Exhibit 10.4


                                    XOMA Ltd.

                     Management Incentive Compensation Plan
                   (As Amended and Restated February 20, 2002)

I. Introduction and Summary.

     This document describes the XOMA Ltd. ("XOMA") Management Incentive
Compensation Plan (the "Plan"), as approved by the Board of Directors. The Plan
became effective on July 1, 1993 and was amended October 27, 1993, December 31,
1998 and February 20, 2002. Subject to the ability of the Board of Directors to
terminate the Plan at any time, the Plan applies to fiscal years ending December
31, 1993 and each December 31 thereafter.

     Officers, employees who have the title of Director or Manager, and
additional discretionary participants ("Discretionary Participants") determined
by the Chief Executive Officer ("CEO") to be critical to the achievement of
Company Objectives established by the Board of Directors, are eligible to
participate in this Plan and, depending on their performance and that of the
company, 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.) The CEO shall designate those eligible
employees who will participate in the Plan. Employees receiving promotions, and
new employees joining XOMA during a Plan Period, who thereby meet the
eligibility criteria for participation in the Plan, will be considered at the
discretion of the CEO for participation in the Plan on a pro rata basis. The CEO
will not participate in the Plan.

     After the conclusion of each applicable Plan Period, the Board of Directors
and the Compensation Committee of the Board of Directors (the "Compensation
Committee") will make a determination as to the performance of XOMA and Plan
participants in meeting Company Objectives as well as individual objectives.
Prior to the commencement of each Plan Period, the Board of Directors acting on
the advice of the Compensation Committee, will establish a target Incentive
Compensation Pool ("Target Incentive Compensation Pool"). The Target Incentive
Compensation Pool will be expressed as a percentage of the aggregate annual Base
Salaries of all participants in the Plan for the applicable Plan Period. Awards
to individual participants will vary depending on (1) the achievement of Company
Objectives; (2) the size of the Target Incentive Compensation Pool; (3) the
individual's Base Salary; and (4) the individual's performance during the
applicable Plan Period and expected ongoing contribution to XOMA. Awards may
exceed or be lower than the Target Incentive Compensation Pool on the basis of
the calculation of the extent to which XOMA's Company Objectives have been met
as set forth in Article IV.

     Individual awards will be granted in cash and/or 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. Individual awards will vest over a three-year
period with 50% of each award payable on



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a distribution date set by the Board of Directors acting in part on the advice
of the CEO and the Compensation Committee and expected to be in February or
March of the year succeeding the Plan Period and 25% of the award payable on
each of the next two annual distribution dates as long as the individual
continues to be employed by XOMA and continues to be a Plan participant. The
portion of each award to be paid on the first distribution date following a Plan
Period will be comprised of 50% cash and 50% in common shares of XOMA based on
the market value formula set forth above. For the balance of the award expected
to be paid in successive years, participants will be asked to make a one-time,
irrevocable choice, within two weeks of the time the award is made, of one of
the following options for the payment of the balance of the award: (i) 100% in
cash, (ii) 100% in common shares of XOMA, or (iii) 50% in cash and 50% in common
shares of XOMA. Failure to exercise the option in a timely manner will result in
the 100% common shares choice being selected.

     The distribution date of awards under the Plan for each Plan Period will be
the same for all participants and is expected to be set no later than ninety
days after the end of each Plan Period.

     Questions concerning the Plan should be forwarded to the Vice President of
Human Resources. In all instances, the written provisions of the Plan and other
determinations of the Compensation Committee and the Board of Directors shall
govern and be final.

II.  Purposes.

     To build a company team that will achieve XOMA's goals and objectives, to
recognize individual efforts, to attract and retain highly motivated individuals
and to encourage outstanding performance and contributions to XOMA.

III. Definitions.

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

A.   Base Salaries. The term "Base Salaries" means total base salaries before
     any deferred tax reductions, excluding overtime, moving allowances,
     participation in clinical studies, incentive or bonus payments, shift
     differential, imputed income due to fringe benefits such as group insurance
     plans, 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 of Directors 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 of Directors.
     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. The Required Minimum Company Objective Percentage is set forth
     in Article IV.



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C.   Employee. The term "Employee" means any individual on the XOMA payroll
     rendering services for XOMA whose normal work week is 30 hours or more
     (excluding consultants, advisors, and other similar individuals providing
     services to XOMA).

D.   Plan Period. Subject to Article VI, the term "Plan Period" means the fiscal
     period from July I to December 31, 1993 and, thereafter, each fiscal year
     ending December 31.

E.   Plan Term. Subject to Article VI, the term "Plan Term" means the period
     commencing on July 1, 1993 and continuing until the termination of this
     Plan by the Board of Directors.

IV.  Plan Mechanics.

A.   Eligibility. Officers, employees who have the title of Director or Manager,
     and additional Discretionary Participants determined by the CEO to be
     critical to the achievement of the Company Objectives, are eligible for
     participation in the Plan. Other than the officers who may participate in
     the Plan who shall be designated in writing by the Compensation Committee,
     the CEO shall designate in writing the employees who will participate in
     the Plan. An individual who becomes an Employee who meets the eligibility
     criteria for participation in the Plan after the beginning of a Plan
     Period, or is promoted after the beginning of a Plan Period to a position
     eligible for participation in the Plan, will be considered by the
     Compensation Committee or the CEO, as the case may be, for participation in
     the Plan and, if designated in writing to participate, such Employee will
     have her/his award pro-rated as of the date of eligibility determined by
     the Compensation Committee or the CEO, as the case may be. Because awards
     vest and are payable over a three-year term, each participant must maintain
     eligibility and continue as an Employee until each date of distribution to
     receive the distribution to be made on that date.

