Exhibit 99.1
[LOGO] QLT INC. 887 Great Northern Way t 604.707.7000
Vancouver, BC Canada V5T 4T5 f 604.707.7001
www.qltinc.com
April 28, 2004
To the Shareholders of QLT Inc.
I am pleased to invite you to attend the Annual Meeting of Shareholders of QLT
Inc. to be held on Wednesday, May 26, 2004 at 10:00 a.m. (Vancouver time) at The
Four Seasons Hotel, 791 West Georgia Street, Vancouver, British Columbia. A
reception will follow the Annual Meeting to allow you to meet the directors and
management of QLT.
The attached Notice of Annual Meeting and Proxy Statement provide details of
business to be conducted at the Annual Meeting. A copy of QLT's Annual Report is
also enclosed and highlights some of QLT's significant achievements over the
last year.
Your vote is important to us. Whether or not you plan to attend the Annual
Meeting, please sign, date and return the enclosed Instrument of Proxy according
to the instructions in the Proxy Statement and the Instrument of Proxy.
I look forward to seeing you at the Annual Meeting on May 26.
Sincerely,
QLT INC.
/s/PAUL J. HASTINGS
PAUL J. HASTINGS
President and Chief Executive Officer
QLT INC.
887 GREAT NORTHERN WAY
VANCOUVER, BRITISH COLUMBIA
V5T 4T5
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 2004
NOTICE IS HEREBY GIVEN that the Annual Meeting of shareholders
("Shareholders") of QLT Inc. ("QLT") will be held at The Four Seasons Hotel, 791
West Georgia Street, Vancouver, British Columbia, on Wednesday, May 26, 2004 at
10:00 a.m. (Vancouver time) for the following purposes, each of which is
described in more detail in the accompanying Proxy Statement:
1. To receive the Annual Report, including the report of the directors of
QLT (the "Directors"), and the Audited Consolidated Financial
Statements of QLT for the year ended December 31, 2003, together with
the Auditors' Report on those Financial Statements;
2. To appoint Deloitte & Touche LLP as independent auditors of QLT for the
ensuing year and to authorise the Directors to fix the remuneration to
be paid to the auditors;
3. To fix the number of Directors for the ensuing year at eight;
4. To elect Directors for the ensuing year; and
5. To transact such other business as may properly come before the Annual
Meeting, or at any adjournments or postponements thereof.
You are entitled to receive notice of and attend the Annual Meeting,
and may vote at the Annual Meeting, if you were a Shareholder of QLT at the
close of business on Tuesday, April 13, 2004.
If you are unable to attend the Annual Meeting in person, please read
the notes (the "Notes") accompanying the Instrument of Proxy enclosed with these
materials and then complete and return the Instrument of Proxy within the time
set out in those Notes. If on April 13, 2004, your shares in QLT were held of
record in your brokerage firm, securities dealer, trust company, bank or another
similar organization, you may vote at the Annual Meeting if you obtain a proxy
card from them issued in your name and carefully follow any instructions that
are provided to you in connection with that proxy card.
The enclosed Instrument of Proxy is solicited by management of QLT but
you may amend it if you wish by striking out the names listed in the Instrument
of Proxy and inserting in the space provided the name of the person you wish to
represent you at the Annual Meeting.
DATED at Vancouver, British Columbia, this 28th day of April, 2004.
BY ORDER OF THE BOARD OF DIRECTORS
JANET GROVE
CORPORATE SECRETARY
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED INSTRUMENT OF PROXY AS PROMPTLY AS POSSIBLE. IF YOU ARE ABLE
TO ATTEND THE ANNUAL MEETING AND WISH TO VOTE YOUR SHARES IN PERSON, YOU MAY DO
SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.
QLT INC.
887 GREAT NORTHERN WAY
VANCOUVER, BRITISH COLUMBIA
V5T 4T5
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 2004
ANNUAL MEETING AND PROXY SOLICITATION
PURPOSE OF PROXY
These proxy materials are furnished in connection with the solicitation of
proxies by the management of QLT Inc. ("QLT"), a British Columbia company, for
the annual general meeting (the "Annual Meeting") of shareholders of QLT (the
"Shareholders"). As many of QLT's Shareholders are expected to be unable to
attend the Annual Meeting in person, proxies are solicited by mail to give each
Shareholder an opportunity to vote on all matters that will properly come before
the Annual Meeting. QLT intends to mail this Proxy Statement and accompanying
Instrument of Proxy on or about April 28, 2004 to all Shareholders of record as
at the close of business on Tuesday, April 13, 2004. References in this Proxy
Statement to the Annual Meeting include any adjournment or postponement of that
meeting.
DATE, TIME, PLACE AND PURPOSE OF THE QLT ANNUAL MEETING
QLT's Annual Meeting will be held at The Four Seasons Hotel, 791 West Georgia
Street, Vancouver, British Columbia, on Wednesday, May 26, 2004, at 10:00 a.m.
(Vancouver time).
The purpose of the Annual Meeting is to:
1. receive the Annual Report, including the report of the directors of QLT
(the "Directors"), and the Audited Consolidated Financial Statements of
QLT for the year ended December 31, 2003, together with the Auditors'
Report on those Financial Statements;
2. appoint Deloitte & Touche LLP as independent auditors of QLT for the
ensuing year and to authorise the Directors to fix the remuneration to
be paid to the auditors;
3. fix the number of Directors for the ensuing year at eight;
4. elect Directors for the ensuing year; and
5. transact such other business as may properly come before the Annual
Meeting, or at any adjournments or postponements thereof.
VOTING RECOMMENDATION OF THE BOARD OF DIRECTORS
QLT's Board of Directors believes the election of its eight nominees to the
Board of Directors of QLT (the "Board" or "Board of Directors") and the
appointment of Deloitte & Touche LLP as independent auditors are in the best
interests of QLT and its Shareholders and, accordingly, recommends that each
Shareholder vote his or her shares "FOR" each of the Board's nominees for
election to the Board of Directors and "FOR" each of the other proposals.
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WHO MAY ATTEND THE ANNUAL MEETING?
All QLT Shareholders are invited to attend the Annual Meeting, including
Shareholders whose shares are held by their brokerage firm or another similar
organisation.
QUORUM FOR THE ANNUAL MEETING
To transact business at the Annual Meeting, a quorum of Shareholders must be
present at the commencement of the Annual Meeting, either in person or by proxy.
Under QLT's incorporation documents, the quorum for the Annual Meeting is two
Shareholders, two proxyholders representing two Shareholders, or one Shareholder
and a proxyholder representing another Shareholder entitled to vote at the
Annual Meeting, present in person at the beginning of the Annual Meeting and
collectively holding or representing by proxy in the aggregate not less than 5%
of the issued Common Shares of QLT. If within one-half hour from the time
appointed for the Annual Meeting a quorum is not present, the meeting will stand
adjourned to the same day in the next week at the same time and place. If at
such adjourned meeting a quorum is not present within one-half hour from the
time appointed, the person or persons present and being, or representing by
proxy, a Shareholder or Shareholders entitled to attend and vote at the meeting
will constitute a quorum. QLT has received a waiver of Rule 4350(f) from Nasdaq
which would otherwise require a quorum of holders of not less than 33 1/3% of
QLT's outstanding Common Shares.
VOTE REQUIRED
A SIMPLE MAJORITY OF THE VOTES CAST AT THE ANNUAL MEETING IS REQUIRED TO FIX THE
NUMBER OF DIRECTORS AT EIGHT AND TO APPOINT DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS OF QLT. DIRECTORS ARE ELECTED BY A PLURALITY OF VOTES CAST AT THE
ANNUAL MEETING, WHICH MEANS THAT THOSE NOMINEES FOR ELECTION TO THE BOARD OF
DIRECTORS WHO RECEIVE THE LARGEST NUMBER OF FAVOURABLE VOTES WILL BE ELECTED AS
DIRECTORS OF QLT, UP TO THE MAXIMUM NUMBER OF DIRECTORS FIXED BY THE
SHAREHOLDERS.
Holders of Common Shares are not entitled to cumulate votes for the election of
Directors. Abstention from voting on the election of Directors will have no
impact on the outcome of this proposal since no vote will have been cast in
favour of any nominee.
ABSTENTIONS AND BROKER NON-VOTES WILL BE INCLUDED FOR QUORUM PURPOSES FOR THE
ANNUAL MEETING BUT WILL NOT BE INCLUDED IN THE COMPUTATION OF THE VOTE ON ANY
PARTICULAR RESOLUTION.
VOTING BY PROXY
You may vote by proxy or in person at the Annual Meeting if you were a
Shareholder of record of QLT at the close of business on Tuesday, April 13,
2004. You are encouraged to vote by proxy using the enclosed Instrument of Proxy
even if you plan to attend the Annual Meeting. If the instructions you give in
the Instrument of Proxy are clear, and if the Instrument of Proxy is properly
completed and delivered and has not been revoked, the shares represented by the
Instrument of Proxy will be voted or withheld from voting on any poll that may
be called for and, if you specify a choice with respect to any matter to be
acted upon, the shares will be voted on any poll in accordance with your
instructions. To vote using the enclosed Instrument of Proxy, you must:
1. specify your choice on each matter by marking the appropriate box on
the enclosed Instrument of Proxy;
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2. sign and date the Instrument of Proxy where indicated. To be valid, the
Instrument of Proxy must be signed and dated by you or your attorney
authorized in writing. If the Shareholder is a corporation, the
Instrument of Proxy must be dated and signed under that corporate
Shareholder's corporate seal or by a duly authorized officer or
attorney of the corporation; and
3. return the Instrument of Proxy in the enclosed envelope or by facsimile
to QLT's Registrar and Transfer Agent: Computershare Trust Company of
Canada, Proxy Department, 100 University Avenue, 9th Floor, Toronto,
Ontario, M5J 2Y1, facsimile: within North America at 1-866-249-7775 or
outside North America at (416) 263-9524, no later than Friday, May 21,
2004 at 1:00 p.m. (Toronto time). The Instrument of Proxy may also be
delivered to the Chairman at the Annual Meeting as to any matter in
respect of which a vote will not have already been cast.
YOU HAVE THE RIGHT TO APPOINT ANOTHER PERSON TO ATTEND AND ACT ON YOUR BEHALF AT
THE ANNUAL MEETING OTHER THAN THE PERSONS NAMED IN THE ENCLOSED INSTRUMENT OF
PROXY. TO EXERCISE THIS RIGHT, YOU SHOULD STRIKE OUT THE NAMES OF THE PERSONS
NAMED IN THE INSTRUMENT OF PROXY AND INSERT THE NAME OF YOUR NOMINEE IN THE
BLANK SPACE PROVIDED. A PERSON APPOINTED AS A PROXYHOLDER NEED NOT BE A
SHAREHOLDER OF QLT.
NOTICE TO BENEFICIAL SHAREHOLDERS
A Shareholder's shares may be registered in the name of a third party, such as a
brokerage firm, securities dealer, trust company, bank or other similar
intermediary. Generally, such non-registered Shareholders will receive a package
from their intermediary containing either: (i) a request for voting
instructions; or (ii) a form of proxy which may be signed by the intermediary
and specify the number of shares beneficially owned, but is otherwise
uncompleted. If a non-registered Shareholder who receives one of the above forms
wishes to vote in person at the Annual Meeting, the non-registered Shareholder
should strike out the names of management's representatives named in the form of
proxy and insert the non-registered Shareholder's name in the blank space
provided. In either case, non-registered Shareholders should carefully follow
the instructions of their intermediary with respect to the procedures for
voting.
All references to "Shareholders" or "you" in this Proxy Statement and the
accompanying Instrument of Proxy and Notice of Annual Meeting are to
Shareholders of record of QLT on April 13, 2004 unless specifically stated
otherwise.
MANNER IN WHICH PROXIES WILL BE EXERCISED
THE PROXYHOLDER WILL VOTE ACCORDING TO INSTRUCTIONS IN THE INSTRUMENT OF PROXY
ON ANY BALLOT WHICH MAY BE CALLED FOR AND FOR WHICH A CHOICE HAS BEEN SPECIFIED.
UNLESS OTHERWISE INDICATED BY YOU ON THE INSTRUMENT OF PROXY, YOUR SHARES WILL
BE VOTED "FOR" THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES FOR ELECTION TO
THE BOARD OF DIRECTORS AND THE OTHER MOTIONS PROPOSED TO BE MADE AT THE ANNUAL
MEETING AS STATED IN THE INSTRUMENT OF PROXY.
THE INSTRUMENT OF PROXY ALSO CONFERS UPON THE PROXYHOLDER DISCRETIONARY
AUTHORITY TO VOTE ALL SHARES REPRESENTED BY THE PROXY WITH RESPECT TO AMENDMENTS
OR VARIATIONS TO MATTERS IDENTIFIED IN THE NOTICE OF MEETING AND ANY OTHER
MATTER THAT PROPERLY COMES BEFORE THE ANNUAL MEETING. THE MANAGEMENT OF QLT
KNOWS OF NO SUCH AMENDMENT, VARIATION OR OTHER MATTER THAT IS TO BE PRESENTED
FOR ACTION AT THE ANNUAL MEETING. HOWEVER, IF ANY OTHER MATTERS WHICH ARE NOT
NOW KNOWN TO QLT'S MANAGEMENT SHOULD PROPERLY COME BEFORE THE ANNUAL MEETING,
THE PROXIES WILL BE VOTED, OR NOT VOTED, BY THE PROXYHOLDER IN HIS OR HER
DISCRETION.
