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):
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/ / 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:
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4) Date Filed:
(XOMA LOGO)
XOMA LTD.
2910 Seventh Street
Berkeley, California 94710
(510) 204-7200
April 10, 2003
To Our Shareholders:
You are cordially invited to attend the annual general meeting of
shareholders of XOMA Ltd. on May 21, 2003 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 general 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 2002. Some of our shareholders will be accessing
these materials and appointing a proxy to vote through the Internet and may not
be receiving a paper proxy card by mail.
We hope that you will attend the annual general meeting. In any event,
please promptly sign, date and return the enclosed proxy in the accompanying
reply envelope or appoint a proxy to 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 21, 2003
_______________
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 21, 2003, at 9:00 a.m. local
time, for the following purposes:
1. To elect directors;
2. To appoint Ernst & Young LLP to act as the Company's independent
auditors for the 2003 fiscal year and authorize the Board to agree to
such auditors' fee;
3. To receive the Company's audited financial statements for the 2002
fiscal year;
4. To approve amendments to the Company's 1981 Share Option Plan and
Restricted Share Plan to increase the number of shares issuable over
the terms of the plans by 2,500,000 shares to 11,150,000 shares in the
aggregate;
5. To approve an amendment to the Company's Restricted Share Plan to
increase the number of shares issuable over the term of the plan by
250,000 shares to 1,500,000 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, 2003, 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 10, 2003
Berkeley, California
YOUR VOTE IS IMPORTANT
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 21,
2003, at 9:00 a.m. local time, or any adjournment or postponement thereof, at
which shareholders of record holding Common Shares on April 2, 2003, will be
entitled to vote. On April 2, 2003, the Company had issued and outstanding
71,999,924 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
Common 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 appoint a proxy to 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 general 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
general meeting, (c) properly completing and executing a later-dated proxy and
delivering it to the Company at or before the annual general meeting or (d)
retransmitting a subsequent proxy by telephone before the annual general
meeting. Presence without voting at the annual general meeting will not
automatically revoke a proxy, 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
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their bank or brokerage firm on revoking their previously appointed proxies.
Abstentions and broker non-votes are each included in the number of Common
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 Common 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
appointing a proxy to vote 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 10, 2003.
SHARE OWNERSHIP
The following table sets forth as of April 2, 2003, 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 Common
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
------------------------ ------------------ ------------------
James G. Andress(1)................................... 48,500 *
William K. Bowes, Jr.(2).............................. 71,569 *
John L. Castello(3)................................... 961,859 1.3%
Peter B. Davis(4)..................................... 310,106 *
Clarence L. Dellio(5)................................. 323,704 *
Arthur Kornberg, M.D.(6).............................. 51,500 *
Christopher J. Margolin(7)............................ 292,673 *
Steven C. Mendell(8).................................. 81,500 *
Patrick J. Scannon, M.D., Ph.D.(9).................... 579,357 *
W. Denman Van Ness(10)................................ 74,431 *
Patrick J. Zenner(11)................................. 15,000 *
All executive officers
and directors as a
group (11 persons)(12).............................. 2,810,199 3.9%
_____________________
* Indicates less than 1%.
(1) Represents 48,500 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date.
(2) Includes 41,500 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date.
(3) Includes 15,642 Common Shares held by The John L. and Katherine C. Castello
Trust, of which Mr. Castello is a trustee. Includes 881,250 Common Shares
issuable upon the exercise of options exercisable as of 60 days after the
record date. Does not include 11,175 Common Shares that have vested
pursuant to the Company's Deferred Savings Plan.
(4) Includes 88,940 Common Shares held by The Davis Family Trust, of which Mr.
Davis is a trustee. Includes 221,166 Common Shares issuable upon the
exercise of options exercisable as of 60 days after the record date. Does
not include 9,196 Common Shares that have vested pursuant to the Company's
Deferred Savings Plan.
(5) Includes 230,468 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date. Does not include 11,858
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan.
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(6) Includes 41,500 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date.
(7) Includes 247,832 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date. Does not include 11,394
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan.
