Document:

Form of Share Option Agreement for 1992 Directors Share Option Plan

 Exhibit 10.3B 
 Share Option Agreement 
 Under the XOMA Ltd. 
 1992 Directors Share Option Plan 
  

							
				
	 (A)
	  	Optionee:	  		 	
				
	 (B)
	  	Grant Date:	  	(E)	 	Expiration Date:
				
	 (C)
	  	Shares:	  	(F)	 	Exercise Price:
				
	 (D)
	  	Share Installments:	  	(G)	 	Option Type:
				
		  	Option is fully exercisable	  		 	Non-Qualified Share Option

 Subject to the terms of the XOMA Ltd. 1992 Directors Share Option Plan, as amended and restated
through May 19, 2004 (the “Plan”) and to the terms and conditions set forth in this agreement (the “Agreement”), XOMA Ltd. (the “Company”) has granted you, as of the Grant Date shown in item (B) above, a
non-qualified share option (not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)) to purchase the number of Common Shares of the Company shown in item (C) above
(the “Optioned Shares”) at the Exercise Price shown in item (F) above. 
 The details of your option are as follows:

 1. Term. This option has a maximum term of ten years measured from the Grant Date and will, unless sooner terminated in
accordance with Section 4 or Subsection 6(a) hereof, expire on the Expiration Date shown in item (E) above. Upon the Expiration Date or upon the sooner termination of this option under Section 4 or Subsection 6(a), this option will
cease to be exercisable and have no further force or effect whatsoever. 
 2. Transferability. This option is transferable and
assignable by you to your spouse or descendent (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 you or an Immediate Family Member, provided that there may be no consideration for any such transfer, and, following transfer, (i) subsequent transfers of this option will be prohibited
other than by will or the laws of descent and distribution, and (ii) this option will continue to be subject to the same terms and conditions 

 
as were applicable immediately prior to transfer, provided that for purposes of this Agreement any references to “you” will refer to the
transferee. 
 3. Exercise Schedule. The option granted herein is exercisable with respect to 100% of the Optioned Shares
beginning on the Grant Date 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 or sooner termination of the option term. 
 4. Accelerated Termination of Option Term. The option term specified in Section 1 will terminate (and this option will cease to be
exercisable) prior to the Expiration Date should one of the following provisions become applicable: 
 (a) Except as otherwise provided in
Subsections (b), (c) and (d) below, if you cease to be a member of the Board of Directors of the Company who is not a full or part-time employee of the Company or of any subsidiary or affiliate of the Company (a “Director”) at
any time during the option term, then you will have up to three months commencing with the date of such cessation of Director status in which to exercise this option, but in no event will this option be exercisable at any time after the Expiration
Date. Upon the expiration of such limited period of exercisability or (if earlier) upon the Expiration Date, this option will terminate and cease to be outstanding. 
 (b) If you die while this option is outstanding, then the personal representative of your estate or the person or persons to whom the option is transferred pursuant to your will or in accordance with the laws of
descent and distribution will have the right to exercise this option. Such right will lapse and this option will cease to be exercisable upon the earlier of (i) the expiration of the one-year period measured from the date of your death or
(ii) the Expiration Date. 
 (c) If you become permanently disabled and cease by reason thereof to be a Director at any time during the
option term, then you will have a period of twelve months (commencing with the date of such cessation of Director status) during which to exercise this option; provided, however, that in no event will this option be exercisable at any time after the
Expiration Date. Upon the expiration of such limited period of exercisability or (if earlier) upon the Expiration Date, this option will terminate and cease to be outstanding. You will be deemed to be permanently disabled if you are, 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 twelve consecutive months or more, unable to perform your usual duties as a Director of the Company. 
 (d) If your status as a Director is terminated on account of any act of (i) fraud or intentional misrepresentation or (ii) embezzlement,
misappropriation or conversion of assets or opportunities of the Company, or any unauthorized disclosure of confidential information or trade secrets of the Company, this option will terminate and cease to be exercisable immediately upon the date of
such termination of Director status. 
 5. Adjustment Upon Changes in Capitalization. 