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REVOKING A PROXY ONCE GIVEN
YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED AT THE ANNUAL
MEETING. A proxy may be revoked by voting in person at the Annual Meeting, by an
instrument in writing stating that the proxy is revoked and signed and delivered
as follows, or in any other manner provided by law:
1. the instrument revoking the proxy must be signed by you or by your
attorney authorised in writing. If the Shareholder is a corporation,
the instrument of revocation must be signed under that corporate
Shareholder's corporate seal or by a duly authorised officer or
attorney of the corporation; and
2. the instrument revoking the proxy must be (i) delivered to QLT's
registered office at 26th Floor, Toronto Dominion Bank Tower, 700 West
Georgia Street, Vancouver, British Columbia, V7Y 1B3 on or before
Friday, May 21, 2004 at 1:00 p.m. (Toronto time) or the last business
day preceeding the date of any adjournment of the Annual Meeting at
which the proxy is to be voted or (ii) deposited with the Chairman on
the date of the Annual Meeting or any adjournment of it before the
taking of any vote in respect of which the proxy is to be used.
If your shares are held in the name of an intermediary such as a brokerage firm,
securities dealer, trust company, bank or other nominee institution, you may
change your vote by submitting new voting instructions to your intermediary, as
applicable. You will need to contact your brokerage firm, securities dealer,
trust company, bank or other nominee institution to learn how to effect that
change.
COST OF THE PROXY SOLICITATION
QLT will pay the cost of soliciting these proxies, including the printing,
handling and mailing of the proxy materials. Copies of these materials will be
given to brokerage firms, securities dealers, trust companies, banks and other
institutions that hold QLT's shares that are beneficially owned by others. QLT
will reimburse these brokerage firms, securities dealers, trust companies, banks
and other institutions for their reasonable out of pocket expenses in forwarding
proxy materials to beneficial owners of QLT's shares. In addition, proxies may
be solicited by certain directors, executive officers and employees of QLT
personally or by telephone, mail, facsimile or e-mail. No additional
compensation will be paid to directors, officers or other QLT employees for
soliciting proxies.
SHAREHOLDER PROPOSALS
If you want to propose a matter for consideration at the 2005 Annual Meeting,
then that proposal must be received at QLT's registered office at 26th Floor,
Toronto Dominion Bank Tower, 700 West Georgia Street, Vancouver, British
Columbia, V7Y 1B3 by February 26, 2005. For a proposal to be valid, it must,
subject to the Business Corporations Act (British Columbia), be in writing,
accompanied by the requisite declarations and signed by the submitter and
qualified Shareholders who at the time of signing are the registered or
beneficial owners of shares that, in the aggregate, (i) constitute at least 1%
of the issued shares of QLT that have the right to vote at general meetings or
(ii) have a fair market value in excess of $2,000. For the submitter or a
qualified Shareholder to be eligible to sign the proposal, that Shareholder must
have been the registered or beneficial owner of QLT shares that carry the right
to vote at general meetings for an uninterrupted period of at least two years
before the date the proposal is signed. QLT complies with the proxy solicitation
requirements of British Columbia corporate law and Canadian securities
legislation. QLT, as a "foreign private issuer", is exempt from the United
States Securities and Exchange Commission ("SEC") rules regarding proxy
solicitations (and certain related matters) and therefore is not subject to the
procedural requirements of Rule 14a-5(e) of the Securities and Exchange Act of
1934 (the "Exchange Act").
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VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES
Only those holders of record of QLT's Common Shares as of the close of business
on Tuesday, April 13, 2004 will be entitled to vote at the Annual Meeting in
person or by proxy. As of the close of business on March 31, 2004, there were
69,501,188 Common Shares issued and outstanding. There are no other classes of
voting securities other than the Common Shares. On a show of hands every
Shareholder present in person has one vote, and on a poll every Shareholder
present in person or by proxy has one vote for each Common Share registered in
the Shareholder's name.
The following table sets out information as of March 31, 2004 with respect to
all Shareholders known to QLT to beneficially own, directly or indirectly, or to
exercise control or direction over, more than 5% of the outstanding Common
Shares of QLT. It also shows beneficial ownership for each Director, nominee
Director, each executive officer named in the Summary Compensation Table
appearing on page 20 of this Proxy Statement, and all Directors, nominee
Directors and executive officers of QLT as a group. This information is based on
reports filed with the British Columbia Securities Commission, the SEC or was
furnished directly to QLT by the respective beneficial owners (or their
nominees), Directors, executive officers and QLT's Registrar and Transfer Agent.
Except for Directors, nominee Directors and executive officers, this information
does not reflect Shareholders who may own more than 5% of the outstanding Common
Shares of QLT but who have not publicly filed a report disclosing that
ownership.
Under applicable United States securities laws, a person is considered to be a
"beneficial owner" of Common Shares in QLT if that person has, or shares with
another person, the power to direct the vote or investment of the Common Share.
In addition, a person is also deemed to be a beneficial owner of a Common Share
if that person has the right to acquire the share within 60 days (whether or
not, in the case of a stock option, the current market price of the underlying
Common Share is below the stock option exercise price). Therefore, the table
also reflects for each such beneficial owner the number of options exercisable
by May 30, 2004 owned by each beneficial owner, but, in determining the
percentage ownership and general voting power of such person, does not assume
the exercise of options or the conversion of securities owned by any other
person.
Except as otherwise set forth below, each person has sole voting and dispositive
power with respect to the shares shown.
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NAME OF
BENEFICIAL OWNER NUMBER OF SHARES(1)(2) PERCENT OF CLASS
---------------- ---------------------- ----------------
Guardian Capital Inc. 6,656,975(3) (4) 9.58%
Azab, Mohammad 117,397(5) *
Clarke, C. Boyd 2,917(6) *
Crossgrove, Peter A. 5,500(7) *
Curaudeau, Alain H. 82,151(8) *
Doty, Michael J. 86,833(9) *
Hastings, Paul J. 498,600(10) *
Henriksen, Ronald D. 9,500(11) *
Levy, Julia G. 618,011(12) *
Mendelson, Alan C. 18,000(13) *
Newell, William J. 141,112(14) *
Scott, E. Duff 33,500(15) *
Wood, L. Jack 27,000(16) *
All directors, nominees and executive 1,828,298(17) 2.63%
officers as a group (16 persons)
*Represents less than 1 %
NOTES:
(1) This disclosure is made pursuant to certain rules and regulations
promulgated by the SEC.
(2) Includes Common Shares that may be acquired upon exercise of
outstanding options as of May 30, 2004 by the persons named in the
table above and by all directors and executive officers as a group.
(3) Beneficial ownership is as of December 31, 2003, as reflected in a
statement on Schedule 13G/A filed with the SEC on February 13, 2004 by
Guardian Capital Inc. The business address of Guardian Capital Inc. is
Commerce Court West, Suite 1300, P.O. Box 201, Toronto, Ontario,
Canada, M5L 1E8.
(4) This information does not reflect any changes to the ownership of
Guardian Capital Inc. that may have occurred since December 31, 2003.
(5) Includes options to purchase 117,397 Common Shares.
(6) Includes options to purchase 2,917 Common Shares.
(7) Includes options to purchase 3,500 Common Shares.
(8) Includes options to purchase 82,151 Common Shares.
(9) Includes options to purchase 85,833 Common Shares.
(10) Includes options to purchase 490,000 Common Shares.
(11) Includes options to purchase 3,500 Common Shares.
(12) Includes options to purchase 172,531 Common Shares.
(13) Includes options to purchase 16,000 Common Shares.
(14) Includes options to purchase 141,112 Common Shares.
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(15) Includes options to purchase 3,500 Common Shares.
(16) Includes options to purchase 23,500 Common Shares.
(17) Includes options to purchase 1,309,418 Common Shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires registrant's Directors and executive
officers, and persons who own more than 10% of a registered class of a
registrants' securities, to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Shares and other equity securities of
the registrant. In light of the fact that QLT is a "foreign private issuer"
pursuant to Rule 3a12-3 of the Exchange Act, QLT and the persons referred to
above are exempt from the reporting and liability provisions of Section 16(a).
QLT's executive officers are required to comply with reporting obligations under
Canadian securities legislation, including the filing with the Canadian
securities regulators of initial reports of ownership and reports of changes in
ownership of Common Shares and other equity securities of QLT.
ELECTION OF DIRECTORS
DIRECTOR NOMINEES FOR ELECTION
The Board of Directors of QLT currently consists of eight individuals. All
current Directors intend to stand for re-election to the Board. During 2003, the
Corporate Governance and Nominating Committee of the Board of Directors
considered the appropriate size of the Board of Directors and determined that
the Board's current size of eight members is appropriate and effective.
Therefore, the Board of Directors recommends that Shareholders approve an
ordinary resolution fixing the number of Directors for the ensuing year at
eight. The Board of Directors has put forward the names of the current Directors
as nominees as outlined below. Proxies cannot be voted for a greater number of
nominees for election to the Board of Directors than the number of Directors
fixed by the Shareholders.
BOTH THE PRESIDENT AND CHAIRMAN OF QLT INTEND TO VOTE THE SHARES REPRESENTED BY
PROXIES, IN WHICH EITHER OF THEM IS DESIGNATED A PROXYHOLDER, "FOR" THE FIXING
OF THE NUMBER OF DIRECTORS AT EIGHT AND "FOR" THE ELECTION OF THE EIGHT NOMINEES
NAMED IN THE INSTRUMENT OF PROXY, UNLESS AUTHORITY TO VOTE FOR THOSE PERSONS IS
WITHHELD.
In accordance with the Articles of QLT and the Business Corporations Act
(British Columbia), each Director elected will hold office until the next Annual
Meeting or until their successor is duly elected, unless such office is vacated.
The Board of Directors of QLT is permitted to increase the number of Directors
by up to one-third of the number of Directors elected at the Annual Meeting at
any time prior to the next Annual Meeting.
In the unanticipated event that a nominee is unable to or declines to serve as a
Director at the time of the Annual Meeting, the proxies will be voted at the
discretion of the proxyholder to elect another nominee, if presented, or to
reduce the number of Directors accordingly. As of the date of this Proxy
Statement, the Board of Directors is not aware of any nominee who is unable or
who intends to decline to serve as a Director, if elected.
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DIRECTOR NOMINATION PROCESS
The Board of Directors is responsible for approving nominees for election as
Directors of QLT. To assist with Director nominations, the Board of Directors
has designated a standing committee, the Corporate Governance and Nominating
Committee, as being responsible for reviewing and recommending nominees to the
Board of Directors. As described below, the Corporate Governance and Nominating
Committee is comprised solely of "independent" and "unrelated" directors as
defined by the rules of Nasdaq and the Toronto Stock Exchange, respectively.
In evaluating prospective nominees, the Corporate Governance and Nominating
Committee looks for the following minimum qualifications: strong business
acumen, extensive previous experience as an executive or director with
successful companies, the highest standards of integrity and ethics, and a
willingness and ability to make the necessary time commitment to diligently
perform the duties of a director. Nominees are selected with a view to the best
interests of QLT as a whole, rather than as representative of any particular
stakeholder or category of stakeholders. The Corporate Governance and Nominating
Committee also considers the skill sets of the incumbent directors when
recruiting replacements to fill vacancies in the Board of Directors. The Board
of Directors prefers a mix of experience among its members to maintain a
diversity of viewpoints and ensure that the Board of Directors can achieve its
objectives. When a vacancy on the Board of Directors occurs, in searching for a
new director, the Corporate Governance and Nominating Committee identifies
particular areas of specialization which it considers beneficial, in addition to
the general qualifications, having regard to the skill sets of the other members
of the Board of Directors. Potential nominees and their respective references
are interviewed extensively in person by the Corporate Governance and Nominating
Committee before any nomination is endorsed by that Committee. All nominations
proposed by the Corporate Governance and Nominating Committee must receive the
approval of the Board of Directors.
In 2003, the Board of Directors determined that it would be beneficial to add an
additional Director, increasing the size of the Board from seven to eight. Once
the Board of Directors made the decision to add another Director, the Corporate
Governance and Nominating Committee considered the specific qualifications and
skills a candidate should possess and concluded that the candidate should have
significant biotechnology industry experience at the executive level in addition
to the general qualifications for candidates to the Board of Directors. The
Corporate Governance and Nominating Committee, with the assistance of certain
other members of the Board of Directors, then engaged in a search using their
network of contacts to identify potential nominees. A number of potential
candidates were identified and their biographies reviewed. A select number of
candidates were interviewed by members of the Corporate Governance and
Nominating Committee and other members of the Board of Directors. The results of
that process were then reported to the Board of Directors by the Chair of the
Corporate Governance and Nominating Committee. As a result of that process, Mr.
