Exhibit 10.4A

XOMA Ltd.

CEO Incentive Compensation Plan

 

I. Introduction and Summary.

This document describes the XOMA Ltd. (“XOMA”) CEO Incentive Compensation Plan
(the “Plan”), as approved by the Board of Directors of XOMA (the “Board”). The
Plan becomes effective on January 1, 2004, subject to shareholder approval.
Subject to the ability of the Board to terminate the Plan at any time, the Plan
applies to fiscal years ending December 31, 2004 and each December 31
thereafter.

Only the Chief Executive Officer of XOMA (the “CEO”) is eligible to participate
in this Plan and, depending on his or her performance and that of XOMA, earn
incentive compensation (“Incentive Compensation”). (Article III contains the
definitions of certain terms not otherwise defined in the places such terms
first appear in this Plan.) A new CEO who becomes an employee of XOMA during a
Plan Period and thereby meets the eligibility criteria for participation in the
Plan will be considered for participation in the Plan on a pro-rata basis by the
Compensation Committee (“Compensation Committee”) of the Board for
recommendation to the Board for approval in its discretion.

After the conclusion of each applicable Plan Period, the Board will make a
determination on the recommendation of the Compensation Committee as to the
performance of XOMA and the CEO in meeting Company Objectives as well as
individual performance objectives. The target award opportunity of the CEO is
50% of the CEO’s Base Salary (“Target Award Opportunity”). Awards to the CEO
will vary depending on (1) the achievement of Company Objectives; (2) the CEO’s
Base Salary; and (3) the CEO’s performance during the applicable Plan Period and
expected ongoing contribution to XOMA. Awards may exceed or be lower than the
Target Award Opportunity on the basis of the calculation of the extent to which
XOMA’s Company Objectives have been met as set forth in Article IV.

Awards will be granted in cash and common shares of XOMA based on the average
market value of the common shares for the ten trading days prior to the date of
the award. Awards will be immediately vested on the distribution date set by the
Board and expected to be in February or March of the year succeeding the Plan
Period. The award to be paid on the distribution date will be comprised of 50%
cash and 50% in common shares of XOMA based on the market value formula set
forth above. The distribution date of awards under the Plan for each Plan Period
is expected to be set no later than ninety days after the end of each Plan
Period.

In all instances, the written provisions of the Plan and other determinations of
the Board shall govern and be final.

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II. Purposes.

To actively engage the CEO in driving and achieving company performance goals by
providing a variable reward opportunity based on business performance. The Plan
is in alignment with XOMA’s growth objectives and commitment to retain and
competitively compensate company leaders.

 

III. Definitions.

For the purpose of this Plan, the following definitions will apply:

 

A. Base Salary. The term “Base Salary” means total base salary before any
deferred tax reductions, excluding moving allowances, participation in clinical
studies, incentive or bonus payments, imputed income due to fringe benefits such
as group insurance plans or other insurance, payments in lieu of earned vacation
or personal holiday, payments for financial services or taxes, and other
compensatory items of this type.

 

B. Company Objectives. The term “Company Objectives” means that list of company
objectives approved from time to time by the Board in its sole discretion for
each Plan Period. The objectives may be based on financial goals, scientific or
commercial progress, profits, return on investments or any other criteria
established by the Board. The current Company Objectives, the milestones within
each Company Objective and their respective relative percentage contribution to
the overall Company Objectives shall be maintained by the Human Resources
Department and are the same as under the Management Incentive Compensation Plan.
The Required Minimum Company Objective Percentage is set forth in Article IV.

 

C. Plan Period. Subject to Article VI, the term “Plan Period” means each fiscal
year ending December 31.

 

D. Plan Term. Subject to Article VI, the term “Plan Term” means the period
commencing on January 1, 2004 and continuing until the termination of this Plan
by the Board.