 (a) 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, share dividend, share split, combination of shares, exchange of shares, change in corporate structure or the like, an appropriate and
proportionate adjustment will be made 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 portion, however, 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 of 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 this option will be
appropriately adjusted to apply and pertain to the number and class of securities which the holder of the number of Common Shares of the Company subject to this 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 an appropriate adjustment will be made to the Exercise Price payable per share, provided the aggregate Exercise Price will remain
the same. 
 6. 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 is
transferred to different holders in a single transaction or a series of related transactions, 
 then the exercisability of this option will automatically be
accelerated so that such option may be exercised simultaneously with consummation of such Corporate Transaction for any or all of the Common Shares of the Company subject to this option. No such acceleration of exercise dates will 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 to purchase the Company’s Common Shares (including this
option) are to be assumed by the successor corporation or parent thereof or are to be replaced with options to purchase shares of capital stock 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 will be made. No fractional shares will be issued on account of any adjustment specified above. Immediately following the consummation of the Corporate Transaction, this option will, to the
ex- 

 
tent not previously exercised or assumed by the successor corporation or its parent company, terminate and cease to be exercisable. 
 (b) This Agreement will 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. 
 7. Privilege of Share Ownership. You will not have any rights of a shareholder of the Company with respect to the Optioned Shares until you have exercised the option, paid the Exercise Price and been issued the purchased
shares. 
 8. Manner of Exercising Option. 
 (a) In order to exercise this option with respect to all or any part of the Optioned Shares for which this option is at the time exercisable, you (or in the case of exercise after your death, your executor,
administrator, heir or legatee, as the case may be) must take the following actions: 
 (i) Provide the Secretary of the
Company with written notice of such exercise, specifying the number of Optioned Shares with respect to which the option is being exercised. 
 (ii) Pay the Exercise Price in full, in cash or by check payable to the Company’s order, for the Optioned Shares being purchased. 
 (iii) Furnish to the Company appropriate documentation that the person or persons exercising the option, if other than you, have the right
to exercise this option. 
 (b) In no event may this option be exercised for any fractional shares. 
 9. Compliance with Laws and Regulations. 
 (a) The exercise of this option and the issuance of Optioned Shares upon such exercise will be subject to compliance by the Company and by you with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which Common Shares of the Company may be listed at the time of such exercise and issuance. 
 (b) In connection with the exercise of this option, you will execute and deliver to the Company such representations in writing as may be requested by the Company in order for it to comply with the applicable requirements of Federal and
State securities law. 
 10. Restrictive Legends. If and to the extent any Optioned Shares acquired under this option are not
registered under the Securities Act of 1933, the share certificates for such Optioned Shares will be endorsed with restrictive legends, including (without limitation) the following: 

 “The Shares represented by this certificate have not been registered under the Securities Act of
1933. The shares have been acquired for investment and may not be sold or offered for sale in the absence of (a) an effective registration statement for the shares under such Act, (b) a ‘no action’ letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c) an opinion of counsel to the Company that registration under such Act is not required with respect to such sale or offer.” 
 11. Successors and Assigns. Except to the extent otherwise provided in Section 2 and Subsection 6(a), the provisions of this Agreement
will inure to the benefit of, and be binding upon, your successors, administrators, heirs, legal representatives and assigns and the successors and assigns of the Company. 
 12. Liability of the Company. 
 (a) If the Optioned Shares covered by this Agreement exceed, as of the Grant Date, the number of Common Shares of the Company which may without shareholder approval be issued under the Plan, then this option will be void with respect to
such excess shares unless shareholder approval of an amendment sufficiently increasing the number of Common Shares of the Company issuable under the Plan is obtained in accordance with the provisions of the Plan. 
 (b) The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful
issuance and sale of any Common Shares pursuant to this option will relieve the Company of any liability in respect of the non-issuance or sale of such shares as to which such approval will not have been obtained. 
 13. No Right to Nomination. Neither this Agreement nor any action taken hereunder will be construed as giving you any right to be nominated
for re-election to the Board of Directors of the Company. 
 14. Notices. Any notice required to be given or delivered to the
Company under the terms of this Agreement will be in writing and addressed to the Company in care of its Secretary at its corporate offices. Any notice required to be given or delivered to you will be in writing and addressed to you at the address
indicated below your signature line herein. All notices will be deemed to be given or delivered upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 
 15. Construction. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited
by and subject to the express terms and provisions of the Plan. Any dispute regarding the interpretation of this Agreement will be submitted to the Plan Administrator (as that term is defined in the Plan) for resolution. The decision of the Plan
Administrator will be final, binding and conclusive. Questions regarding this option or the Plan should be referred to the Legal Department of the Company. 

 16. Governing Law. The interpretation, performance, and enforcement of this Agreement will
be governed by the laws of the State of California. 

			
	XOMA LTD.
		
	By:	 	 
		 	Steven B.Engle
		 	Chairman of the Board
		 	Chief Executive Officer and President
		
	Dated:	 	 

 I hereby agree to be bound by the terms and conditions of this Agreement and the Plan.

  

			
		
	By:	 	 
		
	Dated:	 	 

 If the optionee resides in California or another community property jurisdiction, I, as the
optionee’s spouse, also agree to be bound by the terms and conditions of this Agreement and the Plan. 
  

			
		
	By:	 	 
		
	Dated:CEO Incentive Compensation Plan

 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. 

	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. 

	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 

 
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 

 
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. 

 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.

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