C. Boyd Clarke was appointed to the Board of Directors in July, 2003.
The Board of Directors will also consider any Director nominees proposed by
Shareholders. The Board of Directors has not received any such Shareholder
nominations in recent years and, as a result, has not considered it necessary to
develop separate formal procedures for the submission and review of nominations
by Shareholders. Shareholders may submit nominations to the Board by addressing
a communication to the Chair of the Corporate Governance and Nominating
Committee and providing sufficient information to the Committee to permit the
Committee to conduct an assessment of the qualifications of the proposed
nominee, including biographical information about the candidate and his or her
professional experience, confirmation of the candidate's willingness to serve as
a Director, and complete contact information for the candidate and the
nominating Shareholder. The methods by which a Shareholder may communicate with
the Corporate Governance and Nominating Committee are set out on the Company's
web-site at: www.qltinc.com. As a matter of policy, the Corporate Governance and
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Nominating Committee is committed to giving due and fair consideration to
proposed nominations submitted by Shareholders using the same criteria and
processes as other nominations which come before the Committee. As at the date
of this Proxy Statement, the Board of Directors has received no further
nominations for Directors for consideration at the 2004 Annual Meeting.
INFORMATION ON NOMINEES FOR DIRECTORS
The following provides the names and ages of the nominees recommended by the
Corporate Governance and Nominating Committee and the Board of Directors for
election to the Board of Directors, the year in which each first became a
Director, and their principal occupations or employment during at least the past
five years. This information has been provided to QLT by the respective
nominees.
NAME OF NOMINEE AND
MUNICIPALITY OF RESIDENCE AGE CURRENT POSITION DIRECTOR SINCE
E. Duff Scott 67 Chairman and Director 1990
Toronto, Ontario
Paul J. Hastings 44 President, Chief 2002
Vancouver, British Executive Officer and
Columbia Director
C. Boyd Clarke 55 Director 2003
Haverford,
Pennsylvania, USA
Peter A. Crossgrove 67 Director 1990
Caledon, Ontario
Ronald D. Henriksen 64 Director 1997
Avon, Indiana, USA
Julia G. Levy, Ph.D. 69 Executive Chairman, 1983
Vancouver, British Scientific Advisory
Columbia Board and Director
Alan C. Mendelson 56 Director 2002
Atherton, California,
USA
L. Jack Wood 67 Director 2001
West Vancouver,
British Columbia
E. DUFF SCOTT - Mr. Scott has been a Director of QLT since 1990 and was
appointed Chairman in 1991. Mr. Scott is the President of Multibanc NT Financial
Corp. (a financial services company), a position he has held since 1990. Mr.
Scott was Chairman of Prudential-Bache Securities Canada Limited (an investment
company) from 1988 to 1990 and The Toronto Stock Exchange from 1987 to 1989. Mr.
Scott is also a director of a US publicly listed company, Aberdeen Global Income
Fund, Inc. (an investment fund).
PAUL J. HASTINGS - Mr. Hastings was appointed President, Chief Executive Officer
and a Director of QLT in February 2002. Since starting his career in 1984 with
Hoffman La Roche, Mr. Hastings has held various positions of increasing
responsibility with notable biotech and pharmaceutical companies. From January
2001 to February 2002, Mr. Hastings was President, CEO and a Director of Axys
Pharmaceuticals, Inc., where he was responsible for all aspects of the
organization including leading the strategic acquisition of Axys by Celera
Corporation. From June 1999 to January 2001, Mr. Hastings was President of
Chiron BioPharmaceuticals. From June 1998 to June 1999, Mr. Hastings was
President and Chief Executive Officer of LXR Biotechnology. From 1994 to 1998,
amongst his positions of increasing responsibility at Genzyme, Mr. Hastings was
Vice-President, Global Marketing, Genzyme Corporation; Vice-President, General
Manager of Genzyme Therapeutics Europe; President, Genzyme Therapeutics Europe;
and President, Genzyme Therapeutics Worldwide. From 1988 to 1994, included in
Mr. Hastings' increasing positions of responsibility at Synergen, Mr. Hastings
was Vice-President, Marketing and Sales of Synergen, Inc. and Vice-President,
General Manager of Synergen Europe, Inc. Mr. Hastings holds a
10
Bachelor of Science in Pharmacy from the University of Rhode Island. Mr.
Hastings is a member of the boards of directors of several organizations,
including ViaCell Inc., British Columbia's Leading Edge Endowment Fund, Arriva
Pharmaceuticals, the British Columbia Biotech Association and Vancouver's St.
Paul's Hospital.
C. BOYD CLARKE - Mr. Clarke has been a director of QLT since 2003. Mr. Clarke is
currently a director, President and Chief Executive Officer of Neose
Technologies, Inc., a US publicly listed biotechnology company focused on the
development of protein therapeutics, a position he has held since March 2002. In
addition, in May 2003, Mr. Clarke was appointed Chairman of Neose Technologies,
Inc. From December 1999 through March 2002, Mr. Clarke was President and Chief
Executive Officer of Aviron, Inc., a biotechnology company developing vaccines,
which was acquired by MedImmune, Inc., and was also Chairman from January 2001
through March 2002. From 1998 through 1999, Mr. Clarke was Chief Executive
Officer and President of U.S. Bioscience, Inc., also a biotechnology company
focused on products to treat cancer, which was also acquired by MedImmune. Mr.
Clarke served as President and Chief Operating Officer of U.S. Bioscience, Inc.
from 1996 to 1998. From 1977 to 1996, Mr. Clarke held a number of positions at
Merck & Co., Inc., including being the first President of Pasteur-Merieux MSD,
and most recently as Vice President of Merck Vaccines. Mr. Clarke serves as a
director of the Biotechnology Industry Association. Mr. Clarke has a Bachelor of
Science in biochemistry and a Master of Arts in History from the University of
Calgary.
PETER A. CROSSGROVE - Mr. Crossgrove has been a director of QLT since 1990. He
is currently the Chairman of Masonite International Corporation (formerly
Premdor Inc.) (a door and industrial products manufacturing company), a position
he has held since June 1997. Mr. Crossgrove is a director of a number of
Canadian and US publicly listed companies, including Masonite International
Corporation, Barrick Gold Corporation (a mining company), Band-Ore Resources
Ltd. (a mining company) and Philex Gold Inc. (a gold mining company) and is a
trustee of Dundee Real Estate Investment Trust (a real estate trust). Mr.
Crossgrove is also Chairman of Cancer Care Ontario and the Canadian Association
of Provincial Cancer Agencies, is the Treasurer of CARE International and was
appointed to the Order of Canada in 2004. Mr. Crossgrove holds a Bachelor of
Commerce from McGill University and Concordia University, an M.B.A. from the
University of Western Ontario and was a Sloan Fellow in the Doctoral Program at
Harvard Business School.
RONALD D. HENRIKSEN - Mr. Henriksen has been a Director of QLT since 1997. Mr.
Henriksen is the Chief Investment Officer of Twilight Venture Partners, LLC and
President of Revaax Pharmaceuticals. From 1988 to 2002, Mr. Henriksen was the
President of the Advanced Research and Technology Institute of Indiana
University, an organization that is responsible for the technology transfer,
licensing and new business start-up activities at Indiana University. From 1995
through 1998, Mr. Henriksen served as a consultant in business development,
financing and general management to pharmaceutical and biotechnology companies.
During that time, he was also the Chief Executive Officer of Itasca Ventures,
LLC, a US venture capital company. From 1993 to December 1995, Mr. Henriksen was
the President and Chief Executive Officer of Khepri Pharmaceuticals Inc., a US
biotechnology company, until its merger with Arris Pharmaceuticals. From 1970 to
1993, he held a series of managerial and executive positions at Eli Lilly and
Company (a US integrated healthcare company). Mr. Henriksen is also a director
of MacroPore Biosurgery, Inc. (a US medical device company listed on the Neuer
Market segment of the Frankfurt Stock Exchange).
JULIA G. LEVY, PH.D. - Dr. Levy, a co-founder of QLT, has been a Director since
1983 and is the Executive Chairman of the Scientific Advisory Board of QLT. Dr.
Levy retired as President and Chief Executive Officer of QLT in February 2002.
From 1986 to 1996, Dr. Levy held positions with QLT as a Vice President, Senior
Vice President and Acting President and Chief Executive Officer. She was also a
Professor of Microbiology at the University of British Columbia from 1973 to
1999 and is a Fellow of the
11
Royal Society of Canada and past President of the Canadian Federation of
Biological Sciences. Dr. Levy received a Bachelor of Arts (Hon.) from the
University of British Columbia in 1955 and a Ph.D. in experimental pathology
from the University of London in 1958. She has been awarded honorary degrees
from the University of Ottawa, Mount Saint Vincent University, the University of
Western Ontario, Simon Fraser University and the University of British Columbia,
was selected Female Entrepreneur of the Year for International Business in 1998
by Canadian Business magazine, and appointed to the Order of Canada in 2001. Dr.
Levy is the author of many published scientific articles and is a director of a
number of private biotechnology companies, the Working Opportunity Fund (a
labour-sponsored mutual fund) and AnorMED Inc. (a Canadian public biotechnology
company).
ALAN C. MENDELSON - Mr. Mendelson became a Director of QLT in 2002. Mr.
Mendelson is a senior partner of Latham & Watkins LLP, a private law firm, and
has been with that firm since May 2000. Previously, Mr. Mendelson was with
Cooley Godward LLP, a private law firm, for 27 years and served as the managing
partner of its Palo Alto office from May 1990 to March 1995 and from November
1996 to October 1997. Mr. Mendelson served as Acting General Counsel of Cadence
Design Systems, Inc., an electronic design automation software company, from
November 1995 to June 1996. Mr. Mendelson previously served as Secretary and
Acting General Counsel of Amgen, Inc., a biopharmaceutical company, from April
1990 to March 1991. Mr. Mendelson is currently a director of Valentis, Inc. (a
US biopharmaceutical company). Mr. Mendelson received his J.D. from Harvard Law
School and his A.B. in political science from the University of California,
Berkeley.
L. JACK WOOD - Mr. Wood has been a Director of QLT since 2001. From 1992 to the
present, Mr. Wood has worked with CSL Limited, an Australian healthcare company
listed on the Australian Stock Exchange. Mr. Wood currently works only on
special projects with CSL. Prior to joining CSL, from 1990 to 1992, Mr. Wood was
the President and Chief Executive Officer of Exogene Corporation (a
biotechnology company). From 1988 to 1990, Mr. Wood was Senior Vice President of
BioResponse Corporation, a biotechnology company sold to Baxter Healthcare
Corporation. From 1980 to 1988, Mr. Wood worked for Bayer Corporation (a
healthcare company) as a Vice President and General Manager for Europe, the
Middle East and Africa. From 1963 to 1980, Mr. Wood held a series of operating
and general management positions with Baxter Healthcare Corporation.
All of the nominees are residents of Canada, except Mr. Clarke, Mr. Henriksen
and Mr. Mendelson who are residents of the United States.
INFORMATION CONCERNING BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of six meetings (in person or by
teleconference) and acted once by written consent during the year ended December
31, 2003. Each Director attended more than 75% of the combined total meetings of
the Board of Directors and the Committees on which the Director served at any
time during the year.
To assist in the discharge of its responsibilities, the Board of Directors has
designated several standing committees. They are currently: the Audit and Risk
Committee, the Executive Compensation Committee, and the Corporate Governance
and Nominating Committee. In addition, from time to time, the Board of Directors
establishes special committees to assist the Board in respect of certain
matters.
A description of the mandate and composition of the Committees of the Board of
Directors follows.
12
1. AUDIT AND RISK COMMITTEE
The Audit and Risk Committee consists of three Directors who are not employees
of or involved in the daily operations of QLT, each of whom qualifies as an
"unrelated" Director, as defined by the Toronto Stock Exchange, and an
"independent" Director, as defined by the SEC rules and Nasdaq listing
standards. The Audit and Risk Committee assists the Board of Directors in
fulfilling its responsibilities for oversight of QLT's accounting and financial
reporting practices by reviewing the quarterly and annual consolidated financial
statements, reviewing the adequacy of the system of internal controls, reviewing
any relevant accounting, financial and securities regulatory matters, reviewing
the management of corporate risks, recommending the appointment of independent
auditors, engaging the independent auditors, and receiving the reports of the
Chief Executive Officer and the Chief Financial Officer with respect to their
assessment of internal controls. The Committee also provides a mechanism for
communication between the Board of Directors and QLT's independent auditors and
regularly meets with the auditors without management present. A copy of the
Charter for the Audit and Risk Committee is available on QLT's web-site at
www.qltinc.com.
The members of the Audit and Risk Committee are Mr. Crossgrove (Chair), Mr.