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

C.   Incentive Plan.

     1. Determination of Amounts Available for Incentive Compensation.

               a. Prior to the commencement of each Plan Period, the
          Compensation Committee acting on behalf of the Board of Directors in
          its sole discretion will determine the Target Incentive Compensation
          Pool. As soon as practicable after the end of each Plan Period, the
          Compensation Committee 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 award any Incentive
          Compensation.

               b. 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.



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<PAGE>

               c. The Target Incentive Compensation Pool is expressed as a
          percentage of the aggregate annual Base Salaries of the participants
          in the Plan. The final Incentive Compensation Pool ("Final Incentive
          Compensation Pool") 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 Compensation Committee and the
          Board of Directors that awards to participants shall vary depending
          on: (1) the extent of collective achievement of Company Objectives;
          (2) each participant's employment level in the organization and Base
          Salary; and (3) each participant's contributions to the achievement of
          the Company Objectives as a result of: (x) achievement of individual
          objectives and ongoing performance and (y) individual contributions
          towards XOMA's meeting of the Company Objectives without regard to
          individual objectives.

               b. Company and individual performance objectives will be weighted
          depending upon participant level. A 20% judgment factor will be
          included as an individual performance measurement for all participants
          in the Plan.

               Company and individual performance goals for participants in the
          Plan are to be weighted as follows:

<TABLE>
<CAPTION>

          Participant                       Company            Individual          Performance
          Level                            Objectives          Objectives           Objectives
          -----                            ----------          ----------           ----------

<S>                                           <C>                  <C>                 <C>
          Officer                             50%                  30%                 20%

          Director                            40%                  40%                 20%

          Manager and Discretionary
          Participant
                                              30%                  50%                 20%

</TABLE>

               c. The bonus opportunity ranges for participants in the Plan
          expressed as a percentage of Base Salaries are as follows:



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<PAGE>

          Participant Level            Minimum       Target         Maximum
          -----------------            -------       ------         -------

          Officer                      12.5%         25%            37.5%

          Director                     7.5%          15%            22.5%

          Manager                      5%            10%            15%

          Discretionary Participant    3.5%          7%             10.5%



               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 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 each participant in the Plan will be rated
          as soon as practicable following the conclusion of the applicable Plan
          Period in the exercise of the sole discretion of the individual or
          group indicated below. The ratings for all officers will be approved
          by the Compensation Committee. The ratings for all other participants
          will be approved by the CEO. Participants whose performance for the
          Plan Period is rated as unsatisfactory will not be eligible for
          participation in the Plan for that Plan Period and no Incentive
          Compensation will be awarded for below minimum performance.

               f. The total value of all awards made for the applicable Plan
          Period will not exceed the amount of the Final Incentive Compensation
          Pool determined for that Plan Period. Thus, each individual award for
          a participant from the Final Incentive Compensation Pool will vary
          depending on the participant's rating, employment level in the
          organization, Base Salary, and the individual ratings of all
          participants.

     3. Awards to Participants.



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<PAGE>

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

               b. Distribution of Incentive Awards. The distribution dates for
          awards will be established by the Board of Directors acting on the
          advice of the Compensation Committee. Subject to vesting requirements,
          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. Each participant 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 awards in common shares, arrangements for
          the payment of withholding tax in cash satisfactory to XOMA must be
          made prior to the date of any distribution.

               d. Termination of participation.

                    i. Subject to other provisions hereof, if a participant'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 in which awards with respect to any Plan Period
               are expected to be made, such participant shall forfeit all
               rights to Incentive Compensation as yet unpaid pursuant to the
               Plan.

                    ii. If an Employee changes employment status from full-time
               to part-time (less than 30 hours per week), any such change will
               terminate participation in the Plan and all rights to payments
               awarded for any Plan Period but payable in subsequent years,
               unless the CEO determines in her/his sole discretion, that such
               Employee should continue to participate.

                    iii. A participant may elect to withdraw, without prejudice,
               from the Plan at any time.

               e. Eligibility for Distribution. Subject to other provisions
          hereof, a participant must also be an Employee 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, (x) if within one year after a "change in control"
          (as defined below), a participant's employment with XOMA is
          involuntarily terminated other than for cause, or (y) if a participant
          shall voluntarily terminate her or his employment with XOMA within one
          year after a change in control because the nature of such


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<PAGE>

          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 all awards authorized but not yet distributed to such
          participant shall be distributed to such participant.

               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 a
          participant is terminated for any of the following reasons:

                    i. the participant's continued failure to substantially
               perform her or his duties with XOMA, or

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

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

V. No Right to Employment.

     Nothing in this Plan shall give any participant the right to continued
employment by XOMA. Furthermore, under XOMA policy, employment at XOMA is "at
will" and can be terminated at any time by either party, with or without cause
and with or without notice.

VI. Plan Modification.

     This Plan may be modified or terminated by the Board of Directors 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 and shall be
     exercisable during the lifetime of a participant only by such participant
     or his or her guardian or legal representative. A



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     participant's rights under the Plan may not be pledged, mortgaged,
     hypothecated, or otherwise encumbered, and shall not be subject to claims
     of the participant'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 a participant pursuant to an award, nothing contained in the Plan or any
     Award shall give any such participant any rights that are greater than
     those of a general unsecured creditor of XOMA.











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