(8) Includes 41,500 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date. Does not include 631
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan and are now held in a rollover IRA account.
(9) Includes 494,251 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date. Does not include 11,858
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan.
(10) Includes 49,481 Common Shares held by The Van Ness 1983 Revocable Trust, of
which Mr. Van Ness is a trustee. Includes 24,500 Common Shares issuable
upon the exercise of options exercisable as of 60 days after the record
date.
(11) Represents 15,000 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date.
(12) Includes 2,287,467 Common Shares issuable upon exercise of options
exercisable as of 60 days after the record date. Does not include 56,112
Common 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
(Chairman of the 2002 $500,000 N/A $8,789 50,000 $31,849
Board, President and 2001 $500,000 N/A $2,696 75,000 $31,390
Chief Executive Officer) 2000 $500,000 N/A $5,284 50,000 $27,356
Patrick J. Scannon, M.D.,
Ph.D. 2002 $340,000 $69,208 $3,865 25,000 $10,388
(Senior Vice President and Chief 2001 $340,000 $64,881 $0 25,000 $12,760
Scientific and 2000 $330,000 $63,712 $0 25,000 $16,187
Medical Officer)
Clarence L. Dellio 2002 $285,833 $67,320 $13,638 55,000 $8,043
(Senior Vice President and Chief 2001 $273,000 $63,495 $10,500 40,000 $7,293
Operating Officer) 2000 $263,000 $53,188 $5,058 35,000 $6,343
Peter B. Davis
(Vice President, 2002 $260,000 $58,746 $0 25,000 $7,806
Finance and Chief 2001 $250,000 $78,673 $0 25,000 $7,056
Financial Officer) 2000 $240,000 $64,645 $0 25,000 $6,216
Christopher J. Margolin
(Vice President, 2002 $260,000 $54,675 $10,962 25,000 $7,806
General Counsel and 2001 $250,000 $54,349 $9,615 25,000 $7,056
Secretary) 2000 $240,000 $49,159 $9,231 50,000 $6,216
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______________________
(1) Each amount in this column for 2002, 2001 and 2000 represents awards under
the Company's Management Incentive Compensation Plan in the following
amounts: Dr. Scannon - $18,426 and 1,099 Common Shares in 2002 (relating to
performance in 2001); $16,277 in each of 2002 and 2001 and 986 Common
Shares in 2001 (relating to performance in 2000); $16,080 in each of 2002,
2001 and 2000 and 1,221 Common Shares in 2000 (relating to performance in
1999); $16,246 in each of 2001 and 2000 (relating to performance in 1998);
$15,306 in 2000 (relating to performance in 1997); Mr. Dellio - $14,454 and
862 Common Shares in 2002 (relating to performance in 2001), $7,092 and 429
Common Shares in 2002, $14,173 in 2001 and 859 Common Shares in each of
2002 and 2001 (relating to performance in 2000); $14,111 in 2000 and 1,072
Common Shares in each of 2002, 2001 and 2000 (relating to performance in
1999); $13,444 in each of 2001 and 2000 (relating to performance in 1998);
Mr. Davis - $13,155 and 737 Common Shares in 2002 (relating to performance
in 2001), $13,053 in 2001 and 742 Common Shares in each of 2002 and 2001
(relating to performance in 2000); $12,443 in 2000 and 887 Common Shares in
each of 2002, 2001 and 2000 (relating to performance in 1999); 1,873 Common
Shares in each of 2001 and 2000 (relating to performance in 1998); $10,763
in 2000 (relating to performance in 1997); Mr. Margolin - $13,972 and 822
Common Shares in 2002 (relating to performance in 2001); $14,403 in each of
2002 and 2001 and 872 Common Shares in 2001 (relating to performance in
2000); $12,328 in each of 2002, 2001 and 2000 and 926 Common Shares in 2000
(relating to performance in 1999); $13,215 in each of 2001 and 2000
(relating to performance in 1998); $11,288 in 2000 (relating to performance
in 1997).