Henriksen and Mr. Wood. Each member of the Audit and Risk Committee is
financially sophisticated, as defined by the rules of Nasdaq, and as required by
such rules, able to read and understand fundamental financial statements,
including QLT's consolidated balance sheet, consolidated statement of income and
consolidated statement of cash flows. In addition, the Board of Directors has
determined that Mr. Crossgrove is an "audit committee financial expert" as
defined in Item 401(h) of Regulation S-K under the Exchange Act. This Committee
held eight meetings during 2003. The report of the Audit and Risk Committee can
be found at page 29 of this Proxy Statement.
2. EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee (the "Compensation Committee") consists of
three Directors who are not employees of or involved in the daily operations of
QLT, each of whom qualifies as an "unrelated" and "independent" Director, as
defined by the Toronto Stock Exchange and Nasdaq listing standards,
respectively. The Compensation Committee is responsible for making
recommendations to the Board of Directors regarding the compensation of all
executive officers and for reviewing and making recommendations with respect to
compensation policy and programs generally. In addition, this Committee is
responsible to determine and grant options under QLT's incentive stock option
plans. The members of the Compensation Committee are Mr. Mendelson (Chair), Mr.
Crossgrove and Mr. Henriksen. This Committee held seven meetings during 2003.
The report of the Compensation Committee can be found at page 14 of this Proxy
Statement.
3. CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Corporate Governance and Nominating Committee consists of three Directors
who are not employees of or involved in the daily operations of QLT, each of
whom qualifies as an "unrelated" and "independent" Director, as defined by the
Toronto Stock Exchange and Nasdaq listing standards, respectively. The Chairman
of the Board of QLT and the Chair of each of the Audit and Risk Committee and
the Compensation Committee comprise the members of the Corporate Governance and
Nominating Committee. The Corporate Governance and Nominating Committee has been
given the mandate to develop and oversee Board governance principles and review
the performance and effectiveness of the Board. This Committee makes
recommendations to the Board of Directors regarding committee membership,
develops and oversees a continuing education program for Board members, and
evaluates the performance of individual Board members. The Corporate Governance
and Nominating Committee also reviews and considers nominations to the Board of
Directors. A copy of the charter for the Corporate
13
Governance and Nominating Committee which sets out in greater detail the mandate
of that Committee is available on QLT's web-site at www.qltinc.com. The members
of the Corporate Governance and Nominating Committee are Mr. Scott (Chair), Mr.
Crossgrove and Mr. Mendelson. This Committee held five meetings during 2003
(this includes one meeting of the Nominating Committee whose duties were assumed
by the Corporate Governance and Nominating Committee in February 2003).
COMPENSATION OF DIRECTORS
Cash Compensation
Directors of QLT who are also employees of QLT are not separately compensated
for their service as a Director.
Prior to July 1, 2003, QLT paid each Director who was not an employee of QLT a
retainer fee equivalent to US$20,000 per year. The Chairman of the Board of
Directors was entitled to an additional annual retainer fee of US$100,000. Prior
to July 1, 2003, each non-employee director received US$1,625 for each Board of
Directors and Committee meeting attended in person or by telephone and the
Chairs of each Committee of the Board of Directors were entitled to an
additional retainer fee of US$4,000 annually.
In mid-2003, the Compensation Committee reviewed the compensation payable to the
Board of Directors to determine if adjustments were warranted. After conducting
an extensive review of director compensation practices for other companies in
QLT's peer group and in recognition of the continually increasing
responsibilities imposed on boards of directors of public companies, the
Compensation Committee recommended, and the Board of Directors approved, an
adjustment in the retainer and attendance fees paid to the non-employee
Directors. As a result, effective July 1, 2003, the new fees paid to
non-employee Directors were adjusted to be as follows. Each non-employee
Director, excluding the Chairman of the Board of Directors, receives US$25,000
as an annual retainer. The Chairman of the Board of Directors receives an annual
retainer fee of US$100,000. The Chair of each of the Audit and Risk Committee
and the Compensation Committee receives US$10,000 and US$7,000, respectively.
The Chairman of the Board of Directors does not receive a separate retainer to
act as the Chair of the Corporate Governance and Nominating Committee. Each
Director who is a member but not the Chair of a Committee receives US$5,000 as
an annual retainer for each Committee on which they serve. The fee for each
meeting attended in person or by telephone is US$2,000 for each Board of
Directors meeting and US$1,500 for each Committee meeting. In 2003, QLT paid a
total of US$435,593 to the non-employee Directors as retainer and meeting fees.
The members of the Board of Directors are also eligible for reimbursement of
their expenses incurred in connection with attendance at Board meetings in
accordance with QLT's policies. No other arrangements, including consulting
contracts, were entered into by QLT in consideration of any Director's service
on the Board of Directors in 2003, except for employment arrangements with the
two Directors who are employees of QLT.
Equity Compensation
QLT's non-employee Directors are also eligible to receive stock option grants as
compensation for their services as Directors. Upon initially being elected or
appointed to the Board of Directors, and on each subsequent annual re-election
to the Board of Directors, each non-employee Director is eligible to be granted
options to purchase a specified number of Common Shares at an exercise price
equal to the fair market value of the Common Shares at the time of the grant.
14
In April 2002, the Board of Directors approved an amendment to QLT's 2000
Incentive Stock Option Plan which placed a limit on the total number of options
held at any one time by QLT's non-employee Directors. As a result, the Common
Shares represented by unexercised options held at any one time by non-employee
Directors may not exceed, in the aggregate, 0.25% of the total issued and
outstanding Common Shares of QLT.
In 2003, each non-employee Director received options to purchase 10,500 Common
Shares in QLT (constituting, in the aggregate, options to purchase 63,000 Common
Shares in QLT) at exercise prices between Cdn.$15.17 and Cdn.$18.36, the most
recent closing price of QLT's Common Shares on the Toronto Stock Exchange at the
time of the grant.
All options granted to Directors vest in 36 equal monthly instalments, except in
the event of a change in control in QLT, upon which all unvested options are
deemed to vest on the day immediately preceding such event.
EXECUTIVE COMPENSATION
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Compensation Committee comprises three non-employee Directors of QLT. See
above under the heading "Information Concerning Board Meetings and Committees".
The Compensation Committee is responsible for making recommendations to the
Board of Directors regarding the compensation to be paid to the Chief Executive
Officer and each of the other executive officers of QLT and for reviewing and
making recommendations with respect to compensation policies and programs
generally for all employees at QLT. In addition, the Compensation Committee
makes decisions on the granting of options to all employees under QLT's
incentive stock option plans and makes recommendations to the Board of Directors
on Director compensation, including the granting of options to Directors.
OVERVIEW AND PHILOSOPHY
The objectives of QLT's executive compensation policies and programs are to:
1. motivate executive officers to achieve important corporate and
individual performance objectives and reward them when such objectives
are met; and
2. recruit and subsequently retain highly qualified executive officers by
offering overall compensation which is competitive with that offered
for comparable positions in other profitable biotechnology and
biopharmaceutical companies.
The Compensation Committee reviews the compensation of the President and Chief
Executive Officer and each of the other executive officers of QLT generally
prior to the first regular quarterly meeting of the Board of Directors in each
fiscal year. The Compensation Committee receives recommendations from the Chief
Executive Officer with respect to compensation for the other executive officers
of QLT and from the Chairman of the Board of Directors with respect to
compensation for the President and Chief Executive Officer. The President and
Chief Executive Officer does not attend the portion of the Compensation
Committee meeting during which his compensation is reviewed and determined.
QLT's executive compensation program currently comprises base salary, annual
cash incentive compensation, long-term incentive compensation in the form of
stock options, and various health plan
15
benefits generally available to all employees of QLT. The relative emphasis
placed on base salary, annual cash incentive compensation and long-term
compensation in the form of stock options is set out below.
ENSURING COMPETITIVE COMPENSATION PRACTICES
The Compensation Committee annually reviews compensation data from international
surveys in order to ensure that the overall level of executive compensation is
competitive with other biotechnology and biopharmaceutical companies. In
determining the levels of compensation for QLT's executive officers for 2003,
the Compensation Committee reviewed reports of competitive compensation data
obtained from a number of sources and sought the advice of an international
management and human resources consulting firm on certain competitive
compensation practices. Included among the reports reviewed by the Compensation
Committee was a report on executive compensation data prepared by a well-known
human resource and management consulting firm from an extensive external survey
of several hundred US biotechnology companies (a substantial number of which are
included in the Nasdaq Biotechnology Index). In addition, in 2003, the
Compensation Committee reviewed a survey of executive compensation data prepared
internally by QLT's human resources personnel analysing executive compensation
at a number of other profitable biotechnology companies. The Compensation
Committee believes that in order to be competitive, each component of QLT's
executive compensation should be between the fiftieth and the seventy-fifth
percentile of biotechnology and biopharmaceutical companies, with the
compensation of the President and Chief Executive Officer at the higher end of
that range.
DETERMINATION OF BASE SALARY FOR EXECUTIVE OFFICERS
Base salaries for executive officers of QLT are reviewed and determined each
year by the Compensation Committee. In determining whether to increase the base
salary for a particular executive officer, the Compensation Committee considers
the results of each executive officer's individual annual performance review
described below, the results of the surveys on competitive compensation for
equivalent executive positions, along with the other elements of compensation
received by QLT's executive officers.
Certain of the executive officers are entitled to receive their compensation in
US funds under their employment agreements. As each of the executive officers of
QLT reside in Canada and incur personal expenses in Canadian funds, in early
2003 the Compensation Committee provided each executive officer with the option
to elect to receive their compensation in Canadian funds at a variable rate of
exchange or a specified fixed rate of exchange.
DETERMINATION OF CASH INCENTIVE COMPENSATION FOR EXECUTIVE OFFICERS
The annual cash incentive compensation that each executive officer is eligible
to receive is based on a pre-determined target percentage of the base salary for
each executive officer and varies by position among the executive officers. The
cash incentive entitlement for the President and Chief Executive Officer is
described below under the heading "Summary of the Compensation of the Chief
Executive Officer in 2003 - Cash Incentive Compensation". The target cash
incentive entitlement for the Chief Business Officer, the Chief Financial
Officer and the Chief Medical Officer for 2003 was set at 45% of their
respective base salaries. The target cash incentive entitlement for each other
executive officer was set at 40% of his or her respective base salary for 2003.
Each of the executive officers was also eligible to receive an additional cash
incentive compensation amount equal to 5% of his or her base salary if two
exceptional targets ("stretch goals") were met by QLT. The two exceptional
targets related to the achievement of pre-determined earnings-per-share and
Visudyne sales levels above and beyond those levels set out in the corporate
goals. In addition, the Compensation Committee recognised that cash incentive
compensation in excess of the target levels could be awarded for extraordinary
individual or corporate performance.
16
The cash incentive compensation actually paid to each of QLT's executive
officers for their performance in 2003 relative to their respective target
levels was determined by the Compensation Committee based on the extent to which
certain pre-determined corporate and individual goals were achieved and, in a
number of cases, exceeded in the year by QLT and the executive officer. The
relative weight applied by the Compensation Committee to the corporate and
individual goals in determining the amount of cash incentive compensation to
which each executive officer was entitled relative to their target cash
incentive compensation for 2003 was based on the following:
1. For the President and Chief Executive Officer - 100% based on the
achievement of corporate goals;
2. For the Chief Business Officer, the Chief Financial Officer and the
Chief Medical Officer - 80% based on the achievement of corporate goals
and 20% based on the achievement of individual goals; and
3. For other Senior Vice Presidents and Executive Committee Member Vice
Presidents - 75% based on the achievement of corporate goals and 25%
based on the achievement of individual goals.
Individual Goals. The individual goals used in determining cash incentive
compensation are primarily objective and measurable goals. The individual goals
relate to the individual executive officer's area of responsibility and are
designed to facilitate the achievement of QLT's corporate goals. Where there has
been exceptional performance, it is possible for an executive officer to attain
more than 100% of his or her individual goals. The extent to which those
individual goals have been achieved or exceeded is determined based largely on
the annual performance evaluations prepared by the President and Chief Executive
Officer for each of the other executive officers. In the course of that
evaluation process, individual goals are also set for each executive officer for
the ensuing year.
Corporate Goals. The corporate goals used by the Compensation Committee in
determining cash incentive compensation are also primarily objective and
measurable goals designed to reflect the advancement of QLT's business and the
potential for increased shareholder value. The corporate goals for 2003 related
to achieving a pre-determined level of sales for Visudyne(R), a specified level
of earnings-per-share and the achievement of pre-determined development
milestones for certain products in QLT's clinical development pipeline. Only one
of the 2003 goals was subjective and related to the maintenance of a high
achieving working environment and corporate culture. In determining executive
cash incentive compensation for 2003, in early 2003 the Compensation Committee
determined that the corporate goals would each be given the following relative
weightings:
1. 30% as to the achievement of certain pre-determined Visudyne(R) sales
levels for 2003;
2. 40% as to the achievement of certain pre-determined earnings-per-share
for QLT for 2003; and
3. 30% as to the achievement of all other corporate goals. Each of those
goals was given equal weighting in determining the extent to which the
30% target had been achieved. Where a goal was partially achieved or
consisted of sub-goals, partial points were awarded to reflect the
extent to which that goal, or sub-goal, was determined to be achieved.
