Document:

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.

<PAGE>

                                      -2-

     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 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

<PAGE>

                                      -3-

     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.

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

<PAGE>
                                      -4-

          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.

          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>
<PAGE>

                                      -5-

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

<TABLE>
<CAPTION>
                 Participant Level                 Minimum              Target             Maximum
                 -----------------                 -------              ------             -------
                 <S>                               <C>                  <C>                <C>
                 Officer                            12.5%                25%                37.5%
                 Director                            7.5%                15%                27.5%
                 Manager                             5%                  10%                 15%
                 Discretionary Participant           2.5%                 5%                 7.5%
</TABLE>

          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 rat-

<PAGE>

                                       -6-

          ing, employment level in the organization, Base Salary, and the
          individual ratings of all participants.

     3.   Awards to Participants.

          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 con-

<PAGE>

                                      -7-

          clusion 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 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.
<PAGE>

                                      -8-

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 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.XOMA LTD.

                        1992 DIRECTORS SHARE OPTION PLAN

               (As Amended and Restated Through December 31, 1998)

     1. General. The XOMA Ltd. 1992 Directors Share Option Plan (the "Plan") was
adopted on February 20, 1992 (the "Adoption Date") by the Board of Directors of
XOMA Ltd. (the "Company"), subject to the approval of the Company's shareholders
at its 1992 annual meeting. A total of 300,000 of the Company's Common Shares,
par value $.0005 per share ("Common Shares"), have been reserved for issuance
hereunder. The Plan provides for the granting to non-employee directors of the
Company of non-qualified options ("Options" or "Option") to purchase Common
Shares.

     2. Purposes. The purposes of the Plan are to increase the proprietary
interest of non-employee directors in the Company by granting them non-qualified
options to purchase Common Shares, to promote long-term shareholder value
through the potential for increased ownership of Common Shares by non-employee
directors, and to encourage the continued service on the Board of Directors (the
"Board") of non-employee directors.

     3. Administration. The Plan is designed to operate automatically and not
require administration. However, to the extent that administration is necessary,
the Plan shall be administered by those members of the Board who are not
eligible to participate in the Plan (the "Plan Administrators"). Since it is
intended that this Plan provide for grants of Options to non-employee directors
of the Company, this function will be limited to matters of administrative
oversight. Decisions and determinations of the Plan Administrators shall be
final and binding upon all persons having an interest in the Plan. The Plan
Administrators will have no discretion with respect to the selection of
optionees or the determination of the exercise price, the timing of grants or
the number of shares covered by the Options granted hereunder. The Plan
Administrators will receive no additional compensation for their services in
connection with the administration of the Plan.

     4. Eligibility. Each member of the Board who is not a full or part-time
employee of the Company or of any subsidiary or affiliate of the Company
("Director") shall be entitled to participate in the Plan.

     5. Grants under the Plan. All Options granted under the Plan shall be
non-statutory options, not entitled to special tax treatment under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). The number of
Common Shares available for grants under the Plan shall not exceed 300,000
shares, subject to

<PAGE>

                                      -2-

adjustment as provided in Section 7. The shares with respect to which
a particular Option has been granted are hereinafter referred to as "Optioned
Shares." The written agreement evidencing each Option granted under the Plan
(the "Agreement") shall be dated as of the applicable date of grant. Each
Director accepting an Option grant shall execute and return a copy of the
Agreement to the Company. If any outstanding Option shall terminate for any
reason without having been exercised in full, the shares applicable to the
unexercised portion of such Option shall again become available under the Plan.