(2) Mr. Castello's amounts in this column for 2002, 2001 and 2000 include
financial services provided to Mr. Castello in the amount of $3,113, $1,582
and $2,989, respectively. Mr. Castello's amounts in this column for 2002
and 2000 also include taxes paid by XOMA on Mr. Castello's behalf in the
amounts of $1,830 and $2,295 respectively. Dr. Scannon's amount in this
column for 2002 includes awards for issued patents in the amount of $1,250.
The balance of Dr. Scannon's amount for 2002, all of Mr. Dellio's and Mr.
Margolin's amounts in this column for 2002, 2001 and 2000 and the balance
of Mr. Castello's amounts represent cash payments in lieu of earned
vacation and/or personal holiday.
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(3) Amounts in this column for 2002, 2001 and 2000 include the Company's Common
Shares contributed to accounts under the Company's Deferred Savings Plan,
valued at fiscal year-end formula prices of $4.2885, $9.07 and $9.6781,
respectively, per share, in the following amounts: Mr. Castello - 1,399
Common Shares for 2002, 552 Common Shares for 2001 and 517 Common Shares
for 2000; Dr. Scannon, Mr. Dellio, Mr. Davis and Mr. Margolin - 1,399
Common Shares each for 2002, 579 Common Shares each for 2001 and 542 Common
Shares each for 2000. Amounts for 2002, 2001 and 2000 also include group
term life insurance premiums in the following amounts: Mr. Castello --
$7,849 for 2002, $8,382 for 2001 and $4,356 for 2000; Dr. Scannon -- $2,838
for 2002, $1,518 for 2001 and $1,518 for 2000; Mr. Dellio -- $2,043 for
2002, $2,043 for 2001 and $1,093 for 2000; Mr. Davis and Mr. Margolin --
$1,806 for 2002, $1,806 for 2001 and $966 for 2000. Mr. Castello's amounts
in this column include life insurance premiums paid in the amount of
$18,000 for each of 2002, 2001 and 2000. Dr. Scannon's amounts for 2002,
2001 and 2000 include $1,550, $5,992 and $9,419, respectively, which
represent the difference between (i) the amount of interest Dr. Scannon
would have been required to pay in interest for each such year had the loan
made to him by the Company pursuant to his employment agreement been made
at the then-prevailing market rate and (ii) the amount of interest payable
on the loan for each such year in accordance with its terms. See
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements."
The following table contains information concerning the grant of options
under the Company's option plans to the named executive officers as of the end
of the last completed fiscal year of the Company. No share appreciation rights
("SARs") were granted during the last fiscal year and none were held at the end
of the fiscal year.
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OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
--------------------------------------------------------
Number of % of Total Potential Realized Value
Securities Options of Assumed Annual Rates of
Underlying Granted Exercise Share Price Appreciation
Options to Employees or For Option Term (1)
Granted In Fiscal Base Price Expiration 0% 5% 10%
Name (#) Year ($/Sh) Date ($) ($) ($)
- ---- ----------- ------------ ----------- ---------- ------- --------- ---------
John L. Castello............... 50,000 6.5% $10.16 2/20/12 0 $319,478 $809,621
Patrick J. Scannon, M.D.,
Ph.D. ....................... 25,000 3.2% $10.16 2/20/12 0 $159,739 $404,811
Clarence L. Dellio............. 25,000 3.2% $10.16 2/20/12 0 $159,739 $404,811
30,000 3.9% $4.89 11/01/12 $25,800 $92,259 $233,802
Peter B. Davis................. 25,000 3.2% $10.16 2/20/12 0 $159,739 $404,811
Christopher J. Margolin........ 25,000 3.2% $10.16 2/20/12 0 $159,739 $404,811
_____________________
(1) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their ten-year option terms. These gains are based
on assumed rates of share price appreciation of 0%, 5% and 10% compounded
annually from the dates the respective options were granted. Options
granted with exercise prices equal to the market price of the underlying
Common Shares on the date of grant will have no value unless the Company's
share price increases above the exercise prices as a result of actions by
the executives that improve the Company's performance and/or other factors
affecting such price.
