UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant toss. 240.14a-12
XOMA Ltd.
(Name of Registrant as Specified In Its Charter)
-------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set for the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule of Registration Statement No.:
3) Filing Party:
4) Date Filed:
(XOMA LOGO)
XOMA LTD.
2910 Seventh Street
Berkeley, California 94710
(510) 644-1170
April 16, 2001
To Our Shareholders:
You are cordially invited to attend the annual general meeting of
shareholders of XOMA Ltd. on May 30, 2001 at 9:00 a.m. local time, which will be
held at The Park Hyatt San Francisco, 333 Battery Street, San Francisco,
California.
Details of business to be conducted at the annual meeting are provided in
the enclosed Notice of Annual General Meeting of Shareholders and Proxy
Statement. Also enclosed for your information is a copy of our Annual Report to
Shareholders for 2000. Some of our shareholders will be accessing these
materials and voting through the Internet and may not be receiving a paper proxy
card by mail.
We hope that you will attend the annual meeting. In any event, please
promptly sign, date and return the enclosed proxy in the accompanying reply
envelope or vote by telephone or through the Internet.
Sincerely yours,
John L. Castello
Chairman of the Board,
President and
Chief Executive Officer
Enclosures
XOMA LTD.
---------------
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD AT 9:00 A.M. ON MAY 30, 2001
---------------
To the Shareholders of XOMA Ltd.:
Notice is hereby given that the annual general meeting of shareholders of
XOMA Ltd. (the "Company") will be held at The Park Hyatt San Francisco, 333
Battery Street, San Francisco, California, on May 30, 2001, at 9:00 a.m. local
time, for the following purposes:
1. To elect directors;
2. To ratify the appointment by the Company's Board of Directors of Ernst
& Young LLP to act as the Company's independent auditors for the 2001
fiscal year and authorize the Board to agree to such auditors' fee;
3. To receive the Company's audited financial statements for the 2000
fiscal year;
4. (a) To approve an amendment to the Company's 1981 Share Option Plan to
extend its term by ten years until November 15, 2011 and (b) to
approve an amendment to the Company's Restricted Share Plan to extend
its term by eight years until November 15, 2011;
5. To approve an amendment to the Company's 1981 Share Option Plan to
increase the number of shares issuable over the term of the plan by
2,000,000 shares to 8,650,000 shares in the aggregate; and
6. To consider and transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 2, 2001, as
the record date for the determination of shareholders entitled to notice of, and
to vote at, this meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
Christopher J. Margolin
Secretary
April 16, 2001
Berkeley, California
YOUR VOTE IS IMPORTANT
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You are cordially invited to attend the meeting in person. Whether or not
you plan to attend the meeting, please promptly mark, sign and date the enclosed
proxy and mail it in the accompanying postage pre-paid envelope or vote by
telephone or through the Internet.
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XOMA LTD.
------------
PROXY STATEMENT
------------
TO THE SHAREHOLDERS:
The enclosed proxy is solicited on behalf of the Board of Directors of XOMA
Ltd., a company organized under the laws of Bermuda ("XOMA" or the "Company"),
for use at the annual general meeting of shareholders to be held at The Park
Hyatt San Francisco, 333 Battery Street, San Francisco, California, on May 30,
2001, at 9:00 a.m. local time, or any adjournment or postponement thereof, at
which shareholders of record on April 2, 2001, will be entitled to vote. On
April 2, 2001, the Company had issued and outstanding 66,195,223 common shares,
par value US$.0005 per share ("Common Shares"). Holders of Common Shares are
entitled to one vote for each share held.
All registered shareholders can vote by paper proxy or by telephone by
following the instructions included with their proxy card. Shareholders whose
Common Shares are registered in the name of a bank or brokerage firm should
follow the instructions provided by their bank or brokerage firm on voting their
shares. Shareholders whose Common Shares are registered in the name of a bank or
brokerage firm participating in the ADP Investor Communication Services online
program may vote electronically through the Internet. Instruction forms will be
provided to shareholders whose bank or brokerage firm is participating in ADP's
program. Signing and returning the proxy card or submitting the proxy by
telephone or through the Internet does not affect the right to vote in person at
the annual meeting.
In the case of registered shareholders, a proxy may be revoked at any time
prior to its exercise by (a) giving written notice of such revocation to the
Secretary of the Company at the Company's principal office, 2910 Seventh Street,
Berkeley, California 94710, (b) appearing and voting in person at the annual
meeting, (c) properly completing and executing a later-dated proxy and
delivering it to the Company at or before the annual meeting or (d)
retransmitting a subsequent proxy by telephone before the annual meeting.
Presence without voting at the annual meeting will not automatically revoke a
proxy,
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and any revocation during the meeting will not affect votes previously taken.
Shareholders whose Common Shares are registered in the name of a bank or
brokerage firm should follow the instructions provided by their bank or
brokerage firm on revoking their previously voted shares. Abstentions and broker
non-votes are each included in the number of shares present and voting for
purposes of establishing a quorum but are not counted in tabulations of the
votes cast on proposals presented to shareholders.
The Company will bear the entire cost of solicitation, including
preparation, assembly, printing, and mailing of this proxy statement, the proxy
card, and any additional material furnished to shareholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding in their names shares that are beneficially owned by others
to forward to such beneficial owners. The solicitation of proxies may be
supplemented by one or more of telephone, telegram, or personal solicitation by
directors, officers, or employees of the Company for no additional compensation.
We have also engaged Georgeson Shareholder Communications Inc. to assist in such
solicitation at an estimated fee of $7,500 plus disbursements. Shareholders
voting through the Internet should understand that there may be costs associated
with electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholder.
The Company intends to mail this proxy statement and make it available on
the Internet on or about April 16, 2001.
SHARE OWNERSHIP
The following table sets forth as of April 2, 2001, certain information
regarding all shareholders known by the Company to be the beneficial owners of
more than 5% of the Company's outstanding Common Shares and regarding each
director, each executive officer and all directors and current executive
officers as a group, together with the approximate percentages of outstanding
Common Shares owned by each of them. Unless otherwise indicated, each of the
shareholders has sole voting and investment power with respect to the shares
beneficially owned, subject to community property laws where applicable.
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Number of Percentage of
Common Shares Common Shares
Name of Beneficial Owner Beneficially Owned Beneficially Owned
------------------------ ------------------ ------------------
Fidelity Management & Research Company(1)............. 5,140,866 7.8
James G. Andress(2)................................... 33,500 *
William K. Bowes, Jr.(3).............................. 67,569 *
John L. Castello(4)................................... 849,249 1.3
Peter B. Davis(5)..................................... 219,243 *
Clarence L. Dellio(6)................................. 223,995 *
Arthur Kornberg, M.D.(7).............................. 47,500 *
Christopher J. Margolin(8)............................ 217,926 *
Steven C. Mendell(9).................................. 66,500 *
Patrick J. Scannon, M.D., Ph.D.(10)................... 542,876 *
W. Denman Van Ness(11)................................ 70,431 *
All executive officers
and directors as a
group (10 persons)(12).............................. 2,362,400 3.6
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* Indicates less than 1%.
(1) As reported by Fidelity Management & Research Company on Schedule 13G filed
with the Securities and Exchange Commission on February 14, 2001.
(2) Represents 33,500 shares issuable upon the exercise of options exercisable
as of 60 days after the record date.
(3) Includes 37,500 shares issuable upon the exercise of options exercisable as
of 60 days after the record date.
(4) Includes 772,249 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 9,224 shares that
have vested pursuant to the Company's Deferred Savings Plan.
(5) Includes 163,498 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 7,218 shares that
have vested pursuant to the Company's Deferred Savings Plan.
(6) Includes 157,885 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 9,880 shares that
have vested pursuant to the Company's Deferred Savings Plan.
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(7) Includes 37,500 shares issuable upon the exercise of options exercisable as
of 60 days after the record date.
(8) Includes 180,164 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 9,416 shares that
have vested pursuant to the Company's Deferred Savings Plan.
(9) Includes 26,500 shares issuable upon the exercise of options exercisable as
of 60 days after the record date. Does not include 631 shares that have
vested pursuant to the Company's Deferred Savings Plan and are now held in
a rollover IRA account.
(10) Includes 452,751 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 9,880 shares that
have vested pursuant to the Company's Deferred Savings Plan.
(11) Includes 32,481 shares held by The Van Ness 1983 Revocable Trust, of which
Mr. Van Ness is a trustee. Also includes 450 shares held by various trusts
of which Mr. Van Ness may be deemed the beneficial owner. Mr. Van Ness
disclaims such beneficial ownership. Includes 37,500 shares issuable upon
the exercise of options exercisable as of 60 days after the record date.
