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
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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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:
Participant Company Individual Performance
Level Objectives Objectives Objectives
----- ---------- ---------- ----------
Officer 50% 30% 20%
Director 40% 40% 20%
Manager and Discretionary
Participant
30% 50% 20%
c. The bonus opportunity ranges for participants in the Plan
expressed as a percentage of Base Salaries are as follows:
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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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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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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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