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The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last completed
fiscal year of the Company and unexercised options held as of the end of the
fiscal year. No SARs were exercised during the last fiscal year and none were
held at the end of the fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options at
On Value Options at FY-End FY-End ($)(1)
Exercise Realized --------------------------------- -------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
John L. Castello....... 0 $0 860,832 124,168 $1,035,462 $7,788
Patrick J. Scannon, M.D.,
Ph.D........... 0 $0 484,668 55,332 $570,315 $4,673
Clarence L. Dellio..... 0 $0 210,886 98,916 $96,525 $5,451
Peter B. Davis......... 0 $0 210,334 59,666 $117,961 $5,451
Christopher J. Margolin 0 $0 234,917 70,083 $144,324 $5,451
_________________________
(1) The amounts listed in the two columns are based on the closing price per
share of $4.23 on December 31, 2002, 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, 2003, that provides for his employment as Senior Vice
President and 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 established effective July 1, 1993 (as
amended, the "Incentive Plan"). A loan to Dr. Scannon with a remaining balance
of $100,982.45, bearing interest at 6% per annum and secured by a pledge of
certain of the Company's Common Shares, was scheduled to mature on March 26,
2003 and was paid in full by Dr. Scannon on March 21, 2003. The loan was
originally made to Dr. Scannon in 1993 and had been extended for nine additional
years. A total of $425,682.71 in principal and interest payments have been
-11-
received by the Company. 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.
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 Incentive 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 AMEX
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.
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Mr. Castello's compensation for 2002 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-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 2002, 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 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.
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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 2002: a target level of cash at year end;
generation of current income; progress toward collaborations, 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, all in Common Shares or half in cash and half in
Common Shares or, for elections not made in a timely manner, all in Common
Shares. All share issuances under the Incentive Plan are made pursuant to the
Restricted Plan.
For 2002, 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 2002, 70 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
-14-
compensation and the availability of deferral opportunities, the Committee
believes that the Company will not be denied any significant tax deduction for
2003. 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
-15-
Performance Graph
Comparison of Five Year Cumulative Total Return Among XOMA, Nasdaq
Composite Index and AMEX Biotechnology Index
As of XOMA Nasdaq AMEX Biotechnology
December 31, Ltd. Composite Index Index
- ------------ ---- --------------- -----
1997 100.00 100.00 100.00
1998 57.37 139.63 113.98
1999 53.95 259.13 241.00
2000 175.35 157.32 390.54
2001 177.15 124.20 357.45
2002 76.07 85.04 208.24
The comparison assumes $100 invested on December 31, 1997 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.
-16-
ITEM 1 - ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the next annual
general 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 eight candidates
receiving the highest number of affirmative votes of the Common Shares entitled
to vote at the annual general meeting will be elected as directors of the
Company.
Nominees To Board Of Directors
Name Title Age
---- ----- ---
John L. Castello.................. Chairman of the Board, 66
President and
Chief Executive Officer
Patrick J. Scannon, M.D., Ph.D.... Senior Vice President, Chief Scientific 55
and Medical Officer and Director
James G. Andress.................. Director 64
William K. Bowes, Jr.............. Director 76
Arthur Kornberg, M.D.............. Director 85
Steven C. Mendell................. Director 61
W. Denman Van Ness................ Director 60
Patrick J. Zenner................. Director 56
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
-17-
also the manufacturer of a bioengineered human growth hormone which is marketed
primarily outside of the United 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, and of Zierer Visa Services, Inc., which is a
provider of visa and passport services to U.S. international travelers.
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. From 1998 until 2001, Dr. Scannon served as 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. 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, Dade-Behring Corp., a medical diagnostic
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 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
-18-
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
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. From November 1997 to December 1998, Mr.
Mendell served as President and Chief Executive Officer of Ciblex Corporation.
Ciblex is a private company engaged in the development of small molecules to
block the release of disease-causing proteins. Mr. Mendell also serves as a
director of StressGen Biotechnologies Corp., a company developing stress protein
therapies for the treatment of infectious disease and cancer.