(12) Includes 1,899,047 shares issuable upon exercise of options exercisable as
of 60 days after the record date. Does not include 46,249 shares that have
vested pursuant to the Company's Deferred Savings Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of the named executive
officers for the last three completed fiscal years of the Company:
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SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year ($) ($)(1) ($)(2) (#) ($)(3)
- ------------------------------------ -------- ----------- ---------- -------------- ------------ ------------
John L. Castello 2000 $500,000 N/A $5,284 50,000 $27,356
(Chairman of the 1999 $500,000 N/A $5,944 50,000 $29,039
1998 $500,000 N/A $18,537 50,000 $30,722
Board, President and
Chief Executive Officer)
Patrick J. Scannon, M.D., 2000 $330,000 $63,712 $0 25,000 $6,768
Ph.D. 1999 $320,000 $62,926 $0 30,000 $15,018
(Senior Vice President and Chief 1998 $310,000 $62,199 $13,173 25,000 $17,158
Scientific and
Medical Officer)
Clarence L. Dellio 2000 $263,000 $53,188 $5,058 35,000 $6,343
(Senior Vice President, 1999 $253,000 $49,598 $9,731 35,000 $6,687
Operations) 1998 $243,000 $49,972 $9,346 25,000 $7,281
Peter B. Davis 2000 $240,000 $64,645 $0 25,000 $6,216
(Vice President, 1999 $230,000 $40,950 $0 45,000 $6,491
Finance and Chief 1998 $220,000 $42,596 $0 25,000 $7,016
Financial Officer)
Christopher J. Margolin 2000 $240,000 $49,159 $9,231 50,000 $6,216
(Vice President, 1999 $230,000 $49,816 $8,846 45,000 $6,491
General Counsel and 1998 $220,000 $45,084 $8,462 25,000 $7,016
Secretary)
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- ----------------------
(1) Each amount in this column for 2000, 1999 and 1998 represents awards under
the Company's Management Incentive Compensation Plan in the following
amounts: Dr. Scannon - $16,080 and 1,221 Common Shares in 2000 (relating to
performance in 1999); $16,246 in each of 2000 and 1999 and 2,849 Common
Shares in 1999 (relating to performance in 1998); $15,306 in each of 2000,
1999 and 1998 and 1,917 Common Shares in 1998 (relating to performance in
1997); $15,128 in each of 1999 and 1998 (relating to performance in 1996);
$16,459 in 1998 (relating to performance in 1995); Mr. Dellio - $14,111 and
1,072 Common Shares in 2000 (relating to performance in 1999); $13,444 in
each of 2000 and 1999 and 2,357 Common Shares in 1999 (relating to
performance in 1998); $11,522 in each of 1999 and 1998 and 1,443 Common
Shares in 1998 (relating to performance in 1997); $11,189 in each of 1999
and 1998 (relating to performance in 1996); 1,500 Common Shares in 1998
(relating to performance in 1995); Mr. Davis - $12,443 and 887 Common
Shares in 2000 (relating to performance in 1999); $11,849 in 1999 and 1,873
Common Shares in each of 2000 and 1999 (relating to performance in 1998);
$10,763 in each of 2000, 1999 and 1998 and 1,216 Common Shares in 1998
(relating to performance in 1997); 959 Common Shares in each of 1999 and
1998 (relating to performance in 1996); 1,211 Common Shares in 1998
(relating to performance in 1995); Mr. Margolin - $12,328 and 926 Common
Shares in 2000 (relating to performance in 1999); $13,215 in each of 2000
and 1999 and 2,317 Common Shares in 1999 (relating to performance in 1998);
$11,288 in each of 2000, 1999 and 1998 and 1,366 Common Shares in 1998
(relating to performance in 1997); $12,098 in each of 1999 and 1998
(relating to performance in 1996); $10,411 in 1998 (relating to performance
in 1995).
(2) Mr. Castello's amounts in this column for 2000, 1999 and 1998 include
financial services provided to Mr. Castello in the amount of $2,989, $3,666
and $5,588, respectively. Dr. Scannon's amount in this column for 1998
includes a patent award in the amount of $250. The balance of Mr.
Castello's amount in this column for 2000 represents taxes paid by XOMA on
Mr. Castello's behalf. All of Mr. Dellio's and Mr. Margolin's amounts in
this column for 2000, the balance of Mr. Castello's and all of Mr. Dellio's
and Mr. Margolin's amounts in this column for 1999, and the balance of Mr.
Castello's and Dr. Scannon's and all of Mr. Dellio's and Mr. Margolin's
amounts in this column for 1998 represent cash payments in lieu of earned
vacation.
(3) Amounts in this column for 2000, 1999 and 1998 include shares of the
Company's Common Shares contributed to accounts under the Company's
Deferred Savings Plan, valued at fiscal year-end formula prices of $9.6781,
$2.975 and $3.16, respectively, per share, in the following amounts: Mr.
Castello - 517 shares for 2000, 1,681 shares for 1999 and 1,584 shares for
1998; Dr. Scannon, Mr. Dellio, Mr. Davis and Mr. Margolin - 542 shares each
for 2000, 1,681 shares each for 1999 and 1,584 shares each for 1998.
Amounts for 2000, 1999 and 1998 also include group term life insurance
premiums in the following amounts: Mr. Castello -- $4,356 for 2000, $6,039
for 1999 and $7,722 for 1998; Dr. Scannon -- $1,518 for 2000, $2,343 for
1999 and $3,168 for 1998; Mr. Dellio -- $1,093 for 2000, $1,687 for 1999
and $2,281 for 1998; Mr. Davis -- $966 for 2000, $1,491 for 1999, $2,016
for 1998; and Mr. Margolin -- $966 for 2000, $1,491 for 1999, $2,016 for
1998. Mr. Castello's amounts in this column include life insurance premiums
paid in the amount of $18,000 for each of 2000, 1999 and 1998. Dr.
Scannon's amounts for 2000, 1999 and 1998 include $9,419, $7,675 and $8,990
respectively, which represent the difference between (i) the amount of
interest Dr. Scannon would have been required to pay in interest for each
such year had the loan made to him by the Company pursuant to his
employment agreement been made at the then-prevailing market rate and (ii)
the amount of interest payable on the loan for each such year in accordance
with its terms. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
The following table contains information concerning the grant of options
under the Company's option plans to the named executive officers as of the end
of the last completed fiscal year of the Company. No share appreciation rights
("SARs") were granted during the last fiscal year and none were held at the end
of the fiscal year.
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OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of % of Total Potential Realized Value
Securities Options of Assumed Annual Rates of
Underlying Granted Exercise Share Price Appreciation
Options to Employees or For Option Term (1)
Granted In Fiscal Base Price Expiration 0% 5% 10%
Name (#) Year ($/Sh) Date ($) ($) ($)
- ---- ------------- -------------- ------------ ---------- --- ----------- -----------
John L. Castello.................... 50,000 8.4% $9.75 2/23/10 0 $306,586 $776,949
Patrick J. Scannon, M.D., Ph.D. .... 25,000 4.2% $9.75 2/23/10 0 $153,293 $388,475
Clarence L. Dellio.................. 25,000 4.2% $9.75 2/23/10 0 $153,293 $388,475
10,000 1.7% $5.3125 1/21/10 0 $33,410 $84,668
Peter B. Davis...................... 25,000 4.2% $9.75 2/23/10 0 $153,293 $388,475
Christopher J. Margolin ............ 25,000 4.2% $9.75 2/23/10 0 $153,293 $388,475
25,000 4.2% $5.3125 1/21/10 0 $83,525 $211,669
- ---------------------
(1) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their ten-year option terms. These gains are based
on assumed rates of share price appreciation of 0%, 5% and 10% compounded
annually from the dates the respective options were granted. The 0%
appreciation column is included because the options were granted with
exercise prices equal to the market price of the underlying Common Shares
on the date of grant, and thus will have no value unless the Company's
share price increases above the exercise prices as a result of actions by
the executives that improve the Company's performance and/or other factors
affecting such price.
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The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last completed
fiscal year of the Company and unexercised options held as of the end of the
fiscal year. No SARs were exercised during the last fiscal year and none were
held at the end of the fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Shares
Acquired Number of Securities Value of Unexercised
On Value Underlying Unexercised In-the-Money Options at
Exercise Realized Options at FY-End FY-End ($)(1)
------------------ -------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------- ---------- ----------- ------------- ----------- -------------
John L. Castello....... -- -- 749,332 110,668 $4,958,620 $349,505
Patrick J. Scannon M.D., Ph.D. 10,000 $94,063 440,667 59,333 $2,903,521 $198,667
Clarence L. Dellio..... 79,836 $465,503 142,969 71,833 $715,618 $254,677
Peter B. Davis......... 20,000 $137,500 155,167 69,833 $835,813 $232,312
Christopher J. Margolin 35,000 $305,750 164,750 90,250 $900,838 $322,912
- -------------------------
(1) The amounts listed in the two columns are based on the closing price per
share of $9.75 on December 31, 2000, as reported on The Nasdaq Stock
Market, less the applicable option exercise prices.
