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
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/X/ Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only (as permitted by Rule
_ 14a-6(e)(2))
/_/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to { 240.14a-11(c) or { 240.14a-12
XOMA Corporation
(Name of Registrant as Specified In Its Charter)
XOMA Corporation
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/_/ $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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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/_/ Check box if any part of the fee is offset as provided by Exchange Act
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paid previously.
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Schedule and the date of its filing.
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4) Date Filed:
PRELIMINARY COPY
[FORM OF PROXY CARD]
XOMA CORPORATION
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 shares of Common Stock of XOMA
Corporation which the undersigned is entitled to vote at the annual meeting of
stockholders of XOMA Corporation to be held at The Claremont Hotel, Ashby and
Domingo Avenues, Berkeley, California 94623 on June 13, 1996, 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
James G. Andress; William K. Bowes, Jr.; John L. Castello;
Arthur Kornberg; Steven C. Mendell; Patrick J. Scannon;
W. Denman Van Ness; Gary Wilcox
(The Board of Directors recommends a vote FOR.)
--- ---
/__/ FOR all nominees above /__/ WITHHOLD AUTHORITY
to vote for all nominees listed above
(except as marked to the contrary below)
This proxy will be voted in the election of directors in the manner
described in the proxy statement for the 1996 annual meeting of stockholders.
(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 approve the restatement and amendment of the Company's
1981 Stock Option Plan and Restricted Stock Plan to (A) increase the
number of shares issuable over the terms of the plans by 1,000,000
shares to 5,150,000 shares in the aggregate and (B) increase the
number of shares issuable over the term of the Restricted Stock Plan
by 250,000 shares to 1,250,000 shares.
(The Board of Directors recommends a vote FOR.)
--- --- ---
FOR /__/ AGAINST /__/ ABSTAIN /__/
(Continued on other side)
PROXY
(Continued from other side)
3. Proposals to approve amendments to the Company's Restated Certificate
of Incorporation to:
(A) increase the number of authorized shares of Common Stock by
30,000,000 to 70,000,000 shares; and
(The Board of Directors recommends a vote FOR.)
--- --- ---
FOR /__/ AGAINST /__/ ABSTAIN /__/
(B) increase the number of authorized shares of Preferred Stock by
500,000 to 1,500,000 shares.
(The Board of Directors recommends a vote FOR.)
--- --- ---
FOR /__/ AGAINST /__/ ABSTAIN /__/
4. Proposal to ratify the selection of Arthur Andersen LLP as the
Company's independent accountants for the 1996 fiscal year.
(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.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR Proposals 1, 2, 3 and 4.
Dated: _________________________, 1996
Signature of Stockholder
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.
PROXY
PRELIMINARY COPY
[XOMA LOGO]
XOMA CORPORATION
2910 Seventh Street
Berkeley, California 94710
(510) 644-1170
April 30, 1996
To Our Stockholders:
You are cordially invited to attend the annual meet- ing of stockholders of
XOMA Corporation on June 13, 1996 at 9:00 a.m. local time, which will be held at
The Claremont Hotel, Ashby and Domingo Avenues, Berkeley, California 94623.
Details of business to be conducted at the annual meeting are provided in
the enclosed Notice of Annual Meeting of Stockholders and Proxy Statement. Also
enclosed for your information is a copy of our Annual Report to Stockholders for
1995.
We hope that you will attend the annual meeting. In any event, please sign,
date and return the enclosed proxy promptly in the accompanying reply envelope.
Sincerely yours,
John L. Castello
Chairman of the Board,
President and Chief Executive
Officer
Enclosures
XOMA CORPORATION
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT 9:00 A.M. ON JUNE 13, 1996
---------------
To the Stockholders of XOMA Corporation:
Notice is hereby given that the annual meeting of stockholders of XOMA
CORPORATION (the "Company") will be held at The Claremont Hotel, Ashby and
Domingo Avenues, Berkeley, California 94623, on June 13, 1996, at 9:00 a.m.
local time, for the following purposes:
1. To elect directors;
2. To approve the restatement and amendment of the Company's 1981
Stock Option Plan and Restricted Stock Plan to (a) increase
the number of shares issuable over the terms of the plans by
1,000,000 shares to 5,150,000 shares in the aggregate and (b)
increase the number of shares issuable over the term of the
Restricted Stock Plan by 250,000 shares to 1,250,000 shares;
3. To approve amendments to the Restated Certificate of
Incorporation to:
(a) increase the number of authorized shares of Common
Stock by 30,000,000 shares to 70,000,000
shares and
(b) increase the number of authorized shares of Preferred
Stock by 500,000 to 1,500,000 shares;
4. To ratify the appointment by the Company's Board of
Directors of Arthur Andersen LLP to act as the Company's
independent accountants for the 1996 fiscal year; and
5. 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 24, 1996,
as the record date for the determination of stockholders 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 30, 1996
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.
XOMA CORPORATION
------------
PROXY STATEMENT
------------
TO THE STOCKHOLDERS:
The enclosed proxy is solicited on behalf of the Board of Directors of XOMA
Corporation, a Delaware corporation ("XOMA" or the "Company"), for use at the
annual meeting of stockholders to be held at The Claremont Hotel, Ashby and
Domingo Avenues, Berkeley, California 94623, on June 13, 1996, at 9:00 a.m.
local time, or any adjournment or postponement thereof, at which stockholders of
record on April 24, 1996 will be entitled to vote. On [March 31], 1996, the
Company had issued and outstanding [30,071,920] shares of its common stock, par
value $.0005 per share ("Common Stock").
Holders of Common Stock are entitled to one vote for each share held.
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. It may be revoked by
filing with the Secretary of the Company at the Company's principal office, 2910
Seventh Street, Berkeley, California 94710, an instrument of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Abstentions and broker non-votes are each included
in the number of shares present and voting for purposes of establishing a
quorum. Each is tabulated separately. Abstentions are counted in tabulations of
the votes cast on proposals presented to stockholders, whereas broker non-votes
are not counted for purposes of determining whether a proposal has been
approved.
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 stockholders. 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 original solicitation of proxies by
mail may be supplemented by one or more of telephone, telegram, or personal
solicitation by directors, officers, or employees of the Company. No
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additional compensation will be paid for any such services. Except as described
above, the Company does not intend to solicit proxies other than by mail.