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.
Mr. Zenner has been a director since May 2002. Mr. Zenner is a 31-year
veteran of the pharmaceutical industry and spent his entire career at
Hoffmann-La Roche. During his first 12 years, he held positions of increasing
responsibility in sales, marketing, health care economics, public policy and
governmental affairs. In 1982, he became Vice-President and General Manager of
Roche Laboratories, and subsequently Director and Head of Global Pharma
Marketing, Project Development and Regulation in Basel, Switzerland. In
-19-
1988, he became Senior Vice President, Pharmaceuticals Division and a member of
the Board of Directors. From 1993 until his retirement in 2001, he served as
President and CEO of Hoffman-La Roche, Inc., North America. Mr. Zenner currently
serves on the Boards of Geron Corporation, Praecis Pharmaceuticals, Inc., Genta
Inc., First Horizon Pharmaceutical Company, West Pharmaceutical Services,
Arqule, Inc., Curagen Corporation and Dendrite International, Inc. He has also
served as a member of the Board and the Executive Committee of both the
Pharmaceutical Research and Manufacturers Association (PhRMA) and the
Biotechnology Industry Organization (BIO).
Executive Officers
Mr. Castello and Dr. Scannon are executive officers of the Company. The
remaining executive officers are listed below.
Peter B. Davis is Vice President, Finance and Chief Financial Officer of
the Company. Before joining the Company in 1994, he was Vice President Financial
Operations for the Ares-Serono Group. Previously, he was Chief Financial Officer
of Akzo America Inc., where he was instrumental in structuring and negotiating
acquisitions and joint ventures. He has also held executive financial positions
with Stauffer Chemical Company and PepsiCo, Inc.
Clarence L. Dellio is Senior Vice President and Chief Operating Officer of
the Company. Mr. Dellio joined the Company in 1984 as Vice President with
responsibility for finance, manufacturing and administration. He became Senior
Vice President, Operations in 1990 and Senior Vice President and Chief Operating
Officer in October 2002. Mr. Dellio was with Becton Dickinson & Company for 11
years prior to joining the Company, holding the positions of Vice President of
Manufacturing, Director of Planning, and Division Controller of the BBL
Microbiology Systems.
Christopher J. Margolin is Vice President, General Counsel and Secretary of
the Company. Prior to joining the Company in 1991, Mr. Margolin was a corporate
attorney for Raychem Corporation, an international high technology company, for
11 years. From 1975 to 1980, he was a division counsel for TRW Inc. and from
1972 to 1975, he was an associate at the law firm of McCutchen, Black, Verleger
and Shea in Los Angeles.
-20-
BOARD MATTERS
Board Meetings and Committees
During the fiscal year ended December 31, 2002, the Board of Directors held
five 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 &
governance committees.
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 systems of internal accounting controls. This
committee, currently consisting of Mr. Mendell, Mr. Andress and Mr. Zenner, held
three meetings during 2002.
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 2002.
The nominating & governance committee performs the functions of director
evaluation and selection. The committee currently consists of Messrs. Bowes and
Van Ness. The committee will not accept unsolicited director nominations by
shareholders. The committee held one meeting during 2002.
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
2002 was $4.37.
-21-
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 Securities and
Exchange Commission, the audit committee has prepared the following report for
inclusion in this proxy statement:
As part of its ongoing activities, the audit committee has:
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 of Directors 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 of Directors 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, 2002;
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
-22-
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, 2002.
Steven C. Mendell
James G. Andress
Patrick J. Zenner
ITEM 2 - APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of its audit committee,
recommends the appointment of Ernst & Young LLP ("Ernst & Young") to serve as
the Company's independent auditors for 2003. Ernst & 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 2002
fiscal year and the reviews of the financial statements included in the
Company's Form 10-Qs for that fiscal year were $213,923. The audit fees for the
2002 fiscal year exclude fees totaling $82,900 related to statutory and
regulatory filings under Form S-3. For 2002, this amount is included in All
Other Fees.