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Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has entered into an employment agreement with Mr. Castello,
dated as of April 29, 1992, that provides for his employment as President and
Chief Executive Officer at a salary of $500,000 per year. Under this agreement,
Mr. Castello also receives all standard Company employee benefits and
supplemental life insurance for the amount that an annual premium of $18,000
provides. The agreement also provides for a grant of options for 500,000 Common
Shares under the Company's 1981 Share Option Plan (the "Option Plan"), which was
made in 1992.
Mr. Castello's employment may be terminated, with or without cause, at the
will of either party. If terminated by the Company for any reason other than due
cause or by Mr. Castello for good reason, Mr. Castello must be paid his then
current base salary and benefits for one year. If terminated for due cause, he
is entitled to no further compensation. Good reason includes, in the context of
a change of control, the assignment to Mr. Castello of duties inconsistent with
his prior duties; his removal from, or failure to re-elect him to, any position
he held immediately prior to the change in control; any termination by the
Company within three years of the change of control other than for due cause or
upon disability or death; a good faith determination by Mr. Castello that
changes in circumstances resulting from the change in control leave him
substantially unable to perform his duties, after notice; the failure of the
Company's successor or the transferee of its assets or business to assume its
obligations under the agreement; or, a significant relocation of the Company's
executive offices. Good reason also includes any reduction in base pay or
benefits or any breach of the agreement by the Company.
The Company has entered into an employment agreement with Dr. Scannon,
dated as of March 26, 2001, that provides for his employment as Chief Scientific
and Medical Officer at a salary of $340,000 per year. Under this agreement, Dr.
Scannon is entitled to participate in any benefit plan for which key executives
of the Company are eligible, including the Management Incentive Compensation
Plan. The agreement also extends for one year a loan to Dr. Scannon in the
amount of $143,547.44, bearing interest at 6% per annum and secured by a pledge
of certain of the Company's Common Shares. The loan was originally made to Dr.
Scannon in 1993, has been extended for eight additional years, and $267,141 in
principal and interest payments have been received by the Company to date. The
loan will become payable on demand in the event of any early termination of Dr.
Scannon's employment. Upon termination of his employment for any reason other
than cause, or upon resignation, Dr. Scannon must be paid his then current base
salary and benefits for one year.
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The Company has entered into an employment agreement with Mr. Davis dated
as of April 1, 1994 that provides for his employment as Chief Financial Officer
at an initial salary of $200,000 per year. Under this agreement, Mr. Davis
received a one-time transition allowance in the amount of $35,000 and is
entitled to participate in any benefit plan for which executives of the Company
are eligible. In addition, the agreement provides for an initial grant of
options for 60,000 Common Shares under the Option Plan, which was made in 1994,
as well as participation in the Management Incentive Compensation Plan. Mr.
Davis' employment agreement provides no additional compensation in the event of
a change of control but provides a minimum severance amount equal to six months
of base salary at the time of termination.
Compensation Committee Report on Executive Compensation
The Company's compensation program for officers (including the named
executive officers) is administered by the Compensation Committee of the Board
of Directors (the "Committee"), which is composed of two non-employee directors.
Following review and approval by the Committee, all issues pertaining to officer
compensation are submitted to the full Board of Directors for approval. The
primary objectives of the Company's compensation program are to enable the
Company to attract, motivate and retain outstanding individuals and align their
success with that of the Company's shareholders through the creation of
shareholder value and achievement of strategic corporate objectives.
The level of compensation paid to an officer is determined on the basis of
the individual's overall experience, responsibility, performance and
compensation level in his or her prior position (for newly hired officers), the
individual's overall performance and compensation level at the Company during
the prior year (for current employees), the compensation levels of similarly
situated individuals in the pharmaceutical and biotechnology industries
(including, but not limited to, the biotechnology companies included in the Dow
Jones Medical and Biotechnology Index) and other labor markets in which the
Company competes for employees, the performance of the Company's Common Shares
during the prior fiscal year and such other factors as may be appropriately
considered by the Board of Directors, by the Committee and by management in
making its initial proposals to the Committee.
Mr. Castello's compensation for 2000 was determined after considering the
general factors described above and the terms of his existing employment
contract. In 1992, the Committee approved, and recommended that the Board
approve, the terms of Mr. Castello's employment contract, as more fully
described under "Employment Contracts and Termination of Employment and
Change-
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in-Control Arrangements," because it felt that the terms thereof were necessary
in order to attract a candidate of Mr. Castello's experience and reputation in
the pharmaceutical industry, which in turn was deemed necessary in order to
enable the Company to advance toward its long-range goal of becoming a
pharmaceutical company with commercially viable products. Mr. Castello has not
received a salary increase since his employment contract was executed in 1992.
The principal methods for long-term incentive compensation are the Option
Plan and Restricted Share Plan (the "Restricted Plan"), and compensation
thereunder principally takes the form of incentive and non-qualified option
grants. These grants are designed to promote the convergence of long-term
interests between the Company's key employees and its shareholders;
specifically, the value of options granted will increase or decrease with the
value of the Company's Common Shares. In this manner, key individuals are
rewarded commensurately with increases in shareholder value. These grants also
typically include a 5-year vesting period to encourage continued employment. The
size of a particular option grant is determined based on the individual's
position with and contribution to the Company. For grants during 2000, the
number of options granted were determined based on the numbers of options
granted to such individuals in the previous fiscal year, the aggregate number of
options held by each such individual, the number of options granted to similarly
situated individuals in the pharmaceutical and biotechnology industries, the
price of the Company's Common Shares relative to other companies in such
industries and the resulting relative value of such options; no specific
measures of corporate performance were considered.
Certain employees are also compensated through the Management Incentive
Compensation Plan established effective July 1, 1993 (as amended, the "Incentive
Plan"), in which management employees (other than the Chief Executive Officer),
as well as certain additional discretionary participants chosen by the Chief
Executive Officer, are eligible to participate. Under the Incentive Plan, at the
beginning of each fiscal year, the Board of Directors (with advice from the
Committee) establishes a target incentive compensation pool, which is then
adjusted at year-end to reflect the Company's performance in achieving its
corporate objectives.
After each fiscal year, the Board of Directors and the Committee make a
determination as to the performance of the Company and Incentive Plan
participants in meeting corporate objectives and individual objectives, which
are determined from time to time by the Board of Directors in its sole
discretion and which included for 2000: a target level of cash at year end;
generation of current income; progress toward strategic alli-
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ances, potential partnerships or financing arrangements; and various objectives
tied to development of the Company's product lines. Awards to Incentive Plan
participants vary depending upon the level of achievement of corporate
objectives, the size of the incentive compensation pool and the Incentive Plan
participants' base salaries and performance during the fiscal year as well as
their expected ongoing contribution to the Company. The Company must meet a
minimum percentage of its corporate objectives (currently 70%) before any awards
are made under the Incentive Plan.
Awards under the Incentive Plan vest over a three-year period with 50% of
each award payable during the first quarter of the following fiscal year, and
25% payable on each of the next two annual distribution dates, so long as the
participant remains an employee of the Company. The 50% on the first
distribution date is payable half in cash and half in Common Shares. The balance
on the next two annual distribution dates is payable, at the election of the
participant, all in cash or all in Common Shares or, for elections after
December 31, 2000, half in cash and half in Common Shares. All share issuances
under the Incentive Plan are made pursuant to the Restricted Plan.
For 2000, the Committee and the Board of Directors determined that
management had met a percentage of the corporate objectives summarized above in
excess of the 70% minimum required by the Incentive Plan in order to make awards
thereunder. For 2000, 30 individuals were determined to be eligible to
participate in the Incentive Plan, including all of the executive officers named
in the "Summary Compensation Table" above other than Mr. Castello.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the deductible amount of annual compensation paid to
certain individual executive officers (i.e., the chief executive officer and the
four other most highly compensated executive officers of the Company) to no more
than $1 million. However, qualifying performance-based compensation will be
excluded from the $1 million cap on deductibility, and the Committee believes,
based on information currently available, that the Company's options issued to
its executive officers qualify for this exclusion. Considering the current
structure of executive officer compensation and the availability of deferral
opportunities, the Committee believes that the Company will not be denied any
significant tax deduction for 2001. The Committee will continue to review tax
consequences as well as other relevant considerations in connection with
compensation decisions.