Based on that analysis, the Compensation Committee determined that corporate
goals were 97% achieved for 2003 and that the Visudyne sales and
earnings-per-share "stretch goals" were also met. In addition, the Compensation
Committee recognized that QLT exceeded even the stretch goals for Visudyne(R)
sales and earnings-per-share and achieved certain other key milestones
consistent with increased shareholder
17
value. As a result, the Compensation Committee approved a cash incentive
compensation amount to each of the executive officers equal to (i) their
original target level entitlement (calculated for each executive officer based
on the corporate goals and their individual goals) and the stretch bonus equal
to 5% of their base salary, plus (ii) an additional amount equal to
approximately 10% of the cash incentive compensation payable to each executive
officer under (i) to reward the exceptional performance described above.
DETERMINATION OF EQUITY COMPENSATION FOR EXECUTIVE OFFICERS
During the year 2003, the Board of Directors approved grants of options to QLT's
executive officers (including the President and Chief Executive Officer) to
purchase an aggregate of 340,000 Common Shares. Depending on the date of grant,
the exercise price of these options ranged from Cdn.$13.35 to Cdn.$15.75 per
Common Share, the fair market value at the date of the grant.
All options issued to QLT's executive officers are exercisable for a term of
five years and vest in 36 equal monthly installments. In the event an executive
officer's employment is terminated without cause, 50% of the options then
unvested will automatically vest. In addition, 100% of the then unvested options
will vest upon the occurrence of a change of control of QLT.
SUMMARY OF THE COMPENSATION OF THE CHIEF EXECUTIVE OFFICER IN 2003
The compensation of the Chief Executive Officer of QLT is reviewed annually by
the Compensation Committee. The Chief Executive Officer is eligible to
participate in the same executive compensation plans available to other
executive officers of QLT.
Base Salary
In early 2003, after reviewing the external survey data described above,
including an external report on chief executive officer compensation specific to
the biotechnology industry, the Compensation Committee determined that Mr.
Hastings' base salary remain at US$500,000 during 2003. As Mr. Hastings resides
in Canada and incurs personal expenses in Canadian funds, in early 2003 the
Compensation Committee provided Mr. Hastings with the option to elect to receive
his compensation for 2003 in Canadian funds at a variable rate of exchange or a
specified fixed rate of exchange of US$1.00 = Cdn.$1.5148 (being the rate of
exchange in effect at the time the Compensation Committee offered Mr. Hastings
the right to make that election). Mr. Hastings elected to receive his
compensation at that fixed rate of exchange for 2003.
Cash Incentive Compensation
In reviewing the cash incentive portion of Mr. Hastings' compensation in early
2003, the Compensation Committee determined that a target cash incentive
compensation of 50% of base salary was at the lower end of the range for chief
executive officers in the biotechnology and biopharmaceutical companies analysed
by the Compensation Committee and should be increased to remain competitive. As
a result, for 2003, and in lieu of any increase in Mr. Hastings' base salary,
the Compensation Committee approved an increase in the range for Mr. Hastings'
target cash incentive compensation to 75% of his base salary. As was the case
for the other executive officers for 2003, Mr. Hastings was also eligible to
receive an additional cash incentive compensation amount equal to 5% of base
salary upon achievement of certain "stretch goals" related to QLT's
earnings-per-share and Visudyne(R) sales benchmarks which created increased
shareholder value and additional amounts for exceptional corporate performance.
Since it is the responsibility of Mr. Hastings to lead QLT to achieve its
corporate goals, Mr. Hastings' entitlement to cash incentive compensation was
based solely on the extent to which QLT achieved or exceeded its
18
corporate goals. Based on the achievement of the corporate goals for 2003, sales
and earnings-per-share levels well in excess of both the corporate and "stretch"
goals and the role Mr. Hastings played in leading QLT to certain other
significant achievements in 2003 above and beyond the original corporate goals,
the Compensation Committee awarded Mr. Hastings a cash incentive compensation
amount equal to approximately 100% of his base salary. This approach is again in
keeping with a pay-for-performance philosophy.
Stock Options
In March 2003 the Compensation Committee granted to Mr. Hastings options to
purchase 100,000 Common Shares (in accordance with his employment agreement) at
an exercise price of Cdn.$13.35 per Common Share. All options granted to Mr.
Hastings were granted at a price that reflected the fair market value on the
date of grant. All such options are exercisable for a term of five years and are
subject to vesting in 36 equal monthly instalments. In the event Mr. Hastings'
employment is terminated without cause, 50% of the options then unvested will
automatically vest. In addition, 100% of the then unvested options will vest
upon the occurrence of a change of control of QLT.
A description of the terms of the employment agreement between QLT and Mr.
Hastings are set out below under the heading "Employment Contracts, Termination
of Employment and Change of Control Arrangements".
Alan C. Mendelson (Chair), Peter A. Crossgrove, Ronald D. Henriksen
MEMBERS OF THE EXECUTIVE COMPENSATION COMMITTEE
19
SHARE PRICE PERFORMANCE GRAPH
The graph below compares cumulative total Shareholder return on the Common
Shares of QLT for the last five fiscal years with the total cumulative return of
the S&P/TSX Composite Index and the Nasdaq Total Return Pharmaceutical Industry
Index over the same period.
[PERFORMANCE GRAPH]
Dec. 31, 1998 Dec. 31, 1999 Dec. 29, 2000 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2003
------------- ------------- ------------- ------------- ------------- -------------
QLT Total Return 100.00 480.23 237.57 228.81 75.71 138.42
S&P/TSX Composite Index 100.00 129.72 137.74 118.54 101.98 126.75
NASDAQ Pharmaceutical Stocks
Total Return 100.00 177.49 230.01 208.22 133.27 160.51
The graph above assumes Cdn.$100 invested on December 31, 1998 in Common Shares
of QLT and in each index. The share price shown above for the Common Shares is
historical and not indicative of future price performance.
20
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the annual and
long-term compensation for the fiscal years ending December 31, 2001, 2002 and
2003 of those persons who were either (i) the Chief Executive Officer of QLT
during the fiscal year ended December 31, 2003, (ii) one of the four most highly
compensated executive officers serving as an executive officer at December 31,
2003, or (iii) any additional executive officers who would have satisfied those
criteria but for the fact that individual was not serving as such an executive
officer of QLT as at December 31, 2003 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
----------------------------------- -------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (US$) (US$) (US$)(5) OPTIONS (#)(6) (US$) (1)(7)
- --------------------------- ---- -------- ------- ------------ -------------- ------------
PAUL J. HASTINGS(2)
President and Chief 2003 $545,855 $542,713 $134,916 100,000 $ 6,651
Executive Officer 2002 445,591 199,112 42,914 100,000 26,294
2001 - - - 500,000 -
MOHAMMAD AZAB
Executive Vice 2003 $353,959 $171,383 $ 4,936 30,000 $ 6,592
President and Chief 2002 246,932 123,258 23,513 20,250 5,610
Medical Officer 2001 199,273 47,914 46,857 45,000 5,418
MICHAEL J. DOTY (3)
Senior Vice President 2003 $275,278 $146,390 $101,565 30,000 $ 6,663
and Chief Financial 2002 249,381 94,354 173,097 40,500 12,750
Officer 2001 41,190 15,434 10,298 48,918 -
WILLIAM J. NEWELL (4)
Senior Vice President 2003 $315,540 $164,242 $ 10,485 30,000 $ 19,510
and Chief Business 2002 162,378 63,954 108,127 200,000 698
Officer 2001 - - - - -
ALAIN H. CURAUDEAU
Senior Vice 2003 $241,751 $124,967 $ 45,480 20,000 $ 6,570
President, Project 2002 219,009 72,526 62,863 20,250 5,658
Planning and 2001 180,394 47,223 68,430 27,000 986
Management
Notes:
(1) The salaries for the Named Executive Officers are payable in US dollars
under their employment agreements. Although they may be entitled to
receive payment in US dollars, certain executives have elected to
receive, or do receive, all or a portion of their salaries, bonuses and
benefits in Canadian dollars. Where amounts shown on the Summary
Compensation Table were actually paid in Canadian funds, the amounts
set out in the Summary Compensation Table represent the US dollar
equivalent of those payments. Amounts have been converted using the
weighted average exchange rate that QLT has calculated for each year
for financial reporting purposes, being equal to US$1.00 = Cdn.$1.5412
for 2001, US$1.00 = Cdn.$1.5699 for 2002 and US$1.00= Cdn.$1.4004 for
2003. Note that differences between amounts shown above and those set
out in the employment agreement for a Named Executive Officer appear
because the weighted average exchange rate used for conversion purposes
in the Summary Compensation Table differs from the actual exchange rate
used to pay the Named Executive Officer.
(2) Mr. Hastings became President and Chief Executive Officer of QLT on
February 17, 2002.
21
(3) Mr. Doty became an executive officer of QLT on November 1, 2001.
(4) Mr. Newell became an executive officer of QLT on June 10, 2002.
(5) For Mr. Hastings, the 2003 amount consists primarily of US$125,364
related to the forgivable portion of a home relocation loan and
US$9,553 related to tax advisory fees, and the 2002 amount consists
primarily of relocation expenses reimbursed to Mr. Hastings in
connection with his relocation to QLT. For Dr. Azab, the amount
includes US$19,465 in 2001 relating to tax differential payments in
that year, and US$19,465 in 2001 and US$19,109 in 2002 relating to the
forgivable portions of a home relocation loan. For Mr. Doty, the
amounts for 2001, 2002 and 2003 include US$10,298, US$59,087 and
US$51,472, respectively, relating to tax differential payments. The
amounts for Mr. Doty also include US$40,071 in 2003 relating to the
forgivable portion of a home relocation loan, relocation expenses
reimbursed to Mr. Doty in 2002 in connection with his relocation to QLT
(including US$85,296 in property transfer taxes and real estate
commissions, US$19,208 in moving expenses and US$5,383 in tax advisory
fees) and US$7,563 in tax advisory fees in 2003. For Mr. Newell, the
amount for 2003 includes US$8,403 in tax advisory fees and for 2002
consists of relocation expenses reimbursed to Mr. Newell in connection
with his relocation to QLT (including US$79,792 in property transfer
taxes and real estate commissions and US$25,046 in moving expenses).
For Mr. Curaudeau, the amount shown for 2001, 2002 and 2003 includes
US$39,799, US$36,786 and US$16,621 relating to a tax differential
payment in each of those years, respectively, and US$19,465 in 2001,
US$20,686 in 2002 and US$22,815 in 2003 relating to the forgivable
portions of a home relocation loan. The above amounts also include
portions relating to imputed interest benefits on the non-interest
bearing portion of home relocation loans made to certain Named
Executive Officers, as disclosed previously, reimbursement of legal
fees in connection with the immigration of certain Named Executive
Officers to Canada and payment in lieu of vacation in each of 2001,
2002 and 2003 to certain Named Executive Officers.
(6) Options granted to executive officers were made pursuant to QLT's 1998
or 2000 Incentive Stock Option Plan which provides, among other things,
that (i) the exercise price of such options must not be less than the
fair market value of QLT's Common shares at the time of grant and (ii)
the maximum term of such options may not exceed five years. Options
granted to executive officers contain provisions for acceleration of
vesting in the event of a change of control, as defined in each option
agreement.
(7) These amounts represent premiums on life insurance policies and medical
services premiums for the benefit of the employee and cash payments by
QLT to match the individual's contribution to a registered retirement
savings plan. For Mr. Hastings, the amount shown includes a signing
bonus of US$25,678 paid to Mr. Hastings in 2002. For Mr. Newell, the
amount shown includes a one-time bonus of US$17,852 paid in 2003.
The total cash compensation (salary and cash incentive compensation) paid to all
executive officers as a group (11) for the year ended December 31, 2003 was
US$4,260,446 (see note 1 to the Summary Compensation Table above).
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Mr. Paul J. Hastings, President and Chief Executive Officer
In 2001, Mr. Hastings entered into an employment agreement with QLT under which
he was appointed President and Chief Executive Officer of QLT effective February
17, 2002 for an indefinite term. Under the terms of Mr. Hastings' employment
agreement, Mr. Hastings was entitled to a one-time signing bonus of US$25,000
and is entitled to a base salary of US$500,000 per year, target cash incentive
compensation (see "Executive Compensation - Summary of the Compensation of the
Chief Executive Officer in 2003") and other standard health and retirement
benefits. Effective January 1, 2004, Mr. Hastings' base salary was increased to
US$550,000 and permanently converted to Canadian funds at a fixed exchange rate.