The Company intends to mail this proxy statement on or about April 30,
1996.
STOCK OWNERSHIP
The following table sets forth as of [March 31], 1996, certain information
regarding all stockholders known by the Company to be the beneficial owners of
more than 5% of the Company's outstanding Common Stock and regarding each
director, each executive officer named on the following compensation tables and
all directors and current executive officers as a group, together with the
approximate percentages of outstanding Common Stock owned by each of them.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws where applicable.
Number of Shares Percentage of
of Common Stock Common Stock
Name of Beneficial Owner Beneficially Owned Beneficially Owned
GDK, Inc.(1)...................... 1,610,148 [5.1]
James G. Andress(2)............... 2,000 *
William K. Bowes, Jr.(3).......... 28,069 *
John L. Castello(4)............... 266,000 *
Peter B. Davis(5)................. 36,292 *
Clarence L. Dellio(6)............. 71,663 *
Arthur Kornberg(7)................ 13,000 *
Christopher J. Margolin(8)........ 41,792 *
Steven C. Mendell(9).............. 371,800 [1.2]
Patrick J. Scannon(10)............ 256,513 *
W. Denman Van Ness(11)............ 40,93 *
Gary Wilcox(12)................... 271,536 *
All executive officers
and directors as a
group (11 persons)(13).......... 1,399,596 [4.5]
- - ---------------------
* Indicates less than 1%.
(1) As set forth in Amendment No. 3 to Schedule 13G dated February 5,
1996 filed with the Securities and Exchange Commission, with respect
to shares of Common Stock beneficially owned as of December 31, 1995.
Caxton Corporation acts on behalf of GDK, Inc. ("GDK") as its trading
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advisor and as such is vested with authority over the voting and
disposition of shares of the Company's Common Stock. Shares beneficially
owned by GDK consist of 1,610,148 shares of Common Stock underlying 7,807
shares of Senior Convertible Preferred Stock, Series
B of the Company.
(2) Represents 2,000 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date.
(3) Includes 13,000 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date.
(4) Includes 251,000 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date. Does not include 3,000
shares owned by Mr. Castello's sons. Mr. Castello disclaims beneficial
ownership of such shares. Does not include 3,332 shares, which have vested
pursuant to the Company's Deferred Savings Plan.
(5) Includes 27,292 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date. Does not include 1,621
shares, which have vested pursuant to the Company's Deferred Savings Plan.
(6) Includes 65,662 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date. Does not include 4,284
shares, which have vested pursuant to the Company's Deferred Savings Plan.
(7) Represents 13,000 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date.
(8) Includes 38,900 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date. Does not include 3,820
shares, which have vested pursuant to the Company's Deferred Savings Plan.
(9) Includes 329,800 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date. Does not include 631
shares, which have vested pursuant to the Company's Deferred Savings Plan.
(10) Includes 174,700 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date. Does not include 4,284
shares, which have vested pursuant to the Company's Deferred Savings Plan.
(11) Includes 27,481 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 13,000 shares issuable upon
the exercise of stock options exercisable as of 60 days after the record
date.
(12) Includes 125,242 shares owned by the Gary and Susan Wilcox Living Trust
dated January 4, 1986. The sole trustees and beneficiaries of this Trust
are Dr. Wilcox and Susan Wilcox, his spouse, who may be deemed beneficial
owners of these shares. A total of 16,294 shares are owned solely by Susan
Wilcox; Dr. Wilcox disclaims beneficial
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ownership of such shares. Also includes 130,000 shares issuable upon the
exercise of stock options exercisable as of 60 days after the record date.
Does not include 327 shares, which have vested pursuant to the Company's
Deferred Savings Plan.
(13) Includes 1,058,354 shares issuable upon exercise of stock options
exercisable as of 60 days after the record date. Does not include 17,972
shares, which 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
Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($)(1) ($) ($)(2) (#)(3) ($)(4)
- - --------------------------- ---- --------- ------- ------------ ------------ ------------
John L. Castello 1995 $500,000 N/A $6,683 600,000 $27,570
(Chairman of the Board, 1994 $500,000 N/A $8,126 -0- $27,570
President and Chief 1993 $500,000 N/A $15,874 50,000 $24,749
Executive Officer)
Patrick J. Scannon 1995 $300,000 $8,214 $ 350,000 $17,273
(Chief Scientific and 1994 $300,000 $16,428 $0 30,000 $11,675
Medical Officer) 1993 $300,000 N/A $0 50,000 $6,819
Clarence L. Dellio 1995 $223,000 $6,011 $4,288 149,695 $5,997
(Senior Vice President, 1994 $223,000 $12,023 $0 20,000 $5,998
Operations) 1993 $210,000 N/A $0 10,000 $3,089
Peter B. Davis 1995 $200,000 $0 $7,540 85,000 $5,837
(Vice President, 1994 $150,000 $0 $166,834 60,000 $914
Finance and 1993 N/A N/A N/A N/A N/A
Chief Financial Officer)
Christopher J. Margolin 1995 $193,000 $5,220 $3,712 105,000 $5,788
(Vice President, 1994 $193,000 $10,440 $0 20,000 $5,789
General Counsel and 1993 $180,000 N/A $0 10,000 $2,880
Secretary)
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- - ----------------------
(1) Mr. Davis' amount in this column for 1994 represents salary for the period
from April 1 through December 31.
(2) Mr. Castello's amounts in this column for 1995 and 1994 include financial
services provided to Mr. Castello in the amount of $6,683 and $8,126,
respectively, and for 1993 includes relocation pay- ments of $12,158. Mr.
Davis' amount in this column for 1994 includes relocation payments of
$166,834.
(3) Includes the cancellation and granting of new options. See "Ten-Year Option
Repricing."
(4) Each amount in this column for 1995, 1994, and 1993 includes 1,621, 1,711,
and 321, respectively, shares of the Company's Common Stock contributed to
the accounts of Mr. Castello, Dr. Scannon, Mr. Dellio and Mr. Margolin
under the Company's Deferred Savings Plan, valued at fiscal year-end
formula prices of $2.85, $2.70 and $5.6125, respectively, per share and for
1995 only includes 1,621 shares of the Company's Common Stock contributed
to the account of Mr. Davis under the same plan, valued at fiscal year-end
formula price of $2.85 per share. Amounts for 1995, 1994 and 1993 also
include group term life insurance premiums in the following amounts: Mr.