William K. Bowes, Jr.
W. Denman Van Ness
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Performance Graph
Comparison of Five Year Cumulative Total Return Among XOMA, Nasdaq
Composite Index and AMEX Biotechnology Index
As of XOMA Nasdaq AMEX Bio-
December 31, Ltd. Composite Index technology Index
- ------------ ---- --------------- ----------------
1995 100 100 100.00
1996 146.43 122.71 107.87
1997 158.93 149.25 121.42
1998 91.07 208.40 138.39
1999 85.71 386.74 292.62
2000 278.57 234.81 473.95
The comparison assumes $100 invested on December 31, 1995 in the Company's
Common Shares, the Nasdaq Composite Index, and the AMEX Biotechnology Index.
Total return assumes reinvestment of dividends although the Company has never
paid cash dividends. Returns for the Company are not necessarily indicative of
future performance.
-14-
ITEM 1 - ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the next annual
meeting of shareholders and until their successors are elected, or until their
death, resignation or removal. The nominees for the Board of Directors are set
forth below. Unless otherwise instructed, the proxy holders will vote all
proxies received by them in the accompanying form for the nominees for directors
listed below. In the event any nominee should become unavailable for election
due to an unexpected occurrence, the proxies will be voted for any such
substitute nominee as may be designated by the present Board of Directors to
fill the vacancy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them for the nominees listed below. Each person nominated for election has
agreed to serve if elected, and management has no reason to believe that any of
the nominees listed below will be unable to serve. The seven candidates
receiving the highest number of affirmative votes of the shares entitled to vote
at the annual meeting will be elected as directors of the Company.
NOMINEES TO BOARD OF DIRECTORS
Name Title Age
John L. Castello Chairman of the Board, 64
President and
Chief Executive Officer
Patrick J. Scannon, M.D., Ph.D. Senior Vice President, 53
Chief Scientific and
Medical Officer and Director
James G. Andress Director 62
Williams K. Bowes, Jr. Director 74
Arthur Kornberg, M.D. Director 83
Steven C. Mendell Director 59
W. Denman Van Ness Director 58
Mr. Castello became Chairman of the Board, President and Chief Executive
Officer in March 1993. From April 1992 to March 1993, Mr. Castello was
President, Chief Executive Officer and a director. Mr. Castello was President
and Chief Operating Officer of the Ares Serono Group from 1988 to 1991 and prior
to that was President of the Serono Diagnostics Division from 1986 to 1988. Ares
Serono is known in the United States for fertility drugs, and it is also the
manufacturer of a bioengineered human growth hormone which is marketed primarily
outside of the United
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States. Mr. Castello previously held senior management positions at Amersham
International PLC and Abbott Laboratories. Mr. Castello is also a director of
Cholestech Corporation, which is engaged in the business of developing products
for the diagnostic measurement of cholesterol and other blood components.
Dr. Scannon is one of the founders of the Company and has served as a
director since its formation. Dr. Scannon became Chief Scientific and Medical
Officer in March 1993. He served as President of the Company from its formation
until April 1992 and as Vice Chairman, Scientific and Medical Affairs from April
1992 to March 1993. In 1998, Dr. Scannon also became a director of NanoLogics,
Inc., a software company. From 1979 until 1981, Dr. Scannon was a clinical
research scientist at the Letterman Army Institute of Research in San Francisco.
A Board-certified internist, Dr. Scannon holds a Ph.D. in organic chemistry from
the University of California, Berkeley, and an M.D. from the Medical College of
Georgia.
Mr. Andress has been a director since November 1995 and is a former
Chairman of the Pharmaceuticals Group, Beecham Group, plc and Chairman,
Healthcare Products and Services of SmithKline Beecham, plc and the former
President and Chief Operating Officer of Sterling Drug, Inc. From 1996 to 2000,
he served as Chairman and CEO of Warner Chilcott, plc, a specialty
pharmaceuticals company. From 1989 to 1995, he served as CEO and director of
Information Resources, Inc., a decision support software and consumer packaged
goods research company and currently serves as a director. From 1991 to 2000,
Mr. Andress also served as a director of The Liposome Company, Inc., a
biotechnology company. He also serves as a director of Sepracor, Inc., a
separations technology company, O.P.T.I.O.N. Care, Inc., a home health care
company, and Allstate Insurance Company.
Mr. Bowes has been a director since February 1986 and has been a General
Partner of U.S. Venture Partners since 1981. Mr. Bowes is also a director of
Amgen Inc., Applied Micro-Circuits Corporation, Lynx Therapeutics, Inc. and one
private company.
Dr. Kornberg has been a director since April 1991. He is a distinguished
author and researcher who was chairman and founder of the Department of
Biochemistry at the Stanford University School of Medicine. Dr. Kornberg
received the Nobel Prize in 1959 for his discovery of the enzymatic synthesis of
DNA. His present research is on the genetics, biochemistry, physiology and
clinical relevance of inorganic polyphosphate. He is the author of "DNA
Replication," one of the basic textbooks of biochemistry. Dr. Kornberg was a
founder and is a member of the Boards of Scientific Advisors of DNAX, now a
wholly owned subsidiary of Schering-Plough Corporation, and Regeneron
Pharmaceuticals, Inc., a
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biotechnology company focused on neurobiology, and is a member of the Board of
Scientific Advisors of Maxygen, Inc., a biotechnology company focused on
molecular evolution technology.
Mr. Mendell has been a director of the Company since 1984. From April 1992
to March 1993, he was Chairman of the Board. Mr. Mendell was also Chief
Executive Officer of the Company from 1986 until April 1992. From April 1993 to
February 1998, Mr. Mendell was President and Chief Executive Officer of
Selective Genetics, Inc. (formerly Prizm Pharmaceuticals, Inc.), a private
company engaged in the development of gene therapy products for tissue
regeneration and repair. From February 1998 to June 1999, he was Chairman and
President of Selective Genetics, Inc. Mr. Mendell is currently President and
Chief Executive Officer of LMA North America Inc. and LMA International N.V., a
leading medical device company focused on the marketing and sale of products for
airway management and anesthesia. Mr. Mendell is also a director of Ciblex
Corporation and from November 1997 to December 1998, he served as President and
Chief Executive Officer of that company. Ciblex is a private company engaged in
the development of small molecules to block the release of disease-causing
proteins. Mr. Mendell is also a director of StressGen Biotechnologies Corp., a
biopharmaceutical company engaged in the development of pharmaceutical products
for treatment of cancer and the prevention of infectious disease.
Mr. Van Ness has been a director since October 1981. He is Chairman of
Hidden Hill Advisors, a venture capital consulting firm. From April 1996 through
October 1999, he was a Managing Director of CIBC Capital Partners, an
international merchant banking organization. From 1986 through March 31, 1996,
Mr. Van Ness was a General Partner of Olympic Venture Partners II and Rainier
Venture Partners, venture capital funds, and from 1977 until 1985, he was a
General Partner of the venture capital group at Hambrecht & Quist, the manager
of several venture capital funds.
BOARD MATTERS
Board Meetings and Committees
During the fiscal year ended December 31, 2000, the Board of Directors held
six meetings. Each Board member attended at least 75% of the aggregate number of
meetings of the Board and the committees of the Board on which he served that
were held during the last fiscal year.
The Board of Directors has standing audit, compensation and nominating
committees. The nominating committee performs the functions of director
evaluation and selection. The committee currently consists of Messrs. Bowes,
Castello and Van Ness. The
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committee will not accept unsolicited director nominations by shareholders. The
committee held two meetings during 2000.
The audit committee is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing the Company's
accounting practices and system of internal accounting controls. This committee,
currently consisting of Mr. Mendell and Mr. Andress, held two meetings during
2000.
The compensation committee is responsible for recommending and reviewing
the compensation, including options and perquisites, of the Company's officers
and other employees. This committee, currently consisting of Messrs. Van Ness
and Bowes, held two meetings during 2000.
Board Compensation and Related Matters
Each non-employee director receives a quarterly retainer of $1,000, $1,000
for each meeting of the Board of Directors attended and $500 for each committee
meeting attended in person on a date other than on the date of a meeting of the
Board of Directors. Additionally, each non-employee director is granted options
to purchase 15,000 Common Shares pursuant to the 1992 Directors Share Option
Plan (the "Directors Plan") upon initial election to the Board of Directors and
is annually granted 7,500 Common Shares pursuant to the Directors Plan upon
reelection to the Board of Directors, each at an exercise price per share equal
to the closing market price of the Common Shares on the date of grant, which for
2000 was $3.1875.