As part of his employment agreement, Mr. Hastings was awarded options to
purchase 500,000 Common Shares on December 18, 2001 and is entitled to receive
an annual grant of options to purchase 100,000 Common Shares in QLT commencing
in April 2002. To reflect his exceptional performance in 2003, in March 2004 the
Compensation Committee granted to Mr. Hastings options to purchase 120,000
Common Shares at an exercise price of Cdn.$32.85 per Common Share. Pursuant to
his employment agreement, in February 2002, Mr. Hastings also received a home
relocation loan equal to US$400,000 in the form of a four year forgivable
non-interest bearing loan which is secured against Mr. Hastings' residence. The
loan
22
is forgivable in four equal annual instalments of US$100,000 for each year of
continuous employment of Mr. Hastings. In the event that Mr. Hastings'
employment ceases prior to the end of the four-year term, then, in the case of
his resignation or termination for cause, the remaining balance would be
converted into an interest-bearing term loan for the remaining portion of the
four-year term on standard commercial conditions for residential mortgages, or,
in the case of Mr. Hastings' termination without cause or death, the entire
amount then outstanding under the loan would be forgiven by QLT. In the event
that QLT terminates Mr. Hastings' employment without cause, Mr. Hastings is
entitled to notice or pay in lieu of notice equal to 24 months' base salary and
cash incentive compensation based on his target cash incentive compensation
amount, payment of salary and bonus earned to the date of termination and an
amount to compensate Mr. Hastings for lost benefits during the 24 month notice
period.
Other Employment Agreements
The following Named Executive Officers (other than the President and Chief
Executive Officer, described above) have each entered into employment agreements
with QLT which are similar in form. Under those employment agreements, the
executive officer is entitled to their base salary, cash incentive compensation
under QLT's cash incentive compensation plan (see "Executive Compensation -
Determination of Cash Incentive"), participation in QLT's stock option plan and
other standard health and retirement savings benefits. Mr. Curaudeau and Mr.
Doty are entitled to home relocation loans under their employment agreements as
described below. The home relocation loans are non-interest bearing loans
secured against the residence of the particular Named Executive Officer. The
home relocation loan is forgivable in equal annual installments over a stated
term for each year of continuous employment with QLT. In the event that the
employment of the Named Executive Officer ceases prior to the end of the loan
term, the remaining portion of the loan balance would be converted into an
interest-bearing term loan for the remaining portion of the term on standard
commercial conditions for residential mortgages. Except as stated below, in the
event that QLT terminates the employment of the Named Executive Officer without
cause, the Named Executive Officer is entitled to notice or pay in lieu of
notice (calculated by reference to base salary) equal to 6 months (or in the
case of Mr. Doty, 12 months) plus one additional month for each year of service,
payment of salary and bonus earned to the date of termination and an amount to
compensate the Named Executive Officer for lost benefits during the notice
period.
(a) Dr. Mohammad Azab, Executive Vice President, Research and Development,
and Chief Medical Officer
Dr. Azab received promotions to Executive Vice President, Research and
Development and Chief Medical Officer in 2003. In 2003, Dr. Azab entered into a
new employment agreement with QLT confirming his position for an indefinite
term. Under the terms of Dr. Azab's employment agreement, Dr. Azab is entitled
to his base salary and the other compensation and benefits described above.
(b) Mr. Alain H. Curaudeau, Senior Vice President, Project Planning and
Management
Mr. Curaudeau entered into an employment agreement with QLT in 2000 and has been
appointed as Senior Vice President, Project Planning and Management for an
indefinite term. Under the terms of Mr. Curaudeau's employment agreement, Mr.
Curaudeau is entitled to his base salary, certain tax differential payments and
the other compensation and benefits described above. Pursuant to his employment
agreement, in October 2000, Mr. Curaudeau also received a home relocation loan
equal to US$100,624 which is forgivable in five equal annual installments for
each year of continuous employment with QLT and otherwise subject to the terms
described above.
23
(c) Mr. Michael J. Doty, Senior Vice President and Chief Financial Officer
Mr. Doty entered into an employment agreement with QLT in 2001 in which he was
appointed as Senior Vice President and Chief Financial Officer of QLT for an
indefinite term. Under the terms of Mr. Doty's employment agreement, Mr. Doty is
entitled to his base salary, certain tax differential payments and other
compensation and benefits described above. Pursuant to his employment agreement,
in April 2002, Mr. Doty also received a home relocation loan equal to US$100,000
in the form of a three-year non-interest bearing loan, forgivable in three equal
annual instalments of US$33,333.33 for each year of continuous employment with
QLT and otherwise subject to the terms described above.
(d) Mr. William J. Newell, Senior Vice President and Chief Business Officer
Mr. Newell entered into an employment agreement with QLT in 2002 in which he was
appointed as Senior Vice President and Chief Business Officer of QLT effective
June 10, 2002 for an indefinite term. Under the terms of Mr. Newell's employment
agreement, Mr. Newell is entitled to his base salary and other compensation and
benefits described above. Mr. Newell was also entitled to and did receive a
one-time bonus of US$17,852 (converted for the purpose of disclosure in US funds
from Cdn.$25,000 using the weighted average exchange rate for 2003 set out in
note 1 to the Summary Compensation Table above) on the first anniversary of his
employment with QLT. Pursuant to his employment agreement, as part of his
consideration for joining QLT, Mr. Newell received 200,000 options to purchase
Common Shares in QLT at a price equal to Cdn.$19.71.
TERMINATION OR RESIGNATION FOLLOWING A CHANGE OF CONTROL
Separate change of control agreements have been entered into with all executive
officers of QLT, including the President and Chief Executive Officer. The change
of control agreements provide for certain payments and other benefits to the
executive officer in the event of termination by QLT of that executive officer's
employment without cause or by the employee for specific reasons (as defined in
the agreement) within a period of 24 months following a change of control in
QLT. A change of control includes an event in which any person acquires 35% or
more of the voting securities of QLT, the sale of all or substantially all of
the assets of QLT (other than to an affiliate of QLT or to an entity in which
QLT's shareholders held 65% of the voting securities prior to the sale), a
merger or other reorganization involving QLT in which the original shareholders
of QLT own less than 65% of the resulting merged entity, or a change in the
majority of the Directors on the Board of Directors of QLT in any two
consecutive years. Upon the occurrence of such an event, such executive officers
will receive a severance payment equal to 18 months' (or in the case of the
President and Chief Executive Officer, 36 months') base salary, an annual cash
incentive compensation entitlement (calculated at the maximum cash incentive
compensation entitlement that would otherwise have been paid during the
severance period), amounts in lieu of certain other health and retirement
benefits for the severance period and relocation expenses. In addition, 100% of
the then unvested options granted to the executive officers will vest upon the
occurrence of a change of control of QLT.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table summarises the number and terms of options granted during
the 2003 fiscal year to the Named Executive Officers. In 2003, QLT did not grant
any stock appreciation rights and has not done so in prior years.
24
OPTION GRANTS IN THE LAST FISCAL YEAR
POTENTIAL REALISABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------------- ------------------------
MARKET
VALUE OF
SECURITIES
UNDERLYING
OPTIONS
NUMBER OF % OF TOTAL ON THE
SECURITIES OPTIONS EXERCISE DATE OF
UNDERLYING GRANTED TO PRICE(1) GRANT
OPTIONS EMPLOYEES (CDN.$/ (CDN.$/ EXPIRATION 5% 10%
NAME GRANTED(1) IN 2003 SHARE) SHARE) DATE (CDN.$) (CDN.$)
- ------------------ ---------- ---------- --------- ---------- -------------- -------- -------
Paul J. Hastings 100,000 10.4 13.35 13.35 March 18, 2008 368,836 815,031
Mohammad Azab 30,000 3.1 13.35 13.35 March 18, 2008 110,651 244,509
Michael J. Doty 30,000 3.1 13.35 13.35 March 18, 2008 110,651 244,509
William J. Newell 30,000 3.1 13.35 13.35 March 18, 2008 110,651 244,509
Alain H. Curaudeau 20,000 2.1 13.35 13.35 March 18, 2008 73,767 163,006
Notes:
(1) Options granted to executive officers generally are subject to required
vesting periods prior to the options becoming exercisable as described.
(2) Gains are reported net of option exercise price, but before income
taxes associated with such exercises. The assumed rates of appreciation
are prescribed by the SEC for illustrative purposes only and are not
intended to forecast or predict future share prices. Actual gains, if
any, on stock option exercises are dependent on the future performance
of the Common Shares and overall market conditions, as well as the
optionholders' continued employment through the vesting period. The
amounts reflected in this table may not necessarily be achieved.
The following table provides information with respect to option exercises during
the 2003 fiscal year by the Named Executive Officers and the number and value of
unexercised options held as at December 31, 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
SHARES
ACQUIRED ON VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED
EXERCISE REALISED (1) UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
(#) (CDN.$) OPTIONS AT DECEMBER 31, 2003 DECEMBER 31, 2003(2) (CDN.$)
------------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ --------------- ----------- -------------
Paul J. Hastings - - 386,111 313,889 334,306 880,694
Mohammad Azab 23,332 68,666 156,250 34,000 94,875 259,875
Michael J. Doty - - 67,580 51,838 83,625 250,875
William J. Newell - - 107,500 122,500 562,625 729,875
Alain H. Curaudeau - - 73,949 25,500 67,000 176,250
Notes:
(1) Value realised is (i) the fair market value on the date of exercise,
less the option price, times (ii) the number of shares exercised.
(2) Potential unrealised value is (i) the fair market value at the 2003
fiscal year end (Cdn.$24.50 per Common Share), less the option price,
times (ii) the number of shares subject to the option.
25
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
No Directors, executive officers or senior officers of QLT or any subsidiaries
thereof, or proposed nominees for election as a Director of QLT, are currently
indebted to QLT or its subsidiaries, except for routine indebtedness to
executive officers in connection with the purchase of their homes as part of
relocation packages pursuant to their employment agreements, which loans are
secured by mortgages registered against their homes. The home relocation loans
made to QLT's Named Executive Officers are described above (see "Employment
Contracts, Termination of Employment and Change of Control Arrangements").
Effective July 30, 2002, and in accordance with the United States Sarbanes-Oxley
Act of 2002 (the "Sarbanes-Oxley Act"), QLT no longer offers its executive
officers housing loans as part of their relocation assistance. The loans
extended to QLT's executive officers prior to July 30, 2002 remained in effect
in accordance with the then existing terms and conditions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of QLT's executive officers serve as members of the compensation committee
or board of directors of any entity that has an executive officer serving as a
member of the Compensation Committee or Board of Directors of QLT.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
QLT maintains directors' and officers' liability insurance coverage through a
policy covering QLT and its subsidiaries, which has an annual aggregate policy
limit of US$50,000,000, subject to a corporate deductible of US$150,000 per loss
for all claims except securities claims for which the deductible is
US$1,000,000. This insurance provides coverage for indemnity payments made by
QLT to its directors and officers as required or permitted by law for losses,
including legal costs, incurred by officers and directors in their capacity as
such. This policy also provides coverage directly to individual directors and
officers if they are not indemnified by QLT. The insurance coverage for
directors and officers has customary exclusions, including libel and slander,
and those acts determined to be uninsurable under law, or deliberately
fraudulent or dishonest or to have resulted in personal profit or advantage.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Unless otherwise disclosed in this Proxy Statement, none of the Directors,
executive officers or any beneficial owner of more than 5% of the outstanding
Common Shares of QLT, had any material interest, direct or indirect, in any
transaction during the past fiscal year or in any proposed transaction which has
materially affected or will materially affect QLT.
QLT has entered into indemnity agreements with certain officers and directors
which provide, among other things, that, subject to any requirements that may
exist under the Business Corporations Act (British Columbia) or the Articles of
QLT, QLT will indemnify such officer or director, under the circumstances and to
the extent specified, for expenses, damages, judgements, fines and settlements
he or she may be required to pay in actions or proceedings which he or she is or
may be made a party by reason of his or her position as a director or officer of
QLT.
26
STATEMENT ON CORPORATE GOVERNANCE PRACTICES
The mandate of the Board of Directors is to provide objective, prudent
stewardship of QLT and to assure responsible and effective corporate governance.
In developing and supervising implementation of QLT's strategic plan, the Board
of Directors sets objectives for the Chief Executive Officer and QLT's executive
officers. QLT's responsibilities to its Shareholders, customers and employees
are demonstrated by its commitment to effective corporate governance and
disclosure.
In furtherance of the Board of Directors' commitment to corporate governance,
the Board of Directors established a Corporate Governance and Nominating
Committee. That Committee provides guidance to the Board of Directors regarding
the adoption and amendment of corporate governance principles applicable to QLT,
reviews existing processes and, where appropriate, develop new ones to continue
to ensure an effective process and structure for the management of QLT at all
levels. Information regarding the corporate governance practices of the Board of
Directors is available at QLT's web-site at www.qltinc.com.
Board of Directors' members remain informed of QLT's business by reviewing
documents, such as management reports on recommendations for proposed actions of
the Board of Directors, provided to them before each meeting and by attending
presentations made during these meetings by the Chief Executive Officer and
other members of management. They are also advised of actions taken by the Audit
and Risk Committee, the Compensation Committee and the Corporate Governance and
Nominating Committee. Directors have access to all books, records and reports
upon request, and members of management are available at all times to answer any
questions.
The Toronto Stock Exchange Committee on Corporate Governance in Canada has
issued a series of Guidelines for Improved Corporate Governance in Canada (the
"TSX Guidelines") and requires that listed companies disclose their corporate
governance system in their annual reports or information circulars (proxy
statements). QLT also reviewed internally and with the Board of Directors the
Sarbanes-Oxley Act and rules of the SEC and the new listing standards of the
Nasdaq relating to corporate governance, and our intention is to comply with all
applicable rules and listing standards.