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 2002 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 2002 fiscal year were $163,025.
The audit committee considered whether the provision of the services
covered in the three immediately preceding paragraphs
-23-
of this section is compatible with maintaining Ernst & Young's independence.
The recommendation to appoint Ernst & Young and the authorization of the
Board of Directors to agree to Ernst & Young's fee are being submitted to the
shareholders at the annual general meeting. If such appointment is not made, the
Board of Directors will consider other auditors for appointment. The Board of
Directors recommends a vote "FOR" the appointment of Ernst & Young as the
Company's independent auditors for the 2003 fiscal year and the authorization of
the Board of Directors 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 2002 will be laid before the annual general
meeting. No shareholder action is required in connection therewith.
ITEM 4 - ADDITION OF SHARES TO OPTION PLAN AND RESTRICTED PLAN
The Board of Directors has adopted, subject to shareholder approval,
amendments to the Option Plan and the Restricted Plan (together, the "Share
Option Plans") to increase the number of Common Shares issuable over the terms
of the Share Option Plans by 2,500,000 shares to 11,150,000 shares in the
aggregate.
The essential features of the Share Option Plans are summarized below under
"Description of Share Option Plans."
Recommendation
At the annual general meeting, the Company's shareholders will be asked to
approve the proposal to amend the Share Option Plans to increase the number of
shares issuable over the terms of the Share Option Plans by 2,500,000 shares to
11,150,000 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 assist the Company in continuing
to attract and retain the services of outstanding employees and will enable the
Company to use this type of long-term incentive compensation at levels
commensurate with its peers, both in its
-24-
region and in its business sector. For these reasons, the Board unanimously
recommends a vote "FOR" approval. Approval of the amendment requires the
affirmative vote of the holders of a majority of the votes cast at the annual
general meeting on the proposal.
ITEM 5 - ADDITION OF SHARES TO RESTRICTED PLAN
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the Restricted Plan to increase the number of Common Shares
issuable over the term of the plan by 250,000 shares to 1,500,000 shares in the
aggregate.
The essential features of the Restricted Plan are summarized below under
"Description of Share Option Plans."
Recommendation
At the annual general meeting, the Company's shareholders will be asked to
approve the proposal to amend the Restricted Plan to increase the number of
shares issuable over the term of the Restricted Plan by 250,000 shares to
1,500,000 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 assist the Company in continuing
to attract and retain the services of outstanding employees and unanimously
recommends a vote "FOR" approval. Approval of the amendment requires the
affirmative vote of the holders of a majority of the votes cast at the annual
general meeting on the proposal.
DESCRIPTION OF SHARE OPTION PLANS
Background
The Share 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 essential features of the Option Plan and the Restricted Plan are
summarized below. These summaries do not purport to be complete descriptions of
the Share Option Plans. Copies of actual plan documents may be obtained by
contacting the Secretary of the Company.
Description of Option Plan
-25-
Of the 8,650,000 Common Shares currently authorized for issuance under the
Option Plan and the Restricted Plan, approximately 1,692,869 shares had been
issued upon the exercise of options granted under the Option Plan, 5,035,988
shares were subject to outstanding options under the Option Plan, and 1,024,756
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, 2003. The expiration
dates for all such outstanding options range from October 26, 2004 (at the
earliest) to February 26, 2013 (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, 2011.
Description of Restricted Plan
Of the 1,250,000 Common Shares currently authorized for issuance under the
Restricted Plan (subject to the limitation that not more than 8,650,000 shares
may be issued in the aggregate under the Restricted Plan and the Option Plan),
approximately 271,906 shares had been issued either upon the exercise of granted
options or the direct issuance of shares under the Restricted Plan, 404,795
shares were subject to outstanding options under the Restricted Plan, and
353,613 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, 2003. The expiration dates for all such outstanding options range from
July 13, 2004 (at the earliest) to November 1, 2012 (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 November
15, 2011.
-26-
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 Share Option Plans (each, a "Participant").
Directors who are not employees of the Company are not eligible to participate
in either Share Option Plan.