Directors who are employees of the Company are neither paid any fees or
other remuneration nor awarded options or Common Shares of the Company for
services as members of the Board of Directors or its committees.
Audit Committee Report
Each member of the audit committee is "independent" as defined in the
listing standards of The Nasdaq Stock Market. The Company's Board of Directors
has adopted a written charter for the audit committee, a copy of which is
attached to this proxy statement as Annex 1.
In accordance with rules recently established by the SEC, the audit
committee has prepared the following report for inclusion in this proxy
statement:
As part of its ongoing activities, the audit committee has:
-18-
o met with management periodically to consider the adequacy of the
Company's internal controls and the objectivity of its financial
reporting, and discussed these matters with the Company's independent
auditors and with appropriate company financial personnel;
o regularly met privately with the independent auditors, who have
unrestricted access to the committee;
o recommended to the Board the appointment of the independent auditors
and reviewed periodically their performance and independence from
management;
o reviewed the Company's financing plans and reported recommendations to
the full Board for approval and to authorize action;
o reviewed and discussed with management the Company's audited
consolidated financial statements for the fiscal year ended December
31, 2000;
o discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communications
with Audit Committees, as amended; and
o received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and discussed with the
independent auditors their independence.
Based on the review and discussions referred to above, the audit committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.
Steven C. Mendell
James G. Andress
ITEM 2 - RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of its audit committee, has
selected Ernst & Young LLP ("Ernst & Young") to serve as the Company's
independent auditors for 2001. Ernst &
-19-
Young has been acting as the Company's independent auditors since fiscal year
1998.
Audit Fees. The aggregate fees for professional services rendered by Ernst
& Young for the audit of the Company's annual financial statements for the 2000
fiscal year and the reviews of the financial statements included in the
Company's Form 10-Qs for that fiscal year were $104,000.
Financial Information Systems Design and Implementation Fees. The Company
did not engage Ernst & Young to render services regarding financial information
systems design and implementation (as defined in Rule 2-01(c)(4) of Regulation
S-X under the Securities Exchange Act of 1934) for the 2000 fiscal year.
All Other Fees. The aggregate fees billed for services rendered by Ernst &
Young, other than the services covered in the two immediately preceding
paragraphs of this section, for the 2000 fiscal year were $131,737.
The audit committee considered whether the provision of the services
covered in the two immediately preceding paragraphs of this section is
compatible with maintaining Ernst & Young's independence.
The ratification of the appointment of Ernst & Young and the authorization
of the Board to agree to Ernst & Young's fee are being submitted to the
shareholders at the annual meeting. If such appointment is not ratified, the
Board of Directors will consider the appointment of other auditors. The Board of
Directors recommends a vote "FOR" the ratification of the appointment of Ernst &
Young as the Company's independent auditors for the 2001 fiscal year and the
authorization of the Board to agree to Ernst & Young's fee.
A representative of Ernst & Young is expected to be present at the meeting
with an opportunity, if desired, to make a statement and to respond to your
questions.
ITEM 3 - RECEIPT OF AUDITED FINANCIAL STATEMENTS
In accordance with Bermuda company law and practice, the Company's audited
financial statements for fiscal year 2000 will be laid before the annual
meeting. No shareholder action is required in connection therewith.
-20-
ITEM 4 - AMENDMENTS TO EXTEND THE TERMS OF
THE COMPANY'S EMPLOYEE OPTION PLANS
Background
The Option Plan and the Restricted Plan (together the "Employee Option
Plans") are designed to encourage equity ownership of the Company by the
employees who are primarily responsible for its management, growth and financial
success, and to assist the Company in attracting and retaining the services of
such employees (see "Compensation Committee Report on Executive Compensation"
above).
The Board of Directors has adopted, subject to shareholder approval,
amendments to the Employee Option Plans to (a) extend the term of the Option
Plan by ten years until November 15, 2011 and (b) extend the term of the
Restricted Plan by eight years until November 15, 2011. The proposed amendments
will enable the Company to continue to provide incentive compensation to its
management.
The essential features of the Option Plan and the Restricted Plan are
summarized below. These summaries do not purport to be complete descriptions of
the Employee Option Plans. Copies of actual plan documents may be obtained by
contacting the Secretary of the Company.
Description of Option Plan
Of the 6,650,000 Common Shares currently available for issuance under the
Option Plan and the Restricted Plan, approximately 1,546,910 shares had been
issued upon the exercise of options granted under the Option Plan, 3,656,366
shares were subject to outstanding options under the Option Plan, and 661,242
shares were available for issuance under future option grants to be made under
the Option Plan, as of the close of business on April 2, 2001. The expiration
dates for all such outstanding options range from February 20, 2002 (at the
earliest) to March 27, 2011 (at the latest).
The Common Shares issuable over the term of the Option Plan will be made
available from authorized but unissued Common Shares. Each option will have an
exercise price per share of not less than 100% of the fair market value per
Common Share on the date of grant. The Option Plan's term expires on November
15, 2001.
-21-
Description of Restricted Plan
Of the 1,250,000 Common Shares currently available for issuance under the
Restricted Plan (subject to the limitation that not more than 6,650,000 shares
may be issued in the aggregate under the Restricted Plan and the Option Plan),
approximately 269,656 shares had been issued either upon the exercise of granted
options or the direct issuance of shares under the Restricted Plan, 372,795
shares were subject to outstanding options under the Restricted Plan, and
464,518 shares were available for issuance under future option grants or direct
issuances to be made under the Restricted Plan, as of the close of business on
April 2, 2001. The expiration dates for all such outstanding options range from
July 13, 2004 (at the earliest) to February 21, 2011 (at the latest).
The Restricted Plan authorizes the grant of options to purchase Common
Shares (the "Option Grant Program") as well as direct Common Share issuances
(the "Share Issuance Program"). Such shares will be made available from
authorized but unissued Common Shares.
Each option granted under the Option Grant Program will have an exercise
price of not less than 85% of fair market value per Common Share on the date of
grant. The purchase price for shares issued under the Share Issuance Program may
not be less than 85% of fair market value per Common Share on the issuance date,
which value will be discounted if such shares are subject to the Company's right
of first refusal described below. The Restricted Plan's term expires on December
15, 2003.
Provisions Common to Both Plans
Key employees (including officers and directors) of the Company (or its
subsidiaries) who provide valuable services to the Company (or its subsidiaries)
are eligible to participate in the Employee Option Plans (each, a
"Participant"). Directors who are not employees of the Company are not eligible
to participate in either Employee Option Plan.
The Employee Option Plans provide that each such plan will be administered
by either the full Board of Directors or, if appointed by the Board, a committee
thereof comprised of at least two "Non-Employee Directors" within the meaning of
Rule 16b-3 of the Securities Exchange Act of 1934, as such term is interpreted
from time to time. Currently, the Compensation Committee administers the
Employee Option Plans as each relates to individuals other than directors,
officers or ten-percent shareholders of the Company. The Compensation
Committee's authority to grant options under the Employee Option Plans and to
issue shares under the Restricted Plan is limited to 15,000 shares per
individual. In all
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other respects, the Employee Option Plans are administered by the Board.
The Board and, with respect to individuals who are not directors, officers
or ten-percent shareholders of the Company, the Compensation Committee (the
"Plan Administrators") are authorized (subject to the provisions of the Employee
Option Plans) to establish such rules and regulations as they may deem
appropriate for the proper administration of the Employee Option Plans. Each
option, whether granted under the Option Plan or the Option Grant Program of the
Restricted Plan, will be exercisable at such times, during such period or
periods, and for such number of shares as the relevant Plan Administrator
determines. No such granted option may have a term in excess of ten years from
the grant date.
The number of Common Shares for which options or SARs may be granted to any
Participant under the Option Plan or the Option Grant Program or which may be
issued to any Participant under the Share Issuance Program is limited to not
more than 1,000,000 during any calendar year.
Exercise of Options. The exercise price of options granted under either
plan will be immediately due upon exercise of the option and may be paid (i) in
cash; (ii) in Common Shares having a fair market value on the date the option is
exercised equal to the option price; (iii) in a combination of cash and Common
Shares valued at fair market value on the day the option is exercised; or (iv)
through a broker-dealer sale and remittance procedure pursuant to which shares
acquired under the option are sold immediately and there is paid to the Company,
out of the sale proceeds, an amount equal to the option price for the acquired
shares plus all applicable withholding taxes. For all purposes of valuation
under either of the Employee Option Plans, the fair market value of the Common
Shares on any relevant date will be the closing sale price per Common Share, as
reported for such date through The Nasdaq Stock Market.