The following information highlights the structures and processes of corporate
governance followed by QLT. To enhance disclosure to Shareholders, QLT's
corporate governance practices in relation to each of the 14 TSX Guidelines are
specifically set out in Exhibit A attached to this Proxy Statement.
MANDATE OF THE BOARD OF DIRECTORS
The mandate of the Board of Directors is to supervise the management of the
business and affairs of QLT. In fulfilling its mandate, the Board of Directors,
as a whole, oversees the development and application of policies regarding
corporate governance and is responsible for:
1. the adoption of a strategic plan for QLT's business;
2. the identification of the principal risks of QLT's business and
ensuring the implementation of the appropriate systems to manage these
risks;
3. succession planning for QLT, including identifying, appointing,
training and monitoring senior management;
27
4. overseeing the integrity of QLT's internal controls and management
information systems; and
5. maintaining a continuing dialogue with management in order to ensure
QLT's ability to respond to changes, both internal and external, which
may affect its business operations from time to time.
The Board of Directors holds at least four regular meetings each year. There
were six meetings (in person or by teleconference) and one by written consent of
the Board of Directors during the year ended December 31, 2003. The frequency of
meetings, as well as the nature of the matters dealt with at each meeting, will
vary from year to year depending on the state of QLT's business and the
opportunities or risks which QLT faces from time to time. Within that framework,
it is anticipated that the Board of Directors will normally meet between four
and eight times each year.
The Board of Directors has established Committees with specific
responsibilities, namely an Audit and Risk Committee, a Corporate Governance and
Nominating Committee and an Executive Compensation Committee. An overview of the
mandate and composition of each of those Committees is set out above under the
heading "Information Concerning Board Meetings and Committees".
COMPOSITION AND INDEPENDENCE OF THE BOARD
The TSX Guidelines recommend that a board of directors be constituted with a
majority of individuals who come within the description of "unrelated
directors". An "unrelated director" is defined in the TSX Guidelines as a
director who is independent of management and is free from any interest and any
other business or other relationship which could, or could reasonably be
perceived to, materially interfere with the director's ability to act with a
view to the best interests of the company, other than interests and
relationships arising from shareholding.
The Marketplace Rules of the Nasdaq Stock Market also address the concept of
director independence. According to current Nasdaq rules, an independent
director is a person who, in the opinion of the board of directors, does not
have a relationship with the company that would interfere with the director's
exercise of independent judgement in carrying out the director's
responsibilities. To qualify as an "independent" director under the Nasdaq
rules, the director must not:
1. have been employed by QLT or any of its affiliates for the current year
or any of the past three years;
2. have accepted any compensation from QLT or any of its affiliates in
excess of US$60,000 during the previous fiscal year, other than
compensation for board service, benefits under a tax-qualified
retirement plan, or non-discretionary compensation;
3. be a member of the immediate family of an individual who is, or has
been in any of the past three years, employed by QLT or any of its
affiliates as an executive officer;
4. be a partner in, or a controlling shareholder or an executive officer
of, any for-profit business organization to which QLT made, or from
which QLT received, payments (other than those arising solely from
investments in the corporation's securities) that exceed 5% of QLT's or
the business organization's consolidated gross revenues for that year,
or US$200,000, whichever is more, in any of the past three years; or
5. be employed as an executive of another entity where any of QLT's
executives serve on that entity's compensation committee.
28
The Directors have examined the relevant definitions in the TSX Guidelines and
Nasdaq rules and have individually considered their respective interests and
relationships in and with QLT. As a consequence, the Board of Directors has
determined that of its eight present Directors, six are unrelated and
independent Directors and two are "related" or not "independent" Directors under
the TSX Guidelines and Nasdaq rules, respectively. The two Directors who are
considered related and not independent are Mr. Hastings, in view of his role as
President and Chief Executive Officer of QLT, and Dr. Levy, who was President
and Chief Executive Officer of QLT prior to February 17, 2002 and who is
currently employed by QLT as the Executive Chairman of its Scientific Advisory
Board.
The number of Directors proposed to be fixed at the Annual Meeting is eight, of
whom six are unrelated and independent. The Board considers its proposed size of
eight Directors to be appropriate and effective at the current time. The
functions of the Committees of the Board are described above.
INDEPENDENCE FROM MANAGEMENT
The TSX Guidelines state that the Board of Directors should have in place
appropriate structures and procedures to ensure that the Board of Directors can
function independently of management. This independence is most simply assured
by maintaining the positions of Chairman of the Board and Chief Executive
Officer as separate positions and appointing a Chairman who is not a member of
management. The Chairman of the Board, Mr. E. Duff Scott, is not a member of
management, and the Board of Directors considers that additionally, by virtue of
the fact that a significant majority of the members of the Board are unrelated
and independent Directors, it is independent from management. The Board of
Directors meets independently of any related (or not independent) Director at
each of its quarterly meetings and at other times as considered appropriate by
the unrelated and independent Directors.
DECISIONS REQUIRING PRIOR APPROVAL OF THE BOARD OF DIRECTORS
In addition to matters that must, by law or by the Articles of QLT, be approved
by the Board of Directors, management is required to seek approval from the
Board of Directors for the capital and operating budget for each fiscal year,
for major transactions, or for any single expense which exceeds certain
specified dollar values.
DIRECTOR EDUCATION PROGRAMS
It is the intention of the Board of Directors that as and when a new nominee is
identified, the Board of Directors will ensure that a full program of
orientation and education is provided for the nominee, including (but not
limited to) provision of a complete corporate history, copies of past minutes of
meetings of the Board of Directors, and information regarding QLT's business and
operations. The Corporate Governance and Nominating Committee has been charged
with reviewing the current orientation and education program and recommending
and initiating improvements to this program as warranted.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders and others who wish to communicate with the Board of Directors as a
whole, or to individual Directors, may write to them in care of QLT at QLT's
head office at 887 Great Northern Way, Vancouver, British Columbia, Canada, V5T
4T5. All communications sent to this address will be shared with the Board of
Directors or the individual Director, if so addressed.
29
CORPORATE CODE OF CONDUCT AND CODE OF ETHICS
QLT has adopted a Code of Conduct which is applicable to all Directors, officers
and employees of QLT, as well a supplementary Code of Ethics which applies to
the Chief Executive Officer and all senior financial managers of QLT. The Code
of Conduct and supplementary Code of Ethics will be available on QLT's web-site
at www.qltinc.com by the time of QLT's Annual Meeting of Shareholders. QLT
intends to post any amendments to or waivers of its Code of Conduct or Code of
Ethics on its web-site.
INVESTOR RELATIONS
Through its internal personnel and outside advisors, QLT receives and responds
to Shareholder inquiries. Shareholder inquiries and concerns are dealt with
promptly at the senior management level. In addition, management participates in
a conference telephone call with the investment community after release of each
quarterly or annual financial report, and will do so on other individual
occasions if considered advisable in order to maintain an effective dialogue
with the investment community.
DIRECTOR ATTENDANCE AT ANNUAL GENERAL MEETING
It is a policy of the Board of Directors to encourage Directors to attend each
annual general meeting of the Shareholders. Such attendance allows for direct
interaction between Shareholders and members of the Board of Directors. In 2003,
all seven members of the Board of Directors then standing for re-election
attended QLT's annual general meeting, in addition to the one Director who was
retiring from the Board of Directors as of that meeting.
OUTSIDE ADVICE
In certain circumstances it may be appropriate for an individual Director to
engage an outside professional advisor at the expense of QLT. The engagement of
the outside professional advisor would be subject to approval of the Board of
Directors acting in discharge of its duties to manage corporate governance
matters. The Audit and Risk Committee has authority to engage external advisors
as it considers warranted.
REPORT OF THE AUDIT AND RISK COMMITTEE
The members of the Audit and Risk Committee are "unrelated" Directors, as
defined by the Toronto Stock Exchange, and "independent" Directors, as defined
by the SEC rules and the Marketplace Rules of the Nasdaq Stock Market. The
Charter of the Audit and Risk Committee which sets out the mandate of the
Committee is available on QLT's web-site at www.qltinc.com. As new legislative
requirements emerge, including those under the Sarbanes-Oxley Act, Nasdaq and
under Canadian securities legislation, the Audit and Risk Committee will
continue to assess whether any modifications should be made to the Audit and
Risk Committee Charter and will seek Board approval to any changes to that
Charter which are considered warranted.
The Audit and Risk Committee met with management of QLT periodically during the
year to consider the adequacy of QLT's internal controls and the objectivity of
its financial reporting. The Audit and Risk Committee discussed these matters
with QLT's independent auditors and with appropriate financial personnel in QLT.
The Audit and Risk Committee also discussed with QLT's senior management and
independent auditors the disclosure controls and procedures which were designed
by QLT's Chief Executive Officer and Chief Financial Officer and received their
report thereon in advance of their
30
making the certifications required by the SEC and the Sarbanes-Oxley Act for
certain of QLT's filings with the SEC.
As part of its controls procedures, the Audit and Risk Committee approves each
year the appointment of QLT's external auditors and the proposed fees to be paid
for the audit services. In addition, QLT may not engage its external auditors to
provide non-audit services unless the nature and cost of those services have
also been pre-approved by the Audit and Risk Committee.
During 2003, the Sarbanes-Oxley Act added a number of provisions to U.S. federal
law to strengthen the authority of, and increase the responsibility of,
corporate audit committees. Related rules concerning audit committee structure,
membership, authority and responsibility were recently adopted by Nasdaq and
became applicable to QLT as of January 15, 2004. The Board of Directors and the
Audit and Risk Committee believe that each member of the Audit and Risk
Committee is an "independent director" as that term is defined by these recently
adopted Nasdaq rules.
The Audit and Risk Committee has reviewed and discussed the audited consolidated
financial statements for the year ended December 31, 2003 with the management of
QLT. In addition, the Audit and Risk Committee has discussed with the
independent auditors for QLT, Deloitte & Touche LLP, the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The Audit and Risk Committee has received the written disclosures
and the letter from the auditors required by the Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees) and has
discussed with the auditors the independence of the auditors. The Audit and Risk
Committee has received the report of the Chief Executive Officer and the Chief
Financial Officer with respect to their assessment of QLT's internal controls.
Based on the discussions and reviews noted above, the Audit and Risk Committee
recommended to QLT's Board of Directors that the audited financial statements be
included in QLT's Annual Report on Form 10-K for fiscal year 2003.
Peter A. Crossgrove (Chair), Ronald D. Henriksen, L. Jack Wood
MEMBERS OF THE AUDIT AND RISK COMMITTEE
APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP served as independent auditors for QLT for the
year ended December 31, 2003. Upon the unanimous recommendation of the Audit and
Risk Committee, the Board of Directors has proposed that Deloitte & Touche LLP
continue in this capacity for the current fiscal year. Deloitte & Touche LLP
were first appointed as independent auditors of QLT in 1983.
Both the President and Chairman intend to vote the Common Shares represented by
proxies for which either of them is appointed proxyholder "FOR" the appointment
of Deloitte & Touche LLP at a remuneration to be fixed by the Board of
Directors. If the resolution is not adopted, the Business Corporations Act
(British Columbia) provides that the current auditors, Deloitte & Touche LLP,
will continue to act for QLT until such time as the Shareholders approve
alternate auditors.
31
For the years ended December 31, 2003 and 2002, professional services were
performed by Deloitte & Touche LLP, the member firms of Deloitte Touche
Tohmatsu, and their respective affiliates (collectively, "Deloitte & Touche") as
follows:
FISCAL YEAR ENDED 2003 2002
- ----------------------------- ------------ -------------
Audit Fees (for audit of Cdn.$548,219 Cdn.$361,725
QLT's annual financial
statements for the respective
year, reviews of QLT's
quarterly financial
statements and services
provided in connection with
statutory and regulatory
filings)
Audit-Related Fees - -
Tax Fees (Tax compliance, tax Cdn.$119,281 Cdn.$29,300
advice and planning)
All Other Fees - -
TOTAL FEES Cdn.$667,500 Cdn.$391,025
The Audit and Risk Committee considered and concluded that the provision by
Deloitte & Touche LLP of such financial information and systems design and
implementation services, and other services as were provided to QLT in 2003, is
compatible with maintaining the independence of Deloitte & Touche LLP.
QLT has been advised that a representative of Deloitte & Touche LLP will attend
the Annual Meeting and will have the opportunity to make a statement and respond
to appropriate questions from Shareholders.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Audited Consolidated Financial Statements of QLT for the year ended December
31, 2003, together with the Auditors' Report thereon, which are included in
QLT's Annual Report for Canadian regulatory purposes, will be presented at the
Annual Meeting. Additional copies of the Audited Consolidated Financial
Statements are available from QLT's web-site at www.qltinc.com or upon request
directly to QLT to the attention of "QLT Investor Relations", 887 Great Northern
Way, Vancouver, British Columbia, Canada, V5T 4T5 (Phone: 604-707-7000; Fax:
604-707-7001; e-mail: ir@qltinc.com.