Castello--$4,950 for 1995, $4,950 for 1994 and $4,950 for 1993; Dr.
Scannon--$1,914 for 1995, $1,914 for 1994 and $1,914 for 1993; Mr.
Dellio--$1,378 for 1995, $1,378 for 1994 and $1,288 for 1993; Mr.
Davis--$1,218 for 1995 and $914 for 1994; and Mr.Margolin--$1,169 for 1995,
$1,169 for 1994 and $1,169 for 1993. Dr. Scannon's amounts for 1995, 1994
and 1993 include $10,740, $5,141 and $3,104, respectively, which represent
the difference between (i) the amount of interest Dr. Scannon would have
been required to pay in interest for each such year had the loan made to
him by the Company pursuant to his employment agreement dated as of March
29, 1993 been made at the then-prevailing market rate and (ii) the amount
of interest payable on the loan for each such year in accordance with its
terms. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
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The following table contains information concerning the grant of stock
options under the Company's stock option plans to the named executive officers
as of the end of the last completed fiscal year of the Company. No stock
appreciation rights ("SARs") were granted during the last fiscal year and none
were held at the end of the fiscal year.
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OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Potential Realized Value
Number of of Assumed Annual Rates of
Securities % of Total Stock Price Appreciation
Underlying Options Granted Exercise or For Option Term (1)
Options Granted to Employees Base Price Expiration 0% 5% 10%
Name (#)(2) in Fiscal Year ($/Sh) Date ($) ($) ($)
- - ---- --------------- --------------- ----------- ---------- --- --------- ----------
John L. Castello....... 550,000 24.9% $2.5625 01/11/05 $0 $886,438 $2,246,181
50,000 2.3% $2.375 02/22/05 $0 $74,681 $189,257
Patrick J. Scannon..... 325,000 14.7% $2.5625 01/11/05 $0 $523,751 $1,327,289
25,000 1.1% $2.375 02/22/05 $0 $37,341 $94,628
Clarence L. Dellio..... 124,695 5.6% $2.5625 01/11/05 $0 $200,951 $509,250
25,000 1.1% $2.375 02/22/05 $0 $37,341 $94,628
Peter B. Davis......... 60,000 2.7% $2.5625 01/11/05 $0 $96,693 $245,038
25,000 1.1% $2.375 02/22/05 $0 $37,341 $94,628
Christopher J. Margolin 80,000 3.6% $2.5625 01/11/05 $0 $128,923 $326,717
25,000 1.1% $2.375 02/22/05 $0 $37,341 $94,628
- - ---------------------
(1) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their ten-year option terms. These gains are based
on assumed rates of stock price appreciation of 0%, 5% and 10% compounded
annually from the dates the respective options were granted. The 0%
appreciation column is included because the options were granted with
exercise prices equal to the market price of the underlying Common Stock
on the date of grant, and thus will have no value unless the Company's
stock price increases above the exercise prices as a result of actions by
the executives that improve the Company's performance and/or other factors
affecting such price.
(2) Includes the cancellation and granting of new options. See "Ten-Year Option
Repricing." 550,000 of Mr. Castello's option shares; 325,000 of Dr.
Scannon's option shares; 124,695 of Mr. Dellio's option shares; 60,000 of
Mr. Davis' option shares; and 80,000 of Mr. Margolin's option shares were
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granted as incentive stock options under the Company's 1981 Stock Option
Plan, with the remainder granted to them as nonqualified options under the
same plan. Generally, subject to certain conditions, the options become
exercisable over four years.
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last completed
fiscal year of the Company and unexercised options held as of the end of the
fiscal year. No SARs were exercised during the last fiscal year and none were
held at the end of the fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Shares
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options at
on Value Options at FY-End (#) FY-End($)(1)
Exercise Realized -------------------------- --------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- -------- -------- ----------- ------------- ----------- -------------
John L. Castello....... 0 $0 199,125 400,875 $287,805 $584,070
Patrick J. Scannon..... 0 $0 148,638 201,362 $214,448 $293,365
Clarence L. Dellio..... 0 $0 53,860 95,835 $78,205 $141,669
Peter B. Davis......... 0 $0 18,958 66,042 $28,229 $98,646
Christopher J. Margolin 0 $0 29,900 75,100 $43,762 $111,863
- - -------------------------
(1) The amounts listed in the two columns are based on the closing price per
share ($4.00) on January 2, 1996, as reported on the Nasdaq National
Market, less the applicable option exercise prices.
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The following table sets forth information concerning the repricing of
options held by any executive officer during the last ten completed fiscal
years. See "Compensation Committee Report on Executive Compensation."
