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
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/_/ 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)
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1) Title of each class of securities to which transaction
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2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set for the amount on which
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/_/ Check box if any part of the fee is offset as provided by Exchange
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paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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XOMA
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
meeting 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 April 24, 1996, the Company had issued
and outstanding 31,581,420 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 Company has retained the services of Skinner & Co.
to aid in the solicitation of proxies from brokers, bank
nominees and other institutional owners. The Company estimates
that it will pay
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Skinner & Co. a fee not to exceed $4,000 for its services
and will reimburse Skinner & Co. for certain out-of-pocket
expenses estimated to be not more than $6,000. In
addition, 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. 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 April 24, 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
James G. Andress(1)............... 2,000 *
William K. Bowes, Jr.(2).......... 28,069 *
John L. Castello(3)............... 266,000 *
Peter B. Davis(4)................. 36,292 *
Clarence L. Dellio(5)............. 71,663 *
Arthur Kornberg(6)................ 23,000 *
Christopher J. Margolin(7)........ 41,792 *
Steven C. Mendell(8).............. 371,800 1.2
Patrick J. Scannon(9)............. 256,513 *
W. Denman Van Ness(10)............ 40,931 *
Gary Wilcox(11)................... 271,536 *
All executive officers
and directors as a
group (11 persons)(12).......... 1,409,596 4.3
_____________________
<FN>
* Indicates less than 1%.
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(1) Represents 2,000 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date.
(2) Includes 13,000 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date.
(3) 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.
(4) 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.
(5) 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.
(6) Includes 13,000 shares issuable upon the exercise of stock options
exercisable as of 60 days after the record date.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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
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.
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(12) 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 $0 350,000 $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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<FN>
(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
payments of $12,158. Mr. Dellio's and Mr. Margolin's amounts in this column for 1995 represent
cash payments in lieu of earned vacation. 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 $94,628
_____________________
<FN>
(1) The amounts set forth in the three columns represent hypothetical gains that might be achieved by
the optionees if the respective options are exercised at the end of their ten-year option terms.
These gains are based on assumed rates of stock price appreciation of 0%, 5% and 10% compounded
annually from the dates the respective options were granted. The 0% appreciation column is
included because the options were granted with exercise prices equal to the market price of the
underlying Common Stock on the date of grant, and thus will have no value unless the Company's
stock price increases above the exercise prices as a result of actions by the executives that
improve the Company's performance and/or other factors affecting such price.
(2) Includes the cancellation and granting of new options. See "Ten-Year Option Repricing." 550,000
of Mr. Castello's option shares; 325,000 of Dr. Scannon's option shares; 124,695 of Mr. Dellio's
option shares; 60,000 of Mr. Davis' option shares; and 80,000 of Mr. Margolin's option shares were
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granted as incentive stock options under the Company's 1981 Stock Option Plan, with the remainder
granted to them as nonqualified options under the same plan. Generally, subject to certain
conditions, the options become exercisable over four years.
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last completed
fiscal year of the Company and unexercised options held as of the end of the
fiscal year. No SARs were exercised during the last fiscal year and none were
held at the end of the fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Shares
Acquired Number of Securities Value of Unexercised
on Value Underlying Unexercised In-the-Money Options at
Exercise Realized Options at FY-End (#) FY-End($)(1)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- -------- -------- ----------- ------------- ----------- -------------
John L. Castello....... 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
_________________________
<FN>
(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
10/22/87 75,000 $10.75 $21.00 $12.50 9.83
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Number of Market Length of
Securities Price of Original
Under- Stock Exercise Option Term
lying at Time Price at New Remaining
Options of Time of Exercise at Date of
Repriced Repricing Repricing Price Repricing
Name Date (#) ($) ($) ($) (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
10/27/92 15,517 $9.75 $19.25 $9.75 7.42
10/27/92 11,907 $9.75 $22.53 $9.75 8.41
10/27/92 3,093 $9.75 $26.50 $9.75 8.41
10/27/92 15,000 $9.75 $22.75 $9.75 9.33
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
10/27/92 18,345 $9.75 $27.25 $9.75 8.75
10/27/92 11,655 $9.75 $23.16 $9.75 8.75
10/27/92 10,000 $9.75 $22.75 $9.75 9.33
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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
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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
$50,000 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
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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.
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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
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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.
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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-
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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 resorption
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 Olympic 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 April 24, 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 575,519 shares of Common Stock had been issued
upon the exercise of options granted under the Option Plan and
2,694,476 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 April 24, 1996, the Company had authorized
1,000,000 shares 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 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
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
-26-
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.
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
-27-
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
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
-28-
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,
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
-29-
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,
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
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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
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
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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 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.
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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, par value $.0005 per
share, and 1,000,000 shares of preferred stock, par value $.05
per share ("Preferred Stock"). On April 24, 1996, the Company
had issued and outstanding 31,581,420 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 April 24,
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, 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, and 7,500 shares of
Preferred Stock have been designated Convertible Preferred
Stock, Series E (the "Series E Preferred Stock"), of which none
were outstanding on such date.
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
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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
8,418,580 of the currently authorized 40,000,000 shares of
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
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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 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
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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, 679,693
of which have been previously designated as either Series A
Preferred Stock, Series B Preferred Stock or Series E 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.
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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
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, $293,000 of
principal and interest on the loan remained outstanding and
$50,000 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
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they file. Based on a review of the copies of the forms
furnished to the Company and written representations
from the Company's executive officers and directors,
all persons subject to the reporting requirements of
Section 16(a) filed the required reports with respect to 1995
on a timely basis.
OTHER MATTERS
The Board of Directors does not know of any matters
to be presented at this annual meeting other than those set
forth in this proxy statement and in the notice accompanying
this proxy statement. If other matters should properly come
before the meeting, it is intended that the proxy holders will
vote on such matters in accordance with their best judgment.
It is important that your shares be represented at
the meeting, regardless of the number of shares which you hold.
You are, therefore, urged to promptly execute and return the
accompanying proxy in the postage prepaid envelope which has
been enclosed for your convenience.
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
[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 Corpora-
tion which the undersigned is entitled to vote at the annual meeting of stock-
holders 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
(except as marked to the contrary all nominees listed above
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 nomi-
nees, 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)
(Continued from other side)
3. Proposals to approve amendments to the Company's Restated Certifi-
cate 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, ex-
ecutor, administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full cor-
porate name by President or other
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.