The relevant Plan Administrator may also assist any optionee (other than a
director) in the exercise of an option by authorizing a loan from the Company,
by permitting the optionee to pay the option price in installments over a period
of years or by authorizing a guarantee by the Company of a third party loan to
the optionee, the terms and conditions of which will be established by the
relevant Plan Administrator in its sole discretion. However, the maximum credit
available to the optionee may not exceed the option price payable for the
purchased shares, plus any tax liability.
The Employee Option Plans have been amended to eliminate the provisions
giving the relevant Plan Administrator spe-
-23-
cific authority to cancel options with the consent of the affected optionees and
to grant in substitution therefor new options covering the same or different
numbers of Common Shares, but having an option price per share not less than
100% (in the case of the Option Plan) or 85% (in the case of the Option Grant
Program) of the fair market value on a new grant date. Such amendments do not,
however, affect the Company's ability to cancel options with the consent of the
optionee at any time and simultaneously or subsequently to grant options to the
same or different optionees at exercise prices otherwise permissible under the
Employee Option Plans.
Transfer. The Employee Option Plans provide that non-qualified options
granted thereunder may be granted on terms permitting transfer to immediate
family members of the optionee (or an entity comprised entirely of the optionee
and such immediate family members) in certain circumstances.
Termination of Employment. Should an optionee under either Employee Option
Plan cease to be an employee or consultant of the Company for any reason
(including death or permanent disability), such optionee (or its permitted
transferee) will not have more than a twelve (12) month period following the
date of such cessation of status in which to exercise any outstanding options,
but under no circumstances may any such options be exercised after the specified
expiration date of the option term.
Share Appreciation and Repurchase Rights. The Option Plan and the Option
Grant Program each include a share appreciation right ("SAR") feature whereby
the relevant Plan Administrator has the authority to grant one or more optionees
the right, exercisable upon such terms and conditions as such Plan Administrator
deems appropriate, to surrender all or part of an unexercised option and to
receive in exchange therefor an amount equal to the excess of (i) the fair
market value (on the date of surrender) of the number of vested shares for which
the surrendered option is at the time exercisable over (ii) the aggregate option
price payable for such vested shares, payable in Common Shares valued at fair
market value on the date of surrender, in cash, or partly in shares and partly
in cash. To date, no SARs have been granted.
Acceleration of Options. Pursuant to certain corporate transactions,
including: a merger or acquisition in which the Company is not the surviving
entity; the sale, transfer or other disposition of all or substantially all of
the assets of the Company; or any other business combination in which 50% or
more of the Company's outstanding voting shares is transferred to different
holders in a single transaction or a series of related transactions, all options
at the time outstanding and not then otherwise fully exercisable will
immediately, prior to the specified
-24-
effective date of such corporate transaction, become fully exercisable for up to
the total number of Common Shares purchasable thereunder.
Amendment. The Employee Option Plans permit the grant of options to
purchase Common Shares in excess of the number of shares then available for
issuance. Any option so granted cannot be exercised prior to shareholder
approval of an amendment increasing the number of shares available for issuance
under the Option Plan or the Restricted Plan, as the case may be.
The Board has full power and authority to amend or modify the Employee
Option Plans in any or all respects, except that no such amendment or
modification may, without the consent of the option holders, adversely affect
rights and obligations with respect to options at the time outstanding under
either of the Employee Option Plans, nor adversely affect the rights of any
individual with respect to the Common Shares issued pursuant to the Restricted
Plan prior to such action, and the Board may not, without the approval of the
Company's shareholders, (i) increase the maximum number of shares issuable under
the Option Plan or the Restricted Plan, except for permissible adjustments in
the event of certain changes in the Company's capitalization, (ii) materially
increase the benefits accruing to Participants in the Employee Option Plans or
(iii) materially modify the eligibility requirements for participation therein.
Description of Share Issuance Program
Common Shares will be issued to eligible individuals under the Share
Issuance Program upon such terms and conditions and for such numbers of shares
as is determined by the relevant Plan Administrator and may be fully vested upon
issuance or may vest over such period of time as such Plan Administrator deems
appropriate. Shares may be issued under the Share Issuance Program for such
consideration as the relevant Plan Administrator may from time to time
determine, provided that in no event may shares be issued for consideration
other than (i) cash or cash equivalents; (ii) Common Shares valued at fair
market value; (iii) the promissory note of the purchaser payable to the
Company's order, which may be subject to cancellation by the Company in whole or
in part upon such terms or conditions as the Plan Administrator may determine;
or (iv) payment effected through a broker-dealer sale and remittance procedure.
If a Participant is issued shares under the Share Issuance Program which
are not fully vested at the time of issuance, then such shares will be subject
to certain repurchase rights of the Company, exercisable in the event the
individual ceases to retain his/her employee or service status for any reason,
and will allow the Company to repurchase the Participant's unvested
-25-
shares at the lesser of (i) the original purchase price paid by such individual
or (ii) if such shares are subject to the Company's first refusal rights, the
fair market value of such shares appropriately discounted for the Company's
first refusal rights. The vesting schedule applicable to each issuance will be
determined by the relevant Plan Administrator at the time of issuance. The
relevant Plan Administrator may accelerate the vesting of the issued shares, in
whole or in part, at the time of the participant's termination.
The issued shares may, in the discretion of the relevant Plan
Administrator, be subject to a permanent right of first refusal. Prior to any
sale or other disposition of the shares subject to such right, the Participant
must first offer to sell the shares to the Company (or its assigns) at a price
equal to the difference between the fair market value of the shares on the date
of repurchase (determined in accordance with the normal valuation provisions of
the Restricted Plan, without regard to the Company's permanent right of first
refusal) and the price differential determined by the relevant Plan
Administrator at the time of issuance.
Federal Income Tax Consequences
The following discussion summarizes the principal federal income tax
consequences of the Employee Option Plans. This discussion is based on current
provisions of the Code, the Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof as in effect on the date
hereof. The summary does not address any foreign, state or local tax
consequences of participation in the Employee Option Plans.
Share Options. In general, the grant of an option will not be a taxable
event to the recipient and it will not result in a deduction to the Company. The
tax consequences associated with the exercise of an option and the subsequent
disposition of Common Shares acquired on the exercise of such option depend on
whether the option is an incentive stock option or a non-qualified stock option.
Upon the exercise of a non-qualified stock option, the Participant will
recognize ordinary taxable income equal to the excess of the fair market value
of the Common Shares received upon exercise over the exercise price. The Company
will generally be able to claim a deduction in an equivalent amount. Any gain or
loss upon a subsequent sale or exchange of the Common Shares will be capital
gain or loss, long-term or short-term, depending on the holding period for the
Common Shares.
Generally, a Participant will not recognize ordinary taxable income at the
time of exercise of an incentive stock op-
-26-
tion and no deduction will be available to the Company, provided the option is
exercised while the Participant is an employee or within three months following
termination of employment (longer, in the case of termination of employment by
reason of disability or death). If an incentive stock option granted under the
Option Plan is exercised after these periods, the exercise will be treated for
federal income tax purposes as the exercise of a non-qualified stock option.
Also, an incentive stock option granted under the Option Plan will be treated as
a non-qualified stock option to the extent it (together with any other incentive
stock options granted under other plans of the Company and its subsidiaries)
first becomes exercisable in any calendar year for Common Shares having a fair
market value, determined as of the date of grant, in excess of $100,000.
If Common Shares acquired upon exercise of an incentive stock option are
sold or exchanged more than one year after the date of exercise and more than
two years from the date of grant of the option, any gain or loss will be
long-term capital gain or loss. If Common Shares acquired upon exercise of an
incentive stock option are disposed of prior to the expiration of these one-year
or two-year holding periods (a "Disqualifying Disposition"), the Participant
will recognize ordinary income at the time of disposition, and the Company will
generally be able to claim a deduction, in an amount equal to the excess of the
fair market value of the Common Shares at the date of exercise over the exercise
price. Any additional gain will be treated as capital gain, long-term or
short-term, depending on how long the Common Shares have been held. Where Common
Shares are sold or exchanged in a Disqualifying Disposition (other than certain
related party transactions) for an amount less than their fair market value at
the date of exercise, any ordinary income recognized in connection with the
Disqualifying Disposition will be limited to the amount of gain, if any,
recognized in the sale or exchange, and any loss will be a long-term or
short-term capital loss, depending on how long the Common Shares have been held.
Although the exercise of an incentive stock option as described above would
not produce ordinary taxable income to the Participant, it would result in an
increase in the Participant's alternative minimum taxable income and may result
in an alternative minimum tax liability.