TEN-YEAR OPTION REPRICINGS
Number of Market Length of
Securities Price of Original
Under- Stock Exercise Option Term
lying at Time Price at New Remaining
Options of Time of Exercise at Date of
Repriced Repricing Repricing Price Repricing
Name Date (#) ($) ($) ($) (Years)
- - ---- -------- -------- --------- --------- -------- -----------
John L. Castello 01/11/95 500,000 $2.5625 $14.00 $2.5625 6.30
(Chairman of the Board, 01/11/95 50,000 $2.5625 $ 5.38 $2.5625 7.90
President and Chief
Executive Officer)
Patrick J. Scannon 01/11/95 75,000 $2.5625 $12.50 $2.5625 1.78
(Chief Scientific and 01/11/95 49,500 $2.5625 $11.69 $2.5625 2.79
Medical Officer) 01/11/95 500 $2.5625 $13.00 $2.5625 2.93
01/11/95 27,208 $2.5625 $19.25 $2.5625 4.19
01/11/95 72,792 $2.5625 $16.36 $2.5625 4.19
01/11/95 16,227 $2.5625 $22.53 $2.5625 5.23
01/11/95 3,773 $2.5625 $26.50 $2.5625 5.23
01/11/95 50,000 $2.5625 $ 7.50 $2.5625 7.22
01/11/95 30,000 $2.5625 $ 4.38 $2.5625 8.13
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Number of Market Length of
Securities Price of Original
Under- Stock Exercise Option Term
lying at Time Price at New Remaining
Options of Time of Exercise at Date of
Repriced Repricing Repricing Price Repricing
Name Date (#) ($) ($) ($) (Years)
- - ---- -------- -------- --------- --------- -------- -----------
Clarence L. Dellio 01/11/95 8,695 $2.5625 $11.50 $2.5625 0
(Senior Vice President, 01/11/95 10,000 $2.5625 $ 8.93 $2.5625 2.29
Operations) 01/11/95 6,000 $2.5625 $13.25 $2.5625 2.45
01/11/95 19,500 $2.5625 $13.75 $2.5625 2.79
01/11/95 500 $2.5625 $13.00 $2.5625 2.93
01/11/95 4,483 $2.5625 $16.36 $2.5625 4.19
01/11/95 45,517 $2.5625 $ 9.75 $2.5625 6.80
01/11/95 10,000 $2.5625 $ 7.50 $2.5625 7.16
01/11/95 20,000 $2.5625 $ 4.38 $2.5625 8.13
Peter B. Davis 01/11/95 60,000 $2.5625 $ 3.75 $2.5625 8.24
(Vice President,
Finance and Chief
Financial Officer)
Christopher J. Margolin 01/11/95 10,000 $2.5625 $15.25 $2.5625 5.77
(Vice President, 01/11/95 40,000 $2.5625 $ 9.75 $2.5625 6.80
General Counsel and 01/11/95 10,000 $2.5625 $ 7.50 $2.5625 7.16
Secretary) 01/11/95 20,000 $2.5625 $ 4.38 $2.5625 8.13
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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 shares of Common Stock under the Company's 1981 Stock Option Plan, which
was made in 1992. Mr. Castello was also reimbursed under the agreement for
expenses related to his relocation to the San Francisco Bay area. See footnote
(2) under the "Summary Compensation Table" above.
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 29, 1993, that provides for his employment as Chief
Scientific and Medical Officer at a salary of $300,000 per year. Under this
agreement, Dr. Scannon is entitled to participate in any benefit plan for which
key executives of the Company are eligible. In addition, the agreement provides
for a grant of options for 50,000 shares of Common Stock under the Company's
1981 Stock Option
-13-
Plan, which was made in 1993. The agreement also provides that Dr. Scannon is
entitled to participate in the Management Incentive Compensation Plan, and Dr.
Scannon received $8,214 and 1,094 shares of stock in 1994 and $8,214 in 1995
(relating to performance in 1993) under the provisions of such plan. The
agreement also provides for a one-year loan to Dr. Scannon in the amount of
$290,000, bearing interest at 6% per annum and secured by a pledge of certain
shares of the Company's Common Stock. The loan was made to Dr. Scannon in 1993,
has been extended for three additional years, and $100,000 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.
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 a salary of $200,000 per year. Under this agreement, Mr. Davis
received a one-time transition allowance in the amount of $35,000 (repayable on
a pro rata basis if employment was terminated within 18 months) and is entitled
to participate in any benefit plan for which executives of the Company are
eligible. In addition, the agreement provides for a grant of options for 60,000
shares of Common Stock under the Company's 1981 Stock Option Plan, which was
made in 1994, as well as participation in the Management Incentive Compensation
Plan and the payment of Mr. Davis' relocation expenses. See footnote (2) under
the "Summary Compensation Table" above. 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.
The Company entered into an employment agreement with Mr. Mendell,
dated as of April 29, 1992, that provided for his employment as Chairman of the
Board, devoting at least 80% of his time to the Company, at a minimum salary of
$300,000 per year. Under this agreement, Mr. Mendell was entitled to participate
in any benefit plan for which key executives of the Company are eligible. In
addition, the agreement provided for a one-time special award consisting of a
cash payment of $125,000 and an option grant for 100,000 shares of Common Stock
under the Company's 1981 Stock Option Plan (the "Special Award Option"). In
March 1993, Mr. Mendell and the Company agreed to a modification of his
employment
-14-
agreement replacing his Special Award Option with a new option grant for 50,000
shares of Common Stock exercisable immediately. Mr. Mendell resigned as Chairman
of the Board in March 1993 and as an employee in June 1993. His agreement
provided that, in such event, Mr. Mendell would receive the principal economic
benefits of his contract for two years. Pursuant to these provisions, Mr.
Mendell received payments totalling $175,000 in 1993, $300,000 in 1994 and
$125,000 in 1995, whereupon the Company's obligations thereunder ceased.
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 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 stockholders through the creation of stockholder
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 Stock
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. For 1995, the performance of the
Company's Common Stock had a negative impact on the determination of
compensation levels. In light of the Company's cash position and as part of its
1994 restructuring, the Company instituted a salary freeze on all employees from
November of 1994 until January of 1996.
-15-
Mr. Castello's compensation for 1995 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.
The principal methods for long-term incentive compensation are the
Company's 1981 Stock Option Plan (the "Option Plan") and Restricted Stock Plan
(the "Restricted Plan"), and compensation thereunder principally takes the form
of incentive and non-qualified stock option grants. These grants are designed to
promote the convergence of long-term interests between the Company's key
employees and its stockholders; specifically, the value of options granted will
increase or decrease with the value of the Company's Common Stock. In this
manner, key individuals are rewarded commensurately with increases in
stockholder 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 the past fiscal year, 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 stock relative to other companies in such industries and the resulting
relative value of such options; no specific measures of corporate performance
were considered. See "Proposal 2 - Addition of Shares to Employee Stock Option
Plans" for a further description of these two plans.
Pursuant to the Option Plan and the Restricted Plan, on January 11,
1995, the Company offered to exchange the outstanding options of all employees,
including the named executives, holding options under the Option Plan, the
Restricted Plan and the International Genetic Engineering, Inc. 1985
Nonqualified Stock Option Plan for replacement options with an
-16-
exercise price of $2.5625. Each replacement option was immediately exercisable
with respect to 40% of the shares of Common Stock underlying the option being
replaced and, as to the remaining shares, becomes exercisable in 48 equal,
monthly installments beginning on the date of exchange. In authorizing such
action, the Board of Directors determined, based on a variety of factors,
including market conditions and Company performance, that the current
outstanding options did not provide a meaningful incentive to the the executive
officers because the exercise prices of such options were, on the average,
significantly above the market price of the Company's Common Stock. The
Committee believes that the exchange offer was justified based on market
conditions and the reliance by the Company on non-cash compensation of its
officers.