32
OTHER BUSINESS
The Board of Directors is not aware of any other matter that may be presented at
the Annual Meeting. If other matters properly come before the Annual Meeting,
both the President and Chairman of the Board of Directors intend to vote the
Common Shares represented by proxy for which for which either of them is
appointed in accordance with their best judgement on such matters.
The contents and the sending of this Proxy Statement have been approved by the
Board of Directors.
DATED at Vancouver, British Columbia, this 28th day of April, 2004.
BY ORDER OF THE BOARD OF DIRECTORS
"Janet Grove"
Janet Grove
Corporate Secretary
EXHIBIT A
To enhance disclosure to Shareholders, QLT's corporate governance practices in
relation to each of the 14 TSX Guidelines are as follows:
TSX GUIDELINES FOR EFFECTIVE CORPORATE QLT CORPORATE GOVERNANCE
GOVERNANCE PRACTICES
(1) THE BOARD OF DIRECTORS SHOULD The Board of Directors of QLT
EXPLICITLY ASSUME RESPONSIBILITY assumes responsibility for the
FOR STEWARDSHIP OF QLT, AND AS stewardship of QLT and the
PART OF THE OVERALL STEWARDSHIP enhancement of Shareholder value.
RESPONSIBILITY, SHOULD ASSUME The Board of Directors has
RESPONSIBILITY FOR: formalized its position on
corporate governance in a
documented mandate of the Board of
Directors which was accepted by the
members of the Board of Directors.
The Board of Directors has also
established a Corporate Governance
and Nominating Committee with a
mandate to actively review and
ensure that good corporate
governance practices are followed.
All key issues recommended by the
TSX Guidelines are included in the
mandate of the Board of Directors,
and include the following:
(a) ADOPTION OF A STRATEGIC PLANNING The Chief Executive Officer, with
PROCESS; the active involvement of the Board
of Directors, is responsible for
ensuring that there are long-term
goals and a strategic planning
process in place for QLT. On an
annual basis, the Board of
Directors and management meet
together for a strategic planning
session, where the Board of
Directors reviews and approves a
strategic plan. On an on-going
basis, the Board of Directors
monitors management's success in
implementing the strategies set out
in the plan and provides guidance
and judgement to the evolving
strategic plan.
(b) THE IDENTIFICATION OF THE The Board of Directors, through
PRINCIPAL RISKS OF QLT'S its Committees and as a whole, has
BUSINESS AND ENSURING THE a mandate to ensure that there are
IMPLEMENTATION OF in place systems to effectively
APPROPRIATE SYSTEMS TO monitor and manage business risks,
MANAGE THESE RISKS; with a view to the long-term
viability of QLT. The Board of
Directors and the Audit and Risk
Committee continually review
existing practices and systems with
a view to improving such processes
where appropriate.
2
(c) SUCCESSION PLANNING, INCLUDING Through its Compensation
APPOINTING, TRAINING AND Committee, the Board of Directors
MONITORING SENIOR MANAGEMENT; ensures that QLT has a plan for
continuity of its officers and an
executive compensation plan that is
motivational and competitive to
attract, hold and inspire the
performance of its executive
management and other key personnel.
(d) A COMMUNICATIONS POLICY FOR QLT; The Board of Directors ensures
that QLT has in place a formal
investment communications policy
to ensure a continued strong link
between the Board of Directors,
its Shareholders and its senior
management. QLT's Investor
Relations and Corporate
Communication Department seeks and
shares feedback from institutional
investors and from other
Shareholders. The Board of
Directors is kept informed of any
material issue of concern to
Shareholders and provides
direction for action as required.
(e) THE INTEGRITY OF QLT'S INTERNAL The Audit and Risk Committee acts
CONTROL AND MANAGEMENT on behalf of the Board of
INFORMATION SYSTEMS. Directors in monitoring internal
accounting controls and monitoring
the business conduct of QLT. It
reviews matters on a quarterly
basis relating to the financial
position of QLT in order to provide
reasonable assurances that QLT is
in compliance with applicable laws
and regulations, is conducting its
affairs ethically, and that
effective controls are maintained.
The Chief Executive Officer and the
Chief Financial Officer report
regularly to the Audit and Risk
Committee with respect to the
integrity of QLT's internal
controls. The Audit and Risk
Committee engages the independent
auditor directly, and meets
regularly with the independent
auditor without management present.
(2) THE BOARD OF DIRECTORS SHOULD BE A majority of the Board of
CONSTITUTED WITH A MAJORITY OF Directors are unrelated. Of the
THE INDIVIDUALS WHO QUALIFY AS eight present Directors, only two,
"UNRELATED" DIRECTORS Mr. Hastings and Dr. Julia Levy,
(INDEPENDENT OF MANAGEMENT AND are related Directors; six of the
FREE FROM CONFLICTING INTEREST). eight Directors are independent of
management and free from any
business interests or relationships
that could materially interfere
with a Director's ability to act in
the best interests of QLT.
3
The TSX Guidelines also recommend
that in the circumstances where a
company has a "significant
shareholder" (that is, a
shareholder with the ability to
exercise the majority of the votes
for the election of directors) the
board of directors should include a
number of directors who do not have
interests in or relationships with
the company or the significant
shareholder and which fairly
reflects the investment in the
company by the shareholders other
than the significant shareholder.
As of the date of this Proxy
Statement, QLT does not have such a
"significant shareholder".
(3) THE BOARD OF DIRECTORS WILL (i) QLT carries out this
ASSESS AND DISCLOSE ON AN ANNUAL assessment and discloses its
BASIS (i) WHETHER THE BOARD OF conclusions and the basis
DIRECTORS HAS A MAJORITY OF therefor annually.
UNRELATED DIRECTORS AND (ii) THE
ANALYSIS OF THE APPLICATION OF (ii) In nominating candidates to
THE PRINCIPLES SUPPORTING THIS the Board of Directors, the
CONCLUSION. business interests and
relationships of the
candidates are reviewed to
ensure that such nominees are
able to act in the best
interests of QLT. The
Corporate Governance and
Nominating Committee consists
of three unrelated Directors
who are responsible for
reviewing and making
recommendations on the size
and composition of the Board
of Directors and standing
Committees of the Board of
Directors, to undertake
assessments of the performance
of the members of the Board of
Directors, to oversee Director
education programs and in
reviewing and advising the
Board of Directors on
corporate governance matters.
(4) THE BOARD OF DIRECTORS SHOULD The Corporate Governance and
APPOINT A COMMITTEE OF DIRECTORS, Nominating Committee annually
COMPOSED EXCLUSIVELY OF OUTSIDE reviews the credentials of
DIRECTORS (A MAJORITY OF WHOM ARE nominees for re-election and
UNRELATED DIRECTORS) RESPONSIBLE ensure qualifications are
FOR PROPOSING NEW NOMINEES TO THE maintained. The Corporate
BOARD AND FOR ASSESSING DIRECTORS. Governance and Nominating
Committee is comprised of only
outside unrelated directors.
(5) THE BOARD OF DIRECTORS SHOULD In 2003, the Corporate Governance
IMPLEMENT A PROCESS FOR ASSESSING and Nominating Committee developed
THE EFFECTIVENESS OF THE BOARD OF and implemented a formal
DIRECTORS, ITS COMMITTEES AND THE assessment process to assess the
CONTRIBUTION OF INDIVIDUAL effectiveness of the members of
DIRECTORS. the Board of Directors.
4
(6) EVERY COMPANY SHOULD HAVE AN As and when a new nominee is
ORIENTATION AND EDUCATION PROGRAM identified, the Board of Directors
FOR NEW RECRUITS TO THE BOARD OF ensures that a full program of
DIRECTORS. orientation and education is
provided for the nominee, including
(but not limited to) provision of a
complete corporate history,
including copies of past minutes of
meetings of the Board of Directors,
as well as information regarding
QLT's business and operations. The
Corporate Governance and Nominating
Committee has been charged with
reviewing this orientation and
education program and recommending
improvements as may be warranted.
(7) EVERY BOARD OF DIRECTORS SHOULD The Corporate Governance and
EXAMINE ITS SIZE TO DETERMINE THE Nominating Committee and the Board
IMPACT OF THE NUMBER UPON of Directors as a whole annually
EFFECTIVENESS, AND WHERE examine the size of the Board of
APPROPRIATE, UNDERTAKE A PROGRAM Directors to ensure that it is
TO REDUCE THE SIZE TO FACILITATE optimum for decision making.
MORE EFFECTIVE DECISION MAKING.
(8) THE BOARD OF DIRECTORS SHOULD The amount and form of Director
REVIEW DIRECTOR COMPENSATION AND compensation is reviewed
ENSURE SUCH COMPENSATION periodically by the Compensation
REALISTICALLY REFLECTS THE Committee, with any resulting
RESPONSIBILITIES AND RISKS recommendations made to the full
INVOLVED IN BEING A DIRECTOR. Board of Directors, to ensure that
such compensation realistically
reflects the responsibilities and
risks of being an effective
Director.
(9) COMMITTEES OF THE BOARD OF All Committees of the Board of
DIRECTORS SHOULD GENERALLY BE Directors at QLT are composed
COMPOSED OF OUTSIDE DIRECTORS, A entirely of unrelated or
MAJORITY OF WHOM ARE UNRELATED independent Directors.
DIRECTORS.
(10) THE BOARD OF DIRECTORS SHOULD The Corporate Governance and
ASSUME RESPONSIBILITY FOR, OR Nominating Committee of the Board
ASSIGN TO A COMMITTEE OF of Directors ensures that an
DIRECTORS, GENERAL effective and efficient approach
RESPONSIBILITIES FOR DEVELOPING to corporate governance at QLT is
QLT'S APPROACH TO GOVERNANCE developed and implemented. The
ISSUES. Committee assesses the
effectiveness of corporate
governance and makes
recommendations to the full Board
of Directors.
(11) THE BOARD OF DIRECTORS TOGETHER The Board of Directors together
WITH THE CHIEF EXECUTIVE OFFICER with the Chief Executive Officer
SHOULD DEVELOP POSITION has identified certain areas of
DESCRIPTIONS FOR THE BOARD OF QLT's business which the Board is
DIRECTORS AND FOR THE CHIEF responsible to review with
EXECUTIVE OFFICER. THE BOARD OF management on a regular basis.
DIRECTORS SHOULD APPROVE OR The Board of Directors annually
DEVELOP THE CORPORATE OBJECTIVES approves the corporate objectives
WHICH THE CHIEF EXECUTIVE OFFICER which the Chief Executive Officer
IS RESPONSIBLE FOR MEETING. is responsible for meeting. The
goals against
5
which the Chief Executive Officer
is measured are the same as the
corporate goals.
(12) THE BOARD OF DIRECTORS SHOULD The Board of Directors meets
HAVE IN PLACE APPROPRIATE independently of management at
STRUCTURES AND PROCEDURES TO each regular Board of Directors
ENSURE THAT THE BOARD OF meeting. The Chairman of the
DIRECTORS CAN FUNCTION Board is an unrelated and
INDEPENDENTLY OF MANAGEMENT. independent member of the Board of
Directors.
(13) THE AUDIT COMMITTEE OF THE BOARD The Audit and Risk Committee of
OF DIRECTORS SHOULD BE COMPOSED the Board of Directors is composed
ONLY OF OUTSIDE DIRECTORS AND entirely of outside, unrelated and
SHOULD HAVE (i) SPECIALLY DEFINED independent Directors. The Audit
ROLES AND RESPONSIBILITIES; (ii) and Risk Committee consists of
DIRECT COMMUNICATION CHANNELS three Directors who are not
WITH THE INTERNAL AND EXTERNAL involved in the daily operations
AUDITORS; AND (iii) OVERSIGHT of QLT. The Audit and Risk
RESPONSIBILITY FOR MANAGEMENT Committee assists the Board of
REPORTING IN INTERNAL CONTROL. Directors in fulfilling its
responsibilities for QLT's
accounting and financial reporting
practices by reviewing the
quarterly and annual consolidated
financial statements, reviewing the
adequacy of the system of internal
controls, reviewing any relevant
accounting, financial and security
regulatory matters, reviewing the
management of corporate risks and
recommending the appointment of
independent auditors, who meet
quarterly with management and
separately with management
excluded. The Audit and Risk
Committee also provides a mechanism
for communication between the Board
of Directors and QLT's independent
auditors, who meet not less than
quarterly with management and
separately with management
excluded. This Committee engages
the auditors on behalf of QLT, and
has the authority to engage other
external advisors as it considers
warranted.
(14) THE BOARD OF DIRECTORS SHOULD Individual Directors may engage
IMPLEMENT A SYSTEM WHICH ENABLES outside advisers at the expense of
AN INDIVIDUAL DIRECTOR TO ENGAGE QLT, with the prior approval of
AN OUTSIDE ADVISOR AT QLT'S the Chairman. The Audit and Risk
EXPENSE, IN APPROPRIATE Committee has authority to engage
CIRCUMSTANCES. external advisors as it considers
warranted.