If an option is exercised through the use of Common Shares previously owned
by the Participant, such exercise generally will not be considered a taxable
disposition of the previously owned shares and, thus, no gain or loss will be
recognized with respect to such previously owned shares upon such exercise. The
amount of any built-in gain on the previously owned shares generally will not be
recognized until the new shares acquired on
-27-
the option exercise are disposed of in a sale or other taxable transaction.
Share Awards. A Participant who receives a share award will generally
recognize ordinary income at the time that they "vest", i.e., either when they
are not subject to a substantial risk of forfeiture or when they are freely
transferable. The amount of ordinary income so recognized will be the fair
market value of the Common Shares at the time the income is recognized
(determined without regard to any restrictions other than restrictions which by
their terms will never lapse), less the amount, if any, paid for the shares.
This amount is generally deductible for federal income tax purposes by the
Company. Dividends paid with respect to Common Shares that are nonvested will be
ordinary compensation income to the Participant (and generally deductible by the
Company).
In lieu of the treatment described above, a Participant may elect immediate
recognition of income under Section 83(b) of the Code. In such event, the
Participant will recognize as income the fair market value of the restricted
shares at the time of grant (determined without regard to any restrictions other
than restrictions which by their terms will never lapse), and the Company will
generally be entitled to a corresponding deduction. Dividends paid with respect
to shares as to which a proper Section 83(b) election has been made will not be
deductible to the Company. If a Section 83(b) election is made and the shares
are subsequently forfeited (i.e., they do not meet the conditions for
"vesting"), the Participant will not be entitled to any offsetting tax
deduction.
Share Appreciation Rights. With respect to share appreciation rights under
the Employee Option Plans, generally, when a Participant receives payment with
respect to a share appreciation right granted to him or her under the Employee
Option Plans, the amount of cash and the fair market value of any other property
received will be ordinary income to such Participant and will be allowed as a
deduction for federal income tax purposes to the Company.
Payment of Withholding Taxes. The Company may withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy any
federal, state or local withholding tax requirements associated with awards
under the Plan.
Limitation on Deductibility. Section 162(m) of the Code generally limits
the deductible amount of annual compensation paid (including, unless an
exception applies, compensation otherwise deductible in connection with awards
granted under the Plan) by a public company to a "covered employee" (i.e., the
chief executive officer and four other most highly compensated
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executive officers of the Company) to no more than $1 million. The Company
currently intends to structure share options granted under the Employee Option
Plans to comply with the exception to nondeductibility under Section 162(m) of
the Code. See "Compensation Committee Report on Executive Compensation."
Recommendation
At the annual meeting, the Company's shareholders will be asked to approve
the proposal to (a) amend the Option Plan to extend the term of this Option Plan
by ten years until November 15, 2011 and (b) amend the Restricted Plan to extend
the term of the Restricted Plan by eight years until November 15, 2011. The
Board of Directors believes that approval of the proposed amendments will enable
the Company to continue to provide incentive compensation to its management and
will assist the Company in attracting and retaining the services of such
employees. Accordingly, the Board of Directors believes that approval of the
proposed amendments is in the best interests of the Company, its shareholders
and its employees and unanimously recommends a vote "FOR" approval. Approval of
the amendments requires the affirmative vote of the holders of a majority of the
votes cast at the annual meeting on the proposal.
ITEM 5 - ADDITION OF SHARES TO THE
1981 OPTION PLAN
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the Option Plan to increase the number of Common Shares issuable
under the Option Plan by 2,000,000 shares to 8,650,000 shares in the aggregate.
The essential features of the Option Plan are summarized above under "Item
4- Amendments to Extend the Terms of the Company's Employee Option Plans." This
summary does not purport to be a complete description of the Option Plan. Copies
of actual plan documents may be obtained by contacting the Secretary of the
Company.
Recommendation
At the annual meeting, the Company's shareholders will be asked to approve
the proposal to amend the Option Plan to increase the number of shares issuable
over the term of the Option Plan by 2,000,000 shares to 8,650,000 shares in the
aggregate. The Board of Directors believes that approval of the proposed
amendment is in the best interests of the Company, its shareholders and its
employees because it will continue to assist the Company in attracting and
retaining the services of outstanding employees and unanimously recommends a
vote "FOR" approval. Approval of the amendment requires the affirmative vote of
the
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holders of a majority of the votes cast at the annual meeting on the proposal.
CERTAIN TRANSACTIONS
Pursuant to his employment agreement, in 1993 the Company made a loan to
Dr. Scannon, its Chief Scientific and Medical Officer and a Director, in the
initial amount of $290,000. See "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements." As of April 2, 2001, $143,547.44
of principal and interest on the loan remained outstanding and $267,141 in
principal and interest payments had been received by the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
changes in ownership with the SEC and The Nasdaq Stock Market. Such executive
officers and directors are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based on a review of the
copies of the forms furnished to the Company and written representations from
the Company's executive officers and directors, all persons subject to the
reporting requirements of Section 16(a) filed the required reports with respect
to 2000 on a timely basis.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at this
annual meeting other than those set forth in this proxy statement and in the
notice accompanying this proxy statement. If other matters should properly come
before the meeting, it is intended that the proxy holders will vote on such
matters in accordance with their best judgment.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to promptly
execute and return the accompanying proxy in the postage prepaid envelope which
has been enclosed for your convenience or vote by telephone or through the
Internet.
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SHAREHOLDER PROPOSALS
A shareholder who intends to present a proposal at the 2002 meeting of
shareholders must submit such proposal by November 30, 2001, to the Company for
inclusion in the Company's 2002 proxy statement and proxy card relating to such
meeting. The proposal must be mailed to the Company's principal office, at 2910
Seventh Street, Berkeley, California 94710, Attention: Secretary.
By Order of the Board of Directors,
Christopher J. Margolin
Secretary
April 16, 2001
Berkeley, California
ANNEX 1
XOMA Ltd.
AUDIT COMMITTEE CHARTER
The Audit Committee of XOMA Ltd. has adopted the following Audit Committee
Charter at the meeting of the Committee held on February 23, 2000, which Charter
was approved by all of the Directors at a meeting on February 23, 2000:
1. Designation of Committee. The Audit Committee (the "Audit Committee" or
the "Committee") of the Board of Directors of XOMA Ltd. (the "Company") has
heretofore been designated by the Board of Directors. The Committee shall
continue to function in accordance with the prior determinations of the Board of
Directors, the Company's Bye-laws and this Charter, as adopted at the meetings
of the Board of Directors and the Audit Committee both held on February 23,
2000.
2. Policy confirmation. The operation and function of the Committee is
based on the recognition that the outside auditor for the Company is ultimately
accountable to the shareholders of the Company, to the Board of Directors, and
to the Audit Committee of the Company, and that the Audit Committee and Board of
Directors, as the shareholders' representatives, have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the outside
auditor (or to nominate the outside auditor to be proposed for shareholder
approval in any proxy statement).
3. Auditor independence confirmation. The Audit Committee is responsible
for ensuring that the outside auditor submits on a periodic (but at least
annual) basis to the Audit Committee a formal written statement delineating all
relationships between the auditor and the Company. The Audit Committee is
responsible for actively engaging in a dialogue with the outside auditor with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the outside auditor and for recommending that
the Board of Directors take appropriate action to ensure the independence of the
outside auditor.
4. Membership. Effective June 14, 2001, the Audit Committee shall consist
of not less than three (3) members of the Board of Directors.
(a) The Audit Committee shall be composed entirely of independent members
of the Board of Directors, and no person who is employed by the Company or who
is designated as the Chairman of the Board shall be a member of the Audit
Committee. No member of the Audit Committee shall have any relationship to
-2-
the Company or to the Chairman of the Board that may interfere with the exercise
of his or her independence from management and the Company.
(b) No person may be named to the Audit Committee or shall serve as a
member of the Audit Committee who is related by blood or marriage to the
Chairman of the Board or to any employee of the Company, who has a business
relationship with the Company (other than as Director), or who is a member of
such other body or board as gives him or her a "cross compensation link," as
such term is defined either by the United States Securities and Exchange
Commission (the "SEC") or by the National Association of Securities Dealers,
Inc. (the "NASD").
(c) Each member of the Audit Committee shall be financially literate, as
such qualification is interpreted by the Board of Directors in its business
judgment, or must become financially literate within a reasonable period of time
after his or her appointment to the Audit Committee.
(d) At least one member of the Audit Committee must have accounting or
related financial management expertise, as such qualification is interpreted by
the Board of Directors in its business judgment.
(e) In setting the qualifications for the members of the Audit Committee
and in electing members to the Audit Committee, the Board of Directors may take
into consideration academic background or training in financial analysis or
business management, business experience throughout the career of the individual
which involved or required financial management analysis and understanding,
service as a Director and membership on its Audit Committee and such other
factors as the Board of Directors may deem appropriate.