     6. Share Options.

     (a) Initial Grants. On the Adoption Date (which shall be the date of grant
for purposes of paragraphs 6(c), (d) and (e)) of the Plan, each Director shall
be granted an Option to purchase that number of Common Shares equal to 10,000
minus the number of Common Shares with respect to which options have been
previously granted to such Director (without regard to the status of such
Director at the time of any such prior grant, whether any such prior grant was
made pursuant to another plan of the company or any other circumstances of any
such prior grant), subject to the approval of the Plan by the Company's
shareholders at the 1992 Annual Meeting. Each person who becomes a Director for
the first time after the Effective Date (as defined below) through calendar year
1997 shall be granted an Option on the six-month anniversary of the date such
person becomes a Director to purchase that number of Common Shares equal to
10,000 minus the number of Common Shares with respect to which options have been
previously granted to such Director (without regard to the status of such
Director at the time of any such prior grant, whether any such prior grant was
made pursuant to another plan of the Company or any other circumstances of any
such prior grant). Each person who becomes a Director for the first time
beginning calendar year 1998 shall be granted an Option on the six-month
anniversary of the date such person becomes a Director to purchase that number
of Common Shares equal to 15,000 minus the number of Common Shares with respect
to which options have been previously granted to such Director (without regard
to the status of such Director at the time of any such prior grant, whether any
such prior grant was made pursuant to another plan of the Company or any other
circumstances of any such prior grant).

     (b) Regular Annual Grants. On each date that the Company holds its annual
meeting of shareholders commencing with the 1993 and ending with the 1997
calendar years, immediately after the annual election of directors, each
Director then in office (other than those Directors first elected at such
meeting) will receive a grant of an Option to purchase 1,000 shares, provided
that no Director will receive under this Plan Options to purchase a total of
more than 25,000 shares. On each date that the Company holds its annual meeting
of shareholders commencing with the 1998 calendar year, immediately after the

<PAGE>

                                      -3-

annual election of directors, each Director then in office (other than those
Directors first elected at such meeting) will receive a grant of an Option to
purchase 7,500 shares, provided that no Director will receive under this Plan
Options to purchase a total of more than 75,000 shares.

     (c) Option Exercise Price. The per share price to be paid by the Director
at the time an Option is exercised shall be 100% of the fair market value of the
Common Shares on the date of grant. "Fair market value" shall be determined as
follows:

     (i) If the Common Shares are not at the time listed or admitted to trading
on any stock exchange but is traded in the over-the-counter market, the fair
market value shall be the closing selling price per Common Share on the date in
question, as such price is reported by the National Association of Securities
Dealers through its Nasdaq National Market System or any successor system. If
there is no reported closing selling price for Common Shares on the date in
question, then the closing selling price on the last preceding date for which
such quotation exists shall be determinative of fair market value.

     (ii) If the Common Shares are at the time listed or admitted to trading on
any stock exchange, then the fair market value shall be the closing selling
price per Common Share on the date in question on the stock exchange which is
the primary market for the Common Shares, as such price is officially quoted on
such exchange. If there is no reported sale of Common Shares on such exchange on
the date in question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.

     (d) Maximum Term of Option. Each Option shall have a maximum term of ten
(10) years from the date of grant.

     (e) Date of Exercise. Provided that an optionee hereunder (an "Optionee")
remains a Director, and except as otherwise provided in paragraph 8(a),

     (i) the Options granted in Section 6(a) hereof shall become exercisable in
accordance with the following schedule:

     (A)  With respect to Options granted pursuant to the first sentence of
          Section 6(a) hereof, each such Option shall become exercisable with
          respect to 20% of the Optioned Shares on the date of grant;

     (B)  Each Option shall become exercisable with respect to 20% (or, in the
          case of Options referred to in clause (A) above, an addi-

<PAGE>

                                      -4-

          tional 20%) of the Optional Shares after the expiration of one year
          from the date of grant;

     (C)  Each Option shall become exercisable with respect to an additional 20%
          of the Optional Shares after the expiration of two years from the date
          of grant;

     (D)  Each Option shall become exercisable with respect to an additional 20%
          of the Optioned Shares after the expiration of three years from the
          date of grant;

     (E)  Each Option shall become exercisable with respect to an additional 20%
          (or, in the case of Options referred to in clause (A) above, the
          remaining 20%) of the Optional Shares after the expiration of four
          years from the date of grant;

     (F)  With respect to Options other than those referred to in clause (A)
          above, each such Option shall become exercisable with respect to the
          remaining 20% of the Optioned Shares after the expiration of five
          years from the date of grant; and

     (ii) the Options granted in Section 6(b) hereof shall become exercisable on
the date of grant.