 

IV. Plan Mechanics.

 

A. Eligibility. The CEO is eligible for participation in the Plan. An individual
who becomes the CEO after the beginning of a Plan Period, or is promoted after
the beginning of a Plan Period to the position of CEO, will be considered for
participation in the Plan by the Compensation Committee for recommendation to
the Board for approval in its discretion and, if approved by the Board to
participate, the CEO will have his/her award pro-rated as of the date of
eligibility determined by the Board.

 

B. Length of Plan. Subject to Article VI, the Plan will be effective for the
Plan Term.

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C. Incentive Plan.

 

  1. Determination of Amounts Available for Incentive Compensation.

a. The Target Award Opportunity for the CEO is set at 50% of the CEO’s Base
Salary.

b. As soon as practicable after the end of each Plan Period, the Compensation
Committee will recommend to the Board, and the Board will determine, whether and
to what extent the Company Objectives have been met. If a determination is made
that XOMA has not met the Company Objectives to the extent required, the
Compensation Committee may decline to recommend, and the Board may decline to
award, any Incentive Compensation.

c. For each year during the Plan Term, unless 70% of the Company Objectives (the
“Required Minimum Company Objective Percentage”) have been met, no Incentive
Compensation will be awarded.

d. The final award opportunity (“Final Award Opportunity”) will be determined by
utilizing the method of calculation of the extent to which XOMA’s Company
Objectives have been met for the applicable Plan Period as set forth in Article
IV.

 

  2. Calculation of Individual Incentive Awards.

a. It is the intention of the Board that awards to the CEO shall vary depending
on: (1) the extent of achievement of Company Objectives; (2) the CEO’s Base
Salary; and (3) the CEO’s achievement of certain individual performance
objectives to be determined from time to time by the Board in its sole
discretion.

b. Company and individual performance goals for the CEO are to be weighted as
follows:

 

Company
Objectives     Discretionary
Objectives   70 %   30 %

c. The award opportunity range for the CEO expressed as a percentage of the
CEO’s Base Salary is as follows:

 

Minimum     Target     Maximum   25 %   50 %   75 %

d. Each of the individual Company Objectives shall be assigned a percentage
reflecting its relative importance (the “Target Contribution Percentage”) to the
achievement of the overall Company Objectives as well as

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target results and results reflecting best and worst case scenarios (denominated
maximum or minimum for purposes hereof). If the target results are achieved, the
Target Contribution Percentage is awarded. If results between the target and the
best case scenario are achieved, the Target Contribution Percentage is increased
proportionately up to a maximum of 150% of the Target Contribution Percentage
(the “Best Case Percentage Limitation”). No percentage contribution in excess of
the Best Case Percentage Limitation will be awarded. Alternatively, if target
results are not met but results greater than the worst case scenario are
achieved, the Target Contribution Percentage will be decreased proportionately
to a minimum of 50% of the Target Contribution Percentage. Achievements below
the worst case scenario will result in a 0% contribution from the applicable
Company Objective.

e. The performance of the CEO will be rated as soon as practicable following the
conclusion of the applicable Plan Period in the exercise of the sole discretion
of the Board based on the recommendation of the Compensation Committee. If the
CEO’s performance for the Plan Period is unsatisfactory, he or she will not be
eligible for participation in the Plan for that Plan Period and no Incentive
Compensation will be awarded for below minimum performance.

 

  3. Awards to CEO.

a. Approval. All awards will be approved following the end of a Plan Period by
the Board acting on the advice of the Compensation Committee.

b. Distribution of Incentive Awards. The distribution dates for awards will be
established by the Board. It is expected that distributions will normally be
made in February or March of the succeeding year of the applicable Plan Period.

c. Taxes and Withholding. The CEO will bear any Federal, state, and local taxes
accruing with respect to any award under the Plan. As required by law, XOMA will
withhold in cash from any distributions amounts required for Federal and state
withholding tax purposes. With respect to the portion of any award to be made in
common shares, XOMA may withhold in cash the required amount from the cash
portion of the same award, in addition to the amount required to be withheld
with respect to such cash portion.