The Share 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 Share
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 Share Option Plans and to issue shares under the
Restricted Plan is limited to 15,000 shares per individual. In all other
respects, the Share 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 Share
Option Plans) to establish such rules and regulations as they may deem
appropriate for the proper administration of the Share 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
-27-
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 Share 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.
Transfer. The Share 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 Share Option
Plan cease to be an employee or consultant of the Company for any reason (other
than death, certain retirements, termination for cause or unauthorized
disclosure, as described below), 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. For options
granted on or after February 25, 2003, should an optionee cease to be an
employee or consultant by reason of death, the options will become fully
exercisable and shall remain exercisable for a twelve (12) month period
following the date of death. For options granted on or after February 25, 2003,
should an optionee cease to be an employee or consultant by reason of retirement
at or after age fifty-five (55) and where optionee's age plus service exceed
seventy (70), the options will become fully exercisable, and, in the case of the
Restricted Plan shall remain exercisable for a twelve (12) month period
following such retirement, or in the case of the Option Plan shall remain
exercisable for the full option term as if the optionee had continued in
employment. In all of the cases above, under no circumstances may any options be
exercised after the specified expiration date of the option term. Should an
optionee be terminated for cause (including, but not limited to, any act of
dishonesty,
-28-
willful misconduct, fraud or embezzlement or any unauthorized disclosure or use
of confidential information or trade secrets), or should an optionee make or
attempt to make any unauthorized use or disclosure of confidential information
or trade secrets, then all outstanding options shall immediately terminate and
cease to be exercisable.
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 therefore 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 effective date of such corporate
transaction, become fully exercisable for up to the total number of Common
Shares purchasable thereunder.
Amendment. The Share 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 Share 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
Share Option Plans, nor adversely affect the rights of any individual with
respect to the Common Shares issued pursuant to the Restricted Plan
-29-
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 Share 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 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
-30-
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.
Common Shares issued pursuant to the Incentive Plan are issued under the
Share Issuance Program.
Federal Income Tax Consequences
The following discussion summarizes the principal federal income tax
consequences of the Share Option Plans. This discussion is based on current
provisions of the Code, the Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof. The summary does not
address any foreign, state or local tax consequences of participation in the
Share 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 option 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 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 other incentive
stock options granted to the Participant by the Company) 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.
-31-
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 after 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 entitled to 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 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
-32-
Shares that are nonvested will be ordinary compensation income to the
Participant (and generally deductible by the Company). Any gain or loss upon a
subsequent sale or exchange of the Common Shares, measured by the difference
between the sale price and the fair market value on the date restrictions lapse,
will be capital gain or loss, long-term or short-term, depending on the holding
period for the Common Shares. The holding period for this purpose will begin on
the date following the date restrictions lapse.
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 Share Option Plans, generally, when a Participant receives payment with
respect to a share appreciation right granted to him or her under the Share
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 Compensation in Excess of $1 Million. 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 executive officers of the Company) to no more than $1 million. The
Company currently intends to structure share options granted under the Share
Option Plans to comply with the exception to nondeductibility under Section
162(m) of the Code. See "Compensation Committee Report on Executive
Compensation."
-33-
Equity Compensation Plan Information
- ----------------------------------------------------------------------------------------------------------------
Plan category Number of securities to Weighted-average exercise Number of securities
be issued upon exercise price of outstanding remaining available for
of outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column(a))
(a) (b) (c)
- ----------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 4,754,463 $5.8919 3,209,102
- ----------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security 15,000 $4.6990 0
holders
- ----------------------------------------------------------------------------------------------------------------
Total 4,769,463 $5.8881 3,209,102
- ----------------------------------------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
Pursuant to his employment agreement, in 1993 the Company made a loan to
Dr. Scannon, its Chief Scientific and Medical Officer, Senior Vice President and
a Director, in the initial amount of $290,000. See "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements." On March 21,
2003, five days prior to the scheduled maturity date of the loan, the
outstanding principal and interest in the amount of $100,982.45 were paid in
full by Dr. Scannon. A total of $425,682.71 in principal and interest payments
were received by the Company in connection with this loan.