     Exercisable installments may be exercised in whole or in part and, to the
extent not exercised, shall accumulate and be exercisable at any time on or
before the Expiration Date or sooner termination of the Option term.

     (f) Accelerated Termination of Option Term. The option term with respect to
a particular Option granted hereunder shall terminate (and such Option shall
cease to be exercisable) prior to the specified expiration date thereof (the
"Expiration Date") should one of the following provisions become applicable:

     (i) Except as otherwise provided in subparagraphs (ii), (iii) and (iv)
below, should Optionee cease to be a Director at any time during the option
term, then Optionee shall have up to a three (3) month period commencing with
the date of such cessation of Director status in which to exercise this Option,
but in no event shall this Option be exercisable at any time after the
Expiration Date. During such limited period of exercisability, the Option may
not be exercised for more than the number of Optioned Shares (if any) for which
it is exercisable at the date of Optionee's cessation of Director status. Upon
the expiration of such limited period of exercisability or (if earlier) upon the
Expiration Date, the Option shall terminate and cease to be outstanding.

     (ii) Should Optionee die while such Option is outstanding, then the
personal representative of Optionee's estate or the person or persons to whom
the Op-

<PAGE>

                                      -5-

tion is transferred shall have the right to exercise this Option, but only with
respect to that number of Optioned shares (if any) for which Option is
exercisable on the date of Optionee's death. Such right shall lapse and the
Option shall cease to be exercisable upon the earlier of (A) the expiration of
the one (1) year period measured from the date of Optionee's death or (B) the
specified Expiration Date of the Option term.

     (iii) Should Optionee become permanently disabled and cease by reason
thereof to be a Director at any time during the Option term, then Optionee shall
have a period of twelve (12) months (commencing with the date of such cessation
of Director status) during which to exercise such Option; provided, however,
that in no event shall the Option be exercisable at any time after the
Expiration Date. During such limited period of exercisability, the Option may
not be exercised for more that the number of Optioned Shares (if any) for which
this Option is exercisable at the date of Optionee's cessation of Director
status. Upon the expiration of such limited period of exercisability or (if
earlier) upon the Expiration Date, the Option shall terminate and cease to be
outstanding. Optionee shall be deemed to be permanently disabled if Optionee is,
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of not less than 12
consecutive months or more, unable to perform his/her usual duties as a director
of the Company.

     (iv) Should Optionee's status as a Director be terminated on account of any
act of (A) fraud or intentional misrepresentation, or (B) embezzlement,
misappropriation or conversion of assets or opportunities of the Company, or any
unauthorized disclosure of confidential information or trade secrets of the
Company, such Option shall terminate and cease to be exercisable immediately
upon the date of such termination of Director status.

     (g) Method of Exercise. An Option may be exercised with respect to all or
any part of the shares of Common Shares for which such Option is at the time
exercisable. Each notice of exercise shall be accompanied by the full purchase
price of the shares being purchased, with such payment to be made in cash or by
check.

     (h) Transferability. Options are transferable and assignable to the spouse
of the Optionee or a descendent of the Optionee (any such spouse or descendent,
an "Immediate Family Member") or a corporation, partnership, limited liability
company or trust so long as all of the shareholders, partners, members or
beneficiaries thereof, as the case may be, are either the Optionee or an
Immediate Family Member of the Optionee, provided that (i) there may be no
consideration for any such transfer and (ii) subsequent transfers or transferred
options will be prohibited other than by will, by the laws of descent and
distribution or pursuant to a "qualified domestic relations order" as such term
is defined by the Code or the Employee Retirement Income Security Act of 1974
("ERISA"). Fol-

<PAGE>

                                      -6-

lowing transfer, any such options will continue to be subject to the same terms
and conditions as were applicable immediately prior to transfer, provided that
for purposes of the option agreement the term "Optionee" will refer to the
transferee.