(f) The composition and membership of the Audit Committee shall otherwise
comply with the rules of the SEC and the rules and regulations of the NASD.
5. Purposes. The purposes of the Audit Committee are:
(a) to oversee the accounting and financial reporting policies and
practices of the Company, its internal controls and, as appropriate, the
internal controls of certain service providers;
(b) to oversee the quality and objectivity of the financial statements of
the Company and the independent audit thereof; and
-3-
(c) to act as a liaison between the Company's independent auditors and the
Board of Directors.
In general, the function of the Audit Committee is oversight; it is
management's responsibility to maintain appropriate systems for accounting and
internal control, and the auditor's responsibility to plan and carry out a
proper audit.
6. Duties and powers. To carry out its purposes, the Audit Committee shall
have the following duties and powers:
(a) to recommend the selection, retention or termination of auditors and,
in connection therewith, to evaluate the independence of the auditors, including
whether the auditors provide any consulting services to the Company, and to
receive the auditors' specific representations as to their independence;
(b) to meet with the independent auditors of the Company, including private
meetings, as necessary (i) to review the arrangements for and scope of the
annual audit, quarterly reports, and any special audits; (ii) to discuss any
matters of concern relating to the financial statements of the Company,
including any adjustments to such statements recommended by the auditors, or
other results of said audit(s); (iii) to review with the auditors the financial
personnel, policies, procedures and internal accounting controls of the Company,
and management's responses thereto; (iv) to review the form of opinion the
auditors propose to render to the Board of Directors and shareholders; and (v)
such other matters that the auditors believe merit discussion;
(c) to consider the effect upon the Company of any changes in accounting
principles or practices proposed by management or the auditors;
(d) to review the fees charged by the auditors for audit and non-audit
services;
(e) to disclose in the Company's proxy statement whether the Audit
Committee members are independent, as such qualification is interpreted by the
Board of Directors in its business judgment;
(f) to inquire of management and the auditors about significant risks or
exposures and assess the steps management has taken to minimize such risks to
the Company;
(g) as requested by the auditors or management, to review reports received
from regulators and other legal and regulatory matters that may have a material
effect on the financial statements or related Company compliance procedures;
-4-
(h) as requested by the auditors or management, to review the quarterly
financial statements with management and the auditors prior to the filing of the
Form 10-Q (or prior to the press release of results, if possible) to discuss any
matters required to be communicated to the Audit Committee by the auditors. The
chairman of the Audit Committee, if any, may represent the entire committee for
purposes of this review;
(i) to provide a report in the Company's proxy statement disclosing whether
the Audit Committee has (i) reviewed and discussed the audited financial
statements with management; (ii) discussed the matters required to be discussed
by Statement on Accounting Standards No. 61 with the outside auditors; (iii)
reviewed the written disclosure described in Paragraph 3 of this Charter; and
(iv) recommended to the Board of Directors the inclusion of the audited
financial statements in the Company's annual report on Form 10-K;
(j) to investigate improprieties or suspected improprieties in Company
operations; and
(k) to report its activities and submit the minutes of all meetings to the
Board of Directors on a regular basis and to make such recommendations with
respect to the above and other matters as the Audit Committee may deem necessary
or appropriate.
7. Meetings and communications. The Audit Committee shall meet on a regular
basis and is empowered to hold special meetings as circumstances require. In
addition, the chairman of the Audit Committee, if any, or other designated
member of the Audit Committee shall make suitable provision for ongoing
communication between the outside auditors and himself or herself concerning
matters arising between such meetings of the Audit Committee, including without
limitation, consideration of changes in accounting policies or practices,
unusual events which may require auditor comment or disclosure, or preparation
and publication of interim financial statements by the Company.
8. Authority. The Audit Committee shall have the resources and authority
appropriate to discharge its responsibilities, including the authority to retain
special counsel and other experts or consultants at the expense of the Company.
9. Annual Charter review. The Audit Committee shall review this Charter at
least annually and recommend any changes to be made to the Board of Directors.
10. Written Affirmation. At any time that there is a change in the
composition of the Audit Committee, and otherwise
-5-
approximately once each year, the Company shall confirm in writing to the NASD
regarding:
(a) any determination that the Board of Directors has made regarding the
independence of the Audit Committee pursuant to any provision of this Audit
Committee Charter;
(b) the financial literacy of the Audit Committee members;
(c) the determination that at least one of the Audit Committee members has
accounting or related financial management expertise as defined in this Audit
Committee Charter and the applicable rules of the SEC or the NASD; and
(d) the annual review and reassessment of the adequacy of this Audit
Committee Charter.
[FORM OF PROXY CARD/INSTRUCTIONS]
XOMA LTD.
2910 Seventh Street
Berkeley, CA 94710
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN L. CASTELLO and PATRICK J. SCANNON,
and each of them, with full power of substitution, as the proxy or proxies of
the undersigned to vote all Common Shares of XOMA Ltd. which the undersigned is
entitled to vote at the annual meeting of shareholders of XOMA Ltd. to be held
at The Park Hyatt San Francisco, 333 Battery Street, San Francisco, California
on May 30, 2001, at 9:00 a.m. local time, and at any adjournment or postponement
thereof, with all powers that the undersigned would have if personally present
thereat:
1. Election of Directors
01 James G. Andress 02 William K. Bowes, Jr. 03 John L. Castello
04 Arthur Kornberg, M.D. 05 Steven C. Mendell 06 Patrick J. Scannon, M.D., Ph.D.
07 W. Denman Van Ness
(The Board of Directors recommends a vote FOR.)
|_| FOR all nominees |_| WITHHOLD AUTHORITY to
(except as marked to the contrary) vote for all nominees
This proxy will be voted in the election of directors in the manner
described in the proxy statement for the 2001 annual meeting of shareholders.
(INSTRUCTION: To withhold authority to vote for one or more individual nominees,
write such name or names in the space provided below.)
- --------------------------------------------------------------------------------
2. Proposal to ratify the appointment of Ernst & Young LLP to act as the
Company's independent auditors for the 2001 fiscal year and authorize the
Board to agree to such auditors' fee.
(The Board of Directors recommends a vote FOR.)
FOR |_| AGAINST |_| ABSTAIN |_|
- --------------------------------------------------------------------------------
3. Proposal to amend the terms of the Company's employee option plans by:
a. amending the Company's 1981 Share Option Plan to extend its term by
ten years until November 15, 2011; and
b. amending the Company's Restricted Share Plan to extend its term by
eight years until November 15, 2011.
(The Board of Directors recommends a vote FOR.)
FOR |_| AGAINST |_| ABSTAIN |_|
- --------------------------------------------------------------------------------
4. To approve an amendment to the Company's 1981 Share Option Plan to increase
the number of shares issuable over the term of the plan by 2,000,000 shares
to 8,650,000 shares in the aggregate.
(The Board of Directors recommends a vote FOR.)
FOR |_| AGAINST |_| ABSTAIN |_|
- --------------------------------------------------------------------------------
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and at any adjournment or
postponement thereof.
(Continued, and to be marked, dated and signed, on other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call TOLL FREE 1-800-840-1208 on a touch tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
2. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
(Continued from other side)
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR Proposals 1 through 4.
- --------------------------------------------------------------------------------
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
- --------------------------------------------------------------------------------
Dated: _______________________, 2001
----------------------------------------------
Signature of Shareholder
----------------------------------------------
Signature if held jointly
Please sign exactly as name appears above. When
shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please sign
in full corporate name by President or other
authorized person.
PLEASEMARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY TELEPHONE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and return your proxy card.
You will be asked to enter a Control Number which is located in the box in the
lower right hand corner of this form.
- --------------------------------------------------------------------------------
OPTION 1: To vote as the Board of Directors recommends on ALL proposals:
Press 1
- --------------------------------------------------------------------------------
Your vote will be confirmed and cast as you directed. END OF CALL.
- --------------------------------------------------------------------------------
OPTION 2: If you choose to vote on each proposal separately, press 0. You will
hear these instructions:
- --------------------------------------------------------------------------------
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees,
press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to
the instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
Proposal 3: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
Proposal 4: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
Your vote will be confirmed as cast as you directed. END OF CALL.
- --------------------------------------------------------------------------------
If you vote by telephone, there is no need for you to mail back your proxy.
THANK YOU FOR VOTING.
- --------------------------------------------------------------------------------
------------------------------
Call TOLL FREE on a touch tone telephone
1-800-840-1208 24 hours/day
There is NO CHARGE to you for this call
------------------------------
CONTROL NUMBER