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
-34-
of the forms furnished to the Company and written representations from the
Company's executive officers and directors, other than Mr. Davis who filed late
with respect to two transactions reportable on Form 4 and Mr. Dellio who filed
late with respect to one transaction reportable on Form 4, all persons subject
to the reporting requirements of Section 16(a) filed the required reports with
respect to 2002 on a timely basis. In 2003, Mr. Margolin filed a corrected Form
4 with respect to one transaction reportable on Form 4 for a prior year.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at this
annual general 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 Common Shares be represented at the meeting,
regardless of the number of Common 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.
-35-
SHAREHOLDER PROPOSALS
A shareholder who intends to present a proposal at the 2004 meeting of
shareholders must submit such proposal by November 30, 2003, to the Company for
inclusion in the Company's 2004 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 10, 2003
Berkeley, California
Annex 1
XOMA Ltd.
AUDIT COMMITTEE CHARTER
The Audit Committee of XOMA Ltd. originally adopted an Audit Committee
Charter (the "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 and has adopted the following amended and restated Charter at
the meeting of the Committee held on October 30, 2002, which Charter was
approved by all of the Directors at a meeting of the Board of Directors at XOMA
Ltd. held on October 30, 2002:
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 originally adopted at the
meetings of the Board of Directors and the Audit Committee both held on February
23, 2000 and as amended at the meetings of the Board of Directors and the Audit
Committee both held on October 30, 2002.
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 and the number of previous
consecutive fiscal years in which each of the audit partners responsible for the
audit of the Company have performed audit services for 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 independ-
-2-
ence 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 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, or accepts any fees from, the Company (other than as
Director), or who is an "affiliated person" of the Company or a member of such
other body or board as gives him or her a "cross compensation link," as such
terms are 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 (i) shall have accounting or
related financial management expertise, as such qualification is interpreted by
the Board of Directors in its business judgment and (ii) upon effectiveness of
the SEC's adoption of a definition of the term "financial expert" (the absence
of which on the Committee would require disclosure in the Company's periodic
reports filed with the SEC), shall meet such definition.
(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 understand-
-3-
ing, 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
(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 be directly responsible for the selection, appointment, retention,
compensation, oversight and 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; (v) to
receive the auditors'
-4-
reports concerning critical accounting policies, alternative treatments of
financial information within GAAP and other material written communications with
management and (vi) to discuss 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, and to discuss
with management and the auditors all critical accounting policies as disclosed
in the Company's public filings with the SEC;
(d) to review the fees charged by the auditors for audit services, and to
pre-approve any permissible non-audit services rendered by the auditors
requiring such pre-approval. The chairman of the Audit Committee, if any, may
represent the entire Committee for purposes of this pre-approval;
(e) to review and pre-approve all related-party transactions;
(f) to disclose (i) 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 and (ii) in the Company's periodic
reports the Committee's approval of any non-audit services;
(g) 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;
(h) 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;
(i) as requested by the auditors or management or as required by the SEC or
the NASD, to review the quarterly financial statements and/or quarterly reports
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;
(j) 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)
-5-
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;
(k) to review management's disclosures to the Audit Committee pursuant to
Rules 13a-14 and 15d-14 under the United States Securities Exchange Act of 1934,
as amended;
(l) to investigate improprieties or suspected improprieties in Company
operations, and to establish procedures for the retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by the
Company's employees of concerns regarding questionable accounting or auditing
matters;
(m) to serve as a compliance contact to which directors, officers,
employees and others covered by the Company's Code of Ethics may report any
violation thereof related to the Company's financial practices and dealings. The
Chairman of the Audit Committee, if any, may represent the entire Committee for
this purpose; and
(n) 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.
-6-
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 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 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 and/or (if required) is a
financial expert, as such terms are or are to be defined in this Charter and the
applicable rules of the SEC or the NASD; and
(d) the annual review and reassessment of the adequacy of this Charter.