     7. Adjustment Upon Changes in Capitalization.

     (a) If the number of shares of the Company as a whole are increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the Company, whether through reclassification, share
dividend, share split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kind of shares subject to the Plan, and in the
number, kind and per share exercise price of shares subject to unexercised
Options or portions thereof granted prior to any such change. Any such
adjustment in an outstanding Option, however, shall 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.

     (b) If the Company is the surviving or continuing entity in any merger,
amalgamation or other business combination, then an Option shall be
appropriately adjusted to apply and pertain to the number and class of
securities which the holder of the number of Common Shares subject to an Option
immediately prior to such merger, amalgamation or other business combination
would have been entitled to receive in the consummation of such merger,
amalgamation or other business combination, and appropriate adjustment shall be
made to the option price payable per share, provided the aggregate option price
shall remain the same.

     8. Corporate Transaction.

     (a) In the event of one or more of the following transactions ("Corporate
Transaction"):

     (i) a merger, amalgamation or acquisition in which the Company is not the
surviving or continuing entity, except for a transaction the principal purpose
of which is to change the jurisdiction of the Company's incorporation,

     (ii) the sale, transfer or other disposition of all or substantially all of
the assets of the Company, or

     (iii) any other business combination in which fifty percent (50%) or more
of the Company's outstanding voting shares are transferred to different holders
in a single transaction or a series of related transactions,

<PAGE>

                                      -7-

then the exercisablity of an Option shall automatically be accelerated so that
such Option may be exercised for any or all of the Common Shares subject to such
Option. No such acceleration of exercise dates shall occur, however, if and to
the extent the terms of any agreement relating to such Corporate Transaction
provide as a prerequisite to the consummation of such Corporate Transaction that
outstanding options purchase Common Shares (including an Option issued pursuant
to this Plan) are to be assumed by the successor corporation or parent thereof
or are to be replaced with options to purchase capital shares of the successor
corporation or parent thereof. In any such case, an appropriate adjustment as to
the number and kind of shares and the per share exercise prices shall be made.
No fractional shares shall be issued under the Plan on account of any adjustment
specified above. Upon the consummation of the Corporate Transaction, an Option
shall, to the extent not previously exercised or assumed by the successor
corporation or its parent company, terminate and cease to be exercisable.

     (b) This Plan shall not in any way affect the right of the company to
adjust, reclassify, reorganize or otherwise make changes in its capital or
business structure or to merge, amalgamate, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

     9. Amendment and Termination of Plan. The Board may make such amendments to
the Plan and to any Agreements hereunder as it shall deem advisable; provided,
however, that the Board may not, without further approval by the affirmative
votes of the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a shareholders meeting duly held in
accordance with applicable laws, increase the number of shares as to which
Options may be granted under this Plan (except as otherwise permitted in
paragraph 8(a) hereof), materially increase the benefits accruing to
participants under this Plan or materially modify the requirements as to
eligibility for participation under this Plan. In addition, the Board may not
amend the Plan or Agreement hereunder more than once every six months, other
than to comport with changes in the Code or the rules thereunder. The Board may
terminate the Plan at any time within its absolute discretion. No such
termination, other than that provided in Section8(a) hereof, shall in any way
affect any Option then outstanding.

     10. Miscellaneous Provisions. Neither the Plan nor any action taken
hereunder shall be construed as giving any Director any right to be nominated
for re-election to the Board. The Plan shall be governed by the laws of the
State of California.

     11. Effective Date. The Plan was initially adopted by the Board on February
20, 1992 and approved by the Company shareholders at the 1992 Annual Meeting, to
be effective as of February 20, 1992 (the "Effective Date"). Amendments to the
Plan regarding transfer provisions were adopted by the Board on October 30, 1996
and approved by the shareholders at the 1997 Annual Meeting. Further amendments
to the amended and restated Plan t increase the number of shares issuable under
the Plan were adopted by the Board on February 25, 1998 and approved by the
shareholders at the 1998 Annual Meeting. The Plan was further amended to reflect
the Company's change of domicile from Delaware to Bermuda

<PAGE>
                                      -8-

and the new restatement of the Plan, effective December 31, 1998, was adopted by
the Board on February, 1999.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00055-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00055-of-00352.parquet"}]]