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 Compensation 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 Compensation
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 1995: a target level of cash at year
end; improvement in operating cash flow; generation of current income; progress
toward strategic alliances, 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.
-17-
Awards under the Incentive Plan vest over a three-year period with
50% of each award payable on a date to be determined, expected to be in February
or March of the following fiscal year, and 25% payable on each of the next two
annual distribution dates, so long as the Incentive Plan participant continues
to participate in the Incentive Plan. The portion payable on the first
distribution date is payable 50% in cash and 50% in Common Stock (based on a
10-day average market price). Incentive Plan participants must choose prior to
the end of the first year of the three-year period whether the balance is to be
paid in cash or Common Stock. All stock issuances under the Incentive Plan are
made pursuant to the Company's Restricted Stock Plan.
In 1994, the Committee determined that management had not met the
required corporate objectives and, accordingly, no bonuses were awarded. For
1995, 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 Plan in order to make awards thereunder. In 1995, 25
individuals were eligible to participate in the Incentive Plan, including all of
the executive officers named in the "Summary Compensation Table" above other
than Mr. Castello.
William K. Bowes, Jr.
W. Denman Van Ness
-18-
Performance Graph
Comparison of Five Year Cumulative Total Return Among XOMA,
Nasdaq Composite Index and DJ Medical Biotech Index
XOMA Nasdaq Dow Jones Medical
Year Corporation Composite Index and Biotechnology
1990 $100 $100 $100
1991 102 157 242
1992 47 181 209
1993 26 208 181
1994 13 201 205
1995 17 281 350
The comparison assumes $100 invested on December 31, 1990 in the
Company's Common Stock, the Nasdaq Composite Index, and the Dow Jones Medical
and Biotechnology Index (weighted). Total return assumes reinvestment of
dividends although the Company has never paid cash dividends. Years refer to the
Company's fiscal year ends (December 31). Returns for the Company are not
necessarily indicative of future performance.
-19-
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the next
annual meeting of stockholders and until their successors are elected and have
qualified, 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 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, 59
President and Chief
Executive Officer
Patrick J. Scannon, M.D., Chief Scientific and 48
Ph.D. Medical Officer
and Director
James G. Andress Director 57
Williams K. Bowes, Jr. Director 69
Arthur Kornberg, M.D. Director 78
Steven C. Mendell Director 54
W. Denman Van Ness Director 53
Gary Wilcox, Ph.D. Director 49
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
fertil-
-20-
ity drugs, and it is also the manufacturer of a bioengineered human growth
hormone, Saizen, which is marketed 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 and Metra Biotech, Inc. Cholestech is engaged in
the business of developing products for the diagnostic measurement of
cholesterol and other blood components. Metra is engaged in the business
of developing bone resorbtion diagnostic products.
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 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. Dr.
Scannon is also a member of XOMA's Scientific Advisory Board.
Mr. Andress has been a director since November 1995 and is a former
Chairman of the Pharmaceuticals Group, Beecham Group, plc and the former
President and Chief Operating Officer of Sterling Drug, Inc. From 1989 to 1995,
he served as President, Chief Executive Officer and director of Information
Resources, Inc., a decision support software and consumer packaged goods
research company. Mr. Andress is also a director of Genelabs Technologies, Inc.,
Genetics Institute, Inc., The Liposome Company, Inc., and NeoRx, Inc., which are
all biotechnology companies. 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, Allstate Insurance Company, Walsh International, Inc., a prescription
tracking service company and one private company.
Mr. Bowes has been a director since February 1986 and has been
General Partner of U.S. Venture Partners since 1981. Mr. Bowes is also a
director of Amgen Inc., Lynx Therapeutics, Inc. and a number of private
companies.
Dr. Kornberg has been a director since April 1991 and is a
member of XOMA's Scientific Advisory Board. He is a distinguished author
and researcher who was chairman and founder of the Department of
Biochemistry at the Stanford University
-21-
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 mechanism and regulation of DNA synthesis. 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 Board of Scientific Advisors of DNAX, now
a wholly owned subsidiary of Schering-Plough Corporation. He is a member
of the Board of Scientific Advisors of Regeneron Pharmaceuticals, Inc., a
biotechnology company focused on neurobiology.
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. He is
currently President and Chief Executive Officer of Prizm Pharmaceuticals, Inc.,
a private company engaged in the development of growth factor receptor mediated
drug delivery products, and is also a director of Gensia Pharmaceuticals, Inc.,
a biotechnology company engaged in the development of pharmaceutical products
primarily for the treatment and diagnosis of cardiovascular disease.
Mr. Van Ness has been a director since October 1981. He is a
Managing Director of CIBC Wood Gundy Capital, an international merchant banking
organization, and remains a General Partner of Rainier Venture Partners, a
venture capital fund he has served since 1985. From 1986 through March 31, 1996,
Mr. Van Ness was a General Partner of Olympia Venture Partners II, a venture
capital fund, and from 1977 through 1985, he was a General Partner of the
venture capital group at Hambrecht & Quist, the manager of several venture
capital funds.
Dr. Wilcox has been a director of the Company since November
1989. From March to September 1993, he was Executive Vice President. From
November 1989 to March 1993, Dr. Wilcox was Vice Chairman, Scientific and
Business Development. From 1983 to 1990, he was an Adjunct Professor of
Microbiology at the University of California, Los Angeles. He is also a
director of Govett & Company Ltd. and of Berkeley Development Capital Ltd.
Dr. Wilcox is currently Executive Vice President of Operations and a
director of ICOS Corporation. ICOS is engaged in the business of
developing medications for the treatment of chronic inflammatory diseases.
-22-
BOARD MATTERS
Board Meetings and Committees
During the fiscal year ended December 31, 1995, the Board of
Directors held seven 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 committee will not accept unsolicited director
nominations by stockholders. The committee held one meeting during 1995.
