XOMA Corporation

Management Incentive Compensation Plan

I. Introduction and Summary.

This document describes the XOMA Corporation Management Incentive
Compensation Plan (the "Plan"), as approved by the Board of Directors. The Plan
became effective on July 1, 1993 and was amended as of October 27, 1993. 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 are in salary
grades E8 and above and report directly to an officer, and additional
discretionary participants ("Discretionary Participants") determined by the
Chief Executive Officer ("CEO") to be critical to the achievement of Corporate
Objectives established by the Board of Directors, are eligible to participate in
this Plan and, depending on their performance and that of the corporation, 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 Corporate 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 Corporate 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 Corporate Objectives have been met as set forth in the
Explanatory Note to Schedule I attached hereto.

Individual awards will be granted in cash and/or shares of XOMA common
stock based on the average market value of the common stock 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 shares of XOMA common stock 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 prior to December 31 of the year succeeding the Plan Period, as to
whether the balance of the award should be paid in cash or shares of XOMA common
stock. Failure to exercise the option or to meet the December 31 deadline will
result in the common stock choice being selected. No option is being offered to
divide the balance of the award between cash and XOMA common stock.

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 corporate 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. Corporate Objectives. The term "Corporate Objectives" means that
list of corporate 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 Corporate Objectives, the milestones
within each Corporate Objective and their respective relative
percentage contribution to the overall Corporate Objectives and the
Required Corporate Objective Percentage is set forth on Schedule I
attached hereto together with an Explanatory Note describing the method
of calculation.

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 1 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
are in salary Grade E8 and above and report directly to an officer, and
additional Discretionary Participants determined by the CEO to be
critical to the achievement of the Corporate 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 Corporate
Objectives have been met. If a determination is made that XOMA has not
met the Corporate Objectives to the extent required, the Compensation
Committee may decline to award any Incentive Compensation.

b. The Board of Directors and the Compensation Committee have
determined that, with respect to the years ending December 31, 1993 and
1994, respectively, unless at least 50% and 60% of the Corporate
Objectives (the "Required Minimum Corporate Objective Percentage") have
been met, respectively, no Incentive Compensation will be awarded. In
addition, with respect to the year ending December 31, 1995, and each
year thereafter during the Plan Term, the Required Minimum Corporate
Objective Percentage will increase to 70%.

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 Corporate Objectives have been met as set forth
in the Explanatory Note to Schedule I for the applicable Plan Period.

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 Corporate Objectives; (2) each
participant's employment level in the organization and Base Salary; and
(3) each participant's contributions to the achievement of the
Corporate Objectives as a result of: (x) achievement of individual
objectives and ongoing performance and (y) individual contributions
towards XOMA's meeting of the Corporate Objectives without regard to
individual objectives.

b. Corporate 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.

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

Discretionary
Participant Corporate Individual Performance
Level Objectives Objectives Objectives

Officer 40% 40% 20%
Other Executive 30% 50% 20%

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:

Participant Level Minimum Target Maximum

Officer 12.5% 25% 37.5%
Other Executive 7.5% 15% 27.5%

d. 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 determined
by the Compensation Committee. The ratings for all other participants
will be determined 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.

e. 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.

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 stock, 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.

1. 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.

2. 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.

3. 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 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
stock, (other than directly from XOMA) and thereby becomes the owner of
more than 20% of XOMA's outstanding shares of voting capital stock (on
a fully diluted basis) or XOMA enters into a merger or other
consolidation (other than one in connection with a voluntary change of
corporate domicile or similar reorganization or recapitalization
transaction) in which the stockholders of XOMA (as determined
immediately prior to the merger) do not own at least 50% of the
outstanding shares of voting capital stock of the surviving entity
after the merger. 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 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.

Schedule I

Explanatory Note

Each of the individual Corporate Objectives in this Schedule I has been
assigned a percentage reflecting its relative importance (the "Target
Contribution Percentage") to the achievement of the overall Corporate Objectives
as well as target results and results reflecting best and worst case scenarios
(denominated maximum or minimum for purposes of this Schedule I). 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 Corporate Objective.