations or circum-
stances, be liable for the fees and expenses of more than one
separate firm of attorneys (in addition to local counsel) for
all indemnified parties.  If such defense is not assumed by the
indemnifying party, the indemnifying party will not be subject
to any liability for any settlement made without its consent
(but such consent will not be unreasonably withheld).  No
indemnified party will be required to consent to entry of any
judgment or entry into any settlement which does not include as
an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all lia-
bility in respect of such claim or litigation.  An indemnifying
party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified
by such indemnifying party with respect to such claim, unless
in the reasonable judgment of any indemnifying party, based
upon advice of independent counsel, a conflict of interest may
exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event
the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.

            (g)   Contribution.  If for any reason the indemnifi-
cation provided for in the preceding clauses (d) and (e) is
unavailable to an indemnified party or insufficient to hold it
harmless as contemplated by the preceding clauses (d) and (e),
then the indemnifying party shall contribute to the amount paid
or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate
to reflect not only the relative benefits received by the
indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party

                                   -11-

and the indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party, as well as any
other relevant equitable considerations.  No person guilty of
fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepre-
sentation.  No party shall be liable for contribution under
this clause (g) except to the extent and under such circum-
stances as such party would have been liable to indemnity under
this Section 6 if such indemnification were available or
sufficient.

            (h)   Definitions.  (i)  "Prospectus" shall mean the
prospectus included in a Registration Statement, including any
preliminary Prospectus, and any such Prospectus as amended or
supplemented by any prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securi-
ties covered by a Proposed Registration, and by all other
amendments and supplements to such Prospectus, including post-
effective amendments, and in each case including all material
incorporated by reference therein.

           (ii)  "Registrable Securities" shall mean the Common
Stock constituting the Optioned Securities; provided, however,
that the Common Stock constituting the Optioned Securities
shall cease to be Registrable Securities when (i) a Registra-
tion Statement with respect to such Common Stock shall have
been declared effective and all such Common Stock shall have
been disposed of in accordance with the Registration Statement
covering it, (ii) such Common Stock is distributed to the pub-
lic pursuant to Rule 144 under the Securities Act, or
(iii) such Common Stock is distributed pursuant to Rule 144(k)
under the Securities Act.

          (iii)  "Registration Statement" shall mean any regis-
tration statement of the Company which covers Registrable Secu-
rities pursuant to the provisions of this Agreement, including
the Prospectus, amendments and supplements to such Registration
Statement, including post-effective amendments, and all exhib-
its and all material incorporated by reference in such Regis-
tration Statement.

            7.    Waiver, Amendment.  Neither this Option Agree-
ment nor any provisions hereof shall be modified, changed, dis-
charged or terminated except by an instrument in writing,
signed by the Company and the undersigned.

                                   -12-

            8.    Assignability.  Neither this Option Agreement
nor any right, remedy, obligation or liability arising hereun-
der or by reason hereof shall be assignable by either the Com-
pany or the undersigned without the prior written consent of
the other party.

            9.    Applicable Law.  This Option Agreement shall be
governed by and construed in accordance with the laws of the
State of New York.

            10.   Section and Other Headings.  The section and
other headings contained in this Option Agreement are for ref-
erence purposes only and shall not affect the meaning or inter-
pretation of this Option Agreement.

            11.   Counterparts.  This Option Agreement may be exe-
cuted in counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which
together shall be deemed to be one and the same agreement.

            12.   Notices.  All notices and other communications
provided for herein shall be in writing and shall be deemed to
have been duly given if delivered personally or sent by regis-
tered or certified mail, return receipt requested, postage
prepaid:

            (a)   If to the Company, to it at the following
      address:

                  2910 Seventh Street
                  Berkeley, California  94710
                  Attention:  General Counsel

                  With a copy to:

                  Cahill Gordon & Reindel
                  80 Pine Street
                  New York, New York  10005
                  Attention:  Geoffrey E. Liebmann, Esq.

            (b)   If to the undersigned, to:

                  Mr. Michael Arnouse
                  Business Consulting
                  3 Edward Lane
                  Syosset, New York  11791

                                   -13-

            13.   Binding Effect.  The provisions of this Option
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representa-
tions, successors and permitted assigns.

            14.   Survival.  All representations, warranties and
covenants contained in this Option Agreement shall survive the
exercise or expiration of the Option.

                                   -14-

            IN WITNESS WHEREOF, the undersigned and the Company
have executed this Option Agreement as of the date first writ-
ten above.

                                    Michael Arnouse

                                    XOMA CORPORATION

                                    By: __________________________________
                                        Name: John L. Castello
                                        Title: Chairman of the Board,
                                                  President and Chief
                                                  Executive Officer 

Basic Info X:

Name: OPTION AGREEMENT
Type: Option Agreement
Date: April 12, 1996
Company: XOMA LTD
State: Delaware

Other info:

Date:

  • March 27 , 1996
  • December 31 , 1995

Organization:

  • Securities and Exchange Commission
  • Common Stock the Company
  • Cahill Gordon & Reindel

Location:

  • Delaware
  • United States
  • Berkeley
  • California
  • Esq
  • New York

Money:

  • $ .05
  • $ .0005
  • $ 5.00

Person:

  • Geoffrey E. Liebmann
  • Michael Arnouse
  • Edward Lane
  • John L. Castello

Percent:

  • 100 %