The audit committee is primarily responsible for approving the
services performed by the Company's independent accountants and reviewing the
Company's accounting practices and system of internal accounting controls. This
committee, currently consisting of Mr. Mendell and Dr.
Wilcox, held two meetings during 1995.
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.
Bowes and Van Ness, held three meetings during 1995.
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, on May 25, 1995, each
non-employee director was granted options to purchase 1,000 shares of Common
Stock at an exercise price of $2.125 pursuant to the 1992 Directors Stock Option
Plan (the "Directors Plan"). Directors who are employees of the Company are
neither paid any fees or other remuneration nor awarded options or shares of
stock of the Company for service as members of the Board of Directors or its
committees.
-23-
In recognition of the important and unique services provided by Mr.
Van Ness to the Company's Board of Directors in addition to his other business
interests and responsibilities, the Company issued 20,000 shares of its Common
Stock to The Van Ness 1983 Revocable Trust (the "Trust") in 1995 and has agreed,
following Mr. Van Ness' nomination to stand for re-election to the Board of
Directors at the Company's 1996 annual meeting of stockholders, to issue an
additional 5,000 shares of Common Stock to the Trust. The Company has registered
the shares so issued to the Trust with the Securities and Exchange Commission.
PROPOSAL 2 - ADDITION OF SHARES TO EMPLOYEE STOCK PLANS
Background
The Option Plan and the Restricted Plan (together the "Stock 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
significant independent consultants, and to assist the Company in attracting and
retaining the services of such employees and consultants (see "Compensation
Committee Report on Executive Compensation" above). All employees are eligible
to participate in the Stock Plans (each, a "Participant"). Directors who are not
employees of the Company are not eligible to participate in either plan.
The Board of Directors has adopted, subject to stockholder approval,
amendments to these plans to increase the aggregate number of shares of Common
Stock issuable under the two plans by 1,000,000 shares to 5,150,000 shares, and
an amendment to the Restricted Plan to increase the number of shares of Common
Stock issuable under that plan by 250,000 shares to 1,250,000 shares.
The essential features of the Option Plan and the Restricted Plan,
as amended, are summarized below. These summaries do not purport to be complete
descriptions of these plans. Copies of actual plan documents may be obtained by
contacting the Secretary of the Company.
Description of Option Plan
As of [March 31], 1996, the Company had authorized an aggregate of
4,150,000 shares of Common Stock for issuance under the Option Plan and the
Restricted Plan, of which
-24-
approximately [566,019] shares of Common Stock had been issued upon the exercise
of options granted under the Option Plan and [2,703,976] shares of Common Stock
were subject to outstanding options under the Option Plan. The expiration dates
for all such outstanding options range from September 21, 1996 (at the earliest)
to February 28, 2006 (at the latest). If this proposal is approved by the
stockholders, [1,311,885] shares of Common Stock will be available for issuance
under future option grants.
The shares of Common Stock issuable over the term of the Option Plan
may be made available from either authorized but unissued Common Stock or
treasury shares. Each option will have an exercise price per share of not less
than 100% of the fair market value per share of Common Stock on the date of
grant. The Option Plan's term expires on November 15, 2001.
Description of Restricted Plan
As of [March 31], 1996, the Company had authorized 1,000,000 of
Common Stock for issuance under the Restricted Plan, subject to the limitation
that not more than 4,150,000 shares may be issued in the aggregate under the
Restricted Plan and the Option Plan. Approximately [140,400] shares of Common
Stock had been issued either upon the exercise of granted options or the direct
issuance of shares under the Restricted Plan and [427,720] shares of Common
Stock were subject to outstanding options under the Restricted Plan. The
expiration dates for all such outstanding options range from December 17, 1997
(at the earliest) to February 15, 2006 (at the latest). If this proposal is
approved by the stockholders, [681,880] shares of Common Stock will be available
for issuance under future option grants or direct issuances.
The Restricted Plan authorizes the grant of options to purchase
shares of Common Stock (the "Option Grant Program") as well as direct Common
Stock issuances (the "Stock Issuance Program"). The eligible individuals under
the Restricted Plan are employees (including officers and directors) and
consultants (other than non-employee directors) who provide valuable services to
the Company. Such shares will be made available from either authorized but
unissued Common Stock or treasury shares.
Each option granted under the Option Grant Program will have an
exercise price of not less than 85% of fair market value per share of
Common Stock on the date of grant. The
-25-
purchase price for shares issued under the Stock Issuance Program may not be
less than 85% of fair market value of the Common Stock 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
On December 3, 1991, the Board appointed its Compensation Committee
to administer the Stock Plans as each relates to individuals other than
directors, officers or ten-percent stockholders of the Company for so long as
the members of the Compensation Committee are "disinterested persons" within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as such term is
interpreted from time to time ("Rule 16b-3"). The Compensation Committee's
authority to grant options under the Stock Plans and to issue stock under the
Restricted Plan is limited to 15,000 shares per individual. In all other
respects, the Stock Plans are administered by the Board. The Board has reserved
the right to appoint a committee consisting of not less than three directors,
each of whom must be a "disinterested person" under Rule 16b-3, to administer
the Option Plan and/or the Restricted Plan or be responsible for making
recommendations to the Board from time to time with respect thereto.
The Board and, with respect to individuals who are not directors,
officers or ten-percent stockholders of the Company, the Compensation Committee
(the "Plan Administrators") are authorized (subject to the provisions of the
Stock Plans) to establish such rules and regulations as they may deem
appropriate for the proper administration of the Stock 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.
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 shares of Common Stock having a fair market value on the
date the option is exercised equal to the option price; (iii) in a combination
of cash and shares of Common Stock valued at fair market value on the day the
option is exercised; or (iv) through a
-26-
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 Stock Plans, the fair market value of the Common Stock on any
relevant date will be the closing sale price per share of Common Stock, as
reported for such date through the Nasdaq National Market.
The relevant Plan Administrator may also assist any optionee 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 Stock Plans have been amended to eliminate the provisions giving
the relevant Plan Administrator specific 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 shares of Common Stock, 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 Stock Plans.
Termination of Employment. Should an optionee under either plan
cease to be an employee or consultant of the Company for any reason (including
death or permanent disability), such optionee 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.