d. Termination of participation.

i. Subject to other provisions hereof, if the CEO’s employment is terminated for
any reason, or for no reason, on or before December 31 of any Plan Period or at
any time in any subsequent year prior to the distribution date on which awards
with respect to any Plan Period are expected to be made, the CEO shall forfeit
all rights to Incentive Compensation as yet unpaid pursuant to the Plan, unless
the Board, based on the recommendation of the

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Compensation Committee, determines in its sole discretion that the CEO should
continue to participate in whole or in part.

ii. The CEO may elect to withdraw, without prejudice, from the Plan at any time.

e. Eligibility for Distribution. Subject to other provisions hereof, the CEO
must be the CEO of the Company continuously from the conclusion of any Plan
Period up to and including the date of distribution of the award to be eligible
to receive such distribution.

f. Change in Control Exception. Notwithstanding any other provision hereof, if
within one year after a “change in control” (as defined below) either (x) the
CEO’s employment with XOMA is involuntarily terminated after the end of a Plan
Year but before the distribution date of the award hereunder for such Plan Year,
other than for cause, or (y) the CEO shall voluntarily terminate his or her
employment with XOMA after the end of a Plan Year but before the distribution
date of the award hereunder for such Plan Year, because the nature of such
participant’s duties or compensation do not continue to be substantially
equivalent to what they were at the time of such change in control, then the
provisions hereof shall continue to apply to the former CEO with respect to such
Plan Year and the Compensation Committee and the Board shall in good faith make
such recommendations and determinations hereunder with respect to the former CEO
as if the former CEO continued to be employed by XOMA as CEO on the date of any
recommendation or determination hereunder, and on the date of distribution of
the award hereunder, with respect to such Plan Year.

For the purposes of this subsection, a “change in control” shall have occurred
if any person (as defined in Section 13 of the Securities Exchange Act of 1934,
as amended) acquires shares of voting capital shares, (other than directly from
XOMA) and thereby becomes the owner of more than 20% of XOMA’s outstanding
shares of voting capital shares (on a fully diluted basis) or XOMA enters into a
merger, amalgamation or other consolidation (other than one in connection with a
voluntary change of corporate domicile or similar reorganization or
recapitalization transaction) in which the shareholders of XOMA (as determined
immediately prior to the merger, amalgamation or other consolidation) do not own
at least 50% of the outstanding shares of voting capital shares of the surviving
or continuing entity after the merger, amalgamation or other consolidation.
Solely for the purposes of the foregoing, a termination shall be deemed to have
been made for “cause” in the event the CEO is terminated for any of the
following reasons:

iii. the CEO’s continued failure to substantially perform his or her duties with
XOMA, or

iv. gross misconduct by the CEO which is materially and demonstrably injurious
to XOMA or its employees.

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g. Death of CEO. In the event of the death of the CEO while CEO after the
completion of any Plan Period but prior to the distribution, the award will be
made as soon as practicable to the deceased CEO’s beneficiary as indicated on
the CEO’s group insurance enrollment card.

 

V. No Right to Employment.

Nothing in this Plan shall give the CEO the right to continued employment by
XOMA.

 

VI. Plan Modification.

This Plan may be modified or terminated by the Board at any time.

 

VII. Miscellaneous.

 

A. Nontransferability. Awards shall not be transferable by a participant except
by will or the laws of descent and distribution. The CEO’s rights under the Plan
may not be pledged, mortgaged, hypothecated, or otherwise encumbered, and shall
not be subject to claims of the CEO’s creditors.

 

B. Unfunded Status of Awards. The Plan is intended to constitute an “unfunded”
plan of incentive compensation. With respect to any payments not yet made to the
CEO pursuant to an award, nothing contained in the Plan or any award shall give
the CEO any rights that are greater than those of a general unsecured creditor
of XOMA.