-27-
Stock Appreciation and Repurchase Rights. The Option Plan and the
Option Grant Program each include a stock appreciation right 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 shares of Common Stock valued
at fair market value on the date of surrender, in cash, or partly in shares and
partly in cash.
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 stock 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 shares of
Common Stock purchasable thereunder.
Amendment. The Stock Plans permit the grant of options to purchase
shares of Common Stock in excess of the number of shares then available for
issuance. Any option so granted cannot be exercised prior to stockholder
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 Stock
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
Stock Plans, nor adversely affect the rights of any individual with respect to
the Common Stock issued pursuant to the Restricted Plan prior to such action,
and the Board may not, without the approval of the Company's stockholders, (i)
increase the maximum number of shares issuable under the Option Plan or the
Restricted Plan, except for permissible adjustments
-28-
in the event of certain changes in the Company's capitalization, (ii) materially
increase the benefits accruing to participants in the Stock Plans or (iii)
materially modify the eligibility requirements for participation therein.
Although the Stock Plans have not yet been amended to comply with
the most recent amendments to Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the phase in period for compliance with such amendments having
been extended until September 1, 1996), the Company intends to do so and does
not anticipate that any stockholder action will be required in connection
therewith.
Description of Stock Issuance Program
Common Stock will be issued to eligible individuals under the Stock
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 Stock 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) shares of Common Stock 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 Stock 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,
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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 Stock Plans. This discussion is based on current provisions
of the Internal Revenue Code of 1986, as amended (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
Stock Plans.
1. Stock 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 shares of Common Stock 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 shares of Common Stock 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 shares of
Common Stock will be capital gain or loss, long-term or short-term, depending on
the holding period for the shares of Common Stock.
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,
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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 U.S. 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 after 1986 under other
plans of the Company and its subsidiaries) first becomes exercisable in any
calendar year for shares of Common Stock having a fair market value, determined
as of the date of grant, in excess of $100,000.
If shares of Common Stock 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 shares of Common Stock 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 shares of Common Stock 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 shares of Common Stock
have been held. Where shares of Common Stock 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 shares of Common Stock 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.
2. Stock Awards. A Participant who receives a share award
will generally recognize ordinary income at the
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time the restrictions on transferability lapse, and if there are no restrictions
on transferability, at the time of the award. The amount of ordinary income so
recognized will be the fair market value of the Common Stock at the time the
income is recognized, determined without regard to any restrictions other than
restrictions which by their terms will never lapse, over the amount, if any,
paid for the stock. This amount is generally deductible for federal income tax
purposes by the Company. Dividends paid with respect to Common Stock that is
nontransferable 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
stock 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 stock is
subsequently forfeited, the Participant will generally be entitled to an
offsetting tax deduction only to the extent of the amount paid, if any, for the
stock.
3. Stock Appreciation Rights. With respect to stock appreciation
rights under the Stock Plans, generally, when a Participant receives payment
with respect to a stock appreciation right granted to him or her under the Stock
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.
4. Special Rules. Special rules may apply to a Participant who is
subject to Section 16(b) of the Securities Exchange Act of 1934 as in effect
from time to time (generally directors, officers and 10% stockholders). Certain
additional special rules apply if the exercise price for an option is paid in
shares previously owned by the optionee rather than in cash.
5. Limitation on Deductibility. Section 162(m) of the Code,
effective for tax years beginning after 1993, generally limits the
deductible amount of annual compensation paid (including, unless an
exception applies, compensation otherwise deductible in connection with
awards granted under the Stock
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Plans) by a public company to a "covered employee" (the chief executive officer
and four other most highly compensated executive officers of the Company) to no
more than $1 million. It is possible that certain amounts otherwise deductible
in connection with the Stock Plans may be subject to this deduction limit.
Recommendation
At the annual meeting, the Company's stockholders will be asked to
approve the proposal to amend the Stock Plans to increase the total number of
shares authorized under both plans by 1,000,000 shares to 5,150,000 shares and
to amend the Restricted Plan to increase the number of shares issuable over the
term of such plan by 250,000 shares to 1,250,000 shares (subject to the
limitation that not more than 5,150,00 shares may be issued in the aggregate
under the Restricted Plan and the Option Plan). The Board of Directors believes
that approval of the proposed amendments is in the best interests of the
Company, its stockholders 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 shares of Common Stock of the Company represented
in person or by proxy at the annual meeting and entitled to vote.
PROPOSAL 3 - APPROVAL OF AMENDMENTS TO THE RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
Background
Pursuant to Article IV of the Company's Restated Certificate of
Incorporation, the Company is authorized to issue 40,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock, par value $.05 per share
("Preferred Stock"). On [March 31], 1996, the Company had issued and outstanding
[30,071,920] shares of Common Stock. In addition, 650,000 shares of Preferred
Stock have been designated Series A Cumulative Preferred Stock (the "Series A
Preferred Stock"), of which none were outstanding on March 31, 1996, 30,000
shares of Preferred Stock have been designated Senior Convertible Preferred
Stock, Series B (the "Series B Preferred Stock"), of which 7,807 shares were
outstanding on such date, and 5,000 shares of Preferred Stock have been
designated Non-Voting Cumulative Convertible Preferred Stock, Series D, all of
which were outstanding on such date.
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On February 28, 1996, the Board of Directors unanimously approved
amendments to Article IV of the Restated Certificate of Incorporation of the
Company which would increase the number of authorized shares of Common Stock by
30,000,000 shares to 70,000,000 shares and increase the number of authorized
shares of Preferred Stock by 500,000 to 1,500,000.
Description of the Proposed Amendment to Increase the Number of Authorized
Shares of Common Stock
The Board of Directors of the Company considers it prudent and in
the best interests of the Company and its stockholders to have a substantial
number of shares of Common Stock authorized by the Restated Certificate of
Incorporation which are available for issuance, in order to provide the Company
with financing and business flexibility. Common Stock may be issued by the
Company in connection with future acquisitions or equity financings, upon
conversion or exchange of outstanding securities, in connection with the Stock
Plans, the Incentive Plan, the Directors Plan or other employee benefit plans or
under other circumstances. There are currently no agreements or understandings
regarding the issuance of any of the additional shares of Common Stock that
would become available if the Company's Restated Certificate of Incorporation is
amended.
The additional shares of Common Stock for which authorization is
sought would be part of the existing class of Common Stock, and, to the extent
issued, would have the same rights and privileges as the shares of Common Stock
currently outstanding. No holder of the Common Stock is entitled to any
preemptive right to subscribe for or purchase any stock or other securities of
the Company. The issuance of a substantial amount of Common Stock or the
granting of an option to purchase a substantial amount of Common Stock could
have a potential anti-takeover effect with respect to the Company which may make
it more difficult to effect a change in control of the Company (for example, by
decreasing the percentage of share ownership of those persons seeking to obtain
control), although the Board of Directors is not presenting the proposal for
that reason and does not presently anticipate using the increased authorized
shares for such a purpose. Under applicable law, the Board of Directors is
required to make any determination to issue such stock based on its judgment as
to the best interest of the Company and its stockholders at the time of such
issuance.
If such proposal is not adopted, approximately [9,928,080] of
the currently authorized 40,000,000 shares of
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Common Stock will be available for future issuances (including upon exercise of
outstanding stock options) and approximately [1,428,885] shares will be reserved
for issuance in connection with options or shares to be granted under existing
director and employee stock-based plans (assuming Proposal 2 herein is approved
at the annual meeting).
Description of the Proposed Amendment to Increase the Number of Authorized
Shares of Preferred Stock
The Board of Directors of the Company considers it prudent and in
the best interests of the Company and its stockholders to have a substantial
number of shares of Preferred Stock authorized by the Restated Certificate of
Incorporation which are available for issuance, in order to provide the Company
with financing and business flexibility. Preferred Stock may be issued by the
Company in connection with future acquisitions or equity financings or under
other circumstances. There are currently no agreements or understandings
regarding the issuance of any of the additional shares of Preferred Stock that
would become available if the Company's Restated Certificate of Incorporation is
amended.
Under the Restated Certificate of Incorporation, the Board of
Directors has the authority by resolution, without any action of the
stockholders, to issue from time to time up to the aggregate number of
authorized shares of Preferred Stock. Such resolutions may authorize issuance in
one or more series and may fix and determine dividend and liquidation
preferences, voting rights, conversion privileges, redemption terms and other
privileges and rights of stockholders of each series so authorized.
Consequently, the additional shares of Preferred Stock for which authorization
is sought, to the extent issued, may or may not have the same rights and
privileges as the shares of Preferred Stock currently outstanding. No holder of
the Preferred Stock currently outstanding is entitled to any preemptive right to
subscribe for or purchase any stock or other securities of the Company, but any
future series of Preferred Stock may or may not include such rights. The
issuance of shares of Preferred Stock or the granting of an option to purchase
Preferred Stock could have a potential anti-takeover effect with respect to the
Company which may make it more difficult to effect a change in control of the
Company, depending on the preferences, rights, privileges or other terms fixed
by the Board of Directors with respect to such series, although the Board of
Directors is not presenting the proposal for that reason and does not presently
anticipate using the increased
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authorized shares for such a purpose. Under applicable law, the Board of
Directors is required to make any determination to issue such stock based on its
judgment as to the best interest of the Company and its stockholders at the time
of such issuance. The Board of Directors does not currently intend to seek
authorization by its security holders prior to any future issuance of Preferred
Stock, unless such action is required by applicable law or the rules of any
stock market on which the Company's securities may be traded.
If such proposal is not adopted, approximately 987,193 of the
currently authorized 1,000,000 shares of Preferred Stock will be available for
future issuances, 672,193 of which have been previously designated as either
Series A Preferred Stock or Series B Preferred Stock.
Recommendation
At the annual meeting, the Company's stockholders will be asked to:
(a) approve the proposal to amend the Restated Certificate of
Incorporation to increase the number of authorized shares
of Common Stock by 30,000,000 to 70,000,000 shares and
(b) approve the proposal to amend the Restated Certificate
of Incorporation to increase the number of authorized
shares of Preferred Stock by 500,000 to 1,500,000.
Each such proposal will be considered and voted upon separately,
and neither proposal is conditioned upon approval of the other.
The Board of Directors believes that the approval of such amendments
is in the best interests of the Company and its stockholders and unanimously
recommends a vote "FOR" approval. Approval of each amendment requires the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company entitled to vote.
PROPOSAL 4 - RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, on the recommendation of its audit
committee, has selected Arthur Andersen LLP to serve as the Company's
independent accountants for 1996. Arthur Andersen LLP has been acting as the
Company's independent accountants since fiscal year 1983.
The ratification of the appointment of Arthur Andersen LLP is being
submitted to the stockholders 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
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of the appointment of Arthur Andersen LLP as the Company's independent
accountants for the 1996 fiscal year.
A representative of Arthur Andersen LLP is expected to be present at
the meeting with an opportunity, if desired, to make a statement and to respond
to your questions.
CERTAIN TRANSACTIONS
Pursuant to his employment agreement, the Company paid Mr.
Mendell $125,000 in 1995. See "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements."
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 amount of $290,000. See "Employment Contracts and Termination of Employment
and Change-in-Control Arrangements." As of April 30, 1996, $243,000 of the loan
remained outstanding and $100,000 in principal and interest payments have been
received by the Company.
Pursuant to his employment agreement dated July 14, 1992, the
Company made a loan to Dr. Nadav Friedmann, its former Vice President, Clinical
Research, in the amount of $100,000. Dr. Friedmann resigned and such employment
agreement was terminated effective January 31, 1995. Approximately one-third of
the loan has been repaid and the balance was forgiven pursuant to the terms of
such employment agreement.
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 and persons who own more than 10% of
a registered class of the Company's equity securities to file initial reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the Nasdaq National Market. Such executive officers, directors and
stockholders 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 on a timely basis.
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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.
STOCKHOLDER PROPOSALS
A stockholder who intends to present a proposal at the 1997 meeting
of stockholders must submit such proposal by November 30, 1996, to the Company
for inclusion in the Company's 1997 proxy statement and proxy card relating to
such meeting. The proposal must be mailed to the Company's principal executive
office, at 2910 Seventh Street, Berkeley, California, 94710, Attention:
Secretary.
By Order of the Board of Directors,
Christopher J. Margolin
Secretary
April 30, 1996
Berkeley, California