As filed with the Securities and Exchange Commission on March 18, 2005
Registration No. 333-
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
__________________
XOMA Ltd.
(Exact name of registrant as specified in its charter)
Bermuda 52-2154066
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2910 Seventh Street
Berkeley, California 94710
(510) 204-7200
(Address, including ZIP code, and telephone number, including
area code, of registrant's principal executive offices)
__________________
Christopher J. Margolin, Esq.
XOMA Ltd.
2910 Seventh Street
Berkeley, California 94710
(510) 204-7292
(Name, address, including ZIP code, and telephone number, including
area code, of agent for service)
__________________
Copy to:
Geoffrey E. Liebmann, Esq.
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
(212) 701-3000
__________________
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
Title of Each Class Proposed Proposed
of Securities Amount Maximum Maximum Amount of
To Be To Be Offering Price Aggregate Registration
Registered Registered per Unit(1) Offering Price(1) Fee
------------------------------- --------------------- -------------------- -------------------- --------------------
6.50% Convertible Senior
Notes due 2012.............. $60,000,000 100% $60,000,000 $7,062
Common Shares,
par value U.S.$.0005
per share(2)................ 35,008,536 (3)(4) (4) (4) (4)
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c).
(2) Includes a like number of Preference Share Purchase Rights (the "Rights").
Since no separate consideration is paid for the Rights, the registration
fee is included in the fee for the Common Shares.
(3) Pursuant to Rule 416 under the Securities Act of 1933, any additional
Common Shares issued as a result of share subdivisions, bonus issues or
similar transactions that result in an increase in the number of Common
Shares issuable upon conversion of the notes pursuant to the terms of the
Indenture are deemed to be registered herewith.
(4) Pursuant to Rule 457(i), there is no filing fee with respect to the Common
Shares because these Common Shares would be issued upon conversion of the
notes and no additional consideration would be received in connection with
the exercise of the conversion privilege.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information contained in this prospectus is not complete and may be changed.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
Prospectus Subject to Completion, dated March 18, 2005
XOMA
$60,000,000 Principal Amount of
6.50% Convertible Senior Notes due 2012
and 35,008,536 Common Shares of XOMA Ltd.
Issuable on Conversion of the Notes
We issued the notes in a private placement in January of 2005. This
prospectus will be used by selling securityholders to resell from time to time
their notes and common shares issuable upon conversion of their notes.
We will pay interest on the notes on February 1 and August 1 of each year,
beginning on August 1, 2005. On February 1, 2012, the maturity date of the
notes, holders will receive the principal amount of $1,000 per note.
Holders may convert the notes into our common shares, par value $.0005 per
share, at any time prior to the close of business on the maturity date. The
conversion rate is initially 533.4756 of our common shares per $1,000 principal
amount of notes, which is equivalent to a conversion price of approximately
$1.87 per common share. The conversion rate is subject to adjustment upon the
occurrence of specified events.
The notes will mature on February 1, 2012, unless earlier converted,
redeemed or repurchased by us. Before February 6, 2008, we may not redeem the
notes. On or after February 6, 2008, we may redeem any or all of the notes at
100% of the principal amount, plus accrued and unpaid interest and liquidated
damages, if any, to but excluding the redemption date, if our common shares
trade at 150% of the conversion price then in effect for 20 trading days in a 30
consecutive trading day period. The holders of notes may require us to
repurchase some or all of the notes for cash at a repurchase price equal to 100%
of the principal amount of the notes plus accrued and unpaid interest and
liquidated damages, if any, following a fundamental change that occurs at any
time prior to maturity as described in this prospectus. In addition, following
certain fundamental changes, we will increase the conversion rate by a number of
additional common shares or, in lieu thereof, we may in certain circumstances
elect to adjust the conversion rate and related conversion obligation so that
the notes are convertible into shares of the acquiring, continuing or surviving
company, in each case as described herein.
The notes are our direct, unsecured and unsubordinated obligations and rank
equal in priority with all of our existing and future unsecured and
unsubordinated indebtedness and senior in right of payment to all of our
subordinated indebtedness. The notes effectively rank junior to any of our
secured indebtedness and any of our indebtedness that is guaranteed by our
subsidiaries. Payment of principal and interest on the notes is structurally
subordinated to the liabilities of our subsidiaries.
The notes will not be listed on any securities exchange. The notes have
been designated for trading in the PORTAL market. Any notes that are resold by
means of this prospectus will no longer be eligible for trading in the PORTAL
market. Our common shares are listed on the Nasdaq National Market under the
symbol "XOMA." The last reported sale price of our common shares on the Nasdaq
National Market on March 16, 2005 was $1.12 per share.
Investing in these notes involves risks. See "Risk factors" beginning on
page 11 of this prospectus.
____________________
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
____________________
The date of this prospectus is , 2005.
TABLE OF CONTENTS
Page Page
Prospectus Summary................................2 Description of the Notes..........................31
Risk Factors......................................11 Material United States Federal Income
Incorporation of Information We File with the SEC.26 Tax Consequences ...............................46
Special Note Regarding Forward-Looking Statements.27 Selling Securityholders...........................52
Price Range of Common Shares and Dividend Description of Share Capital......................54
Information ....................................28 Plan of Distribution..............................58
Ratio of Earnings to Fixed Charges................29 Legal Opinion.....................................60
Use of Proceeds...................................30 Experts...........................................60
Where You Can Get More Information................60
XOMA Ltd. is a Bermuda company. Our principal executive offices are located
at 2910 Seventh Street, Berkeley, California 94710, and our telephone number at
that address is (510) 204-7200. Our Web site is located at www.xoma.com. The
content of our Web site is not part of this prospectus, and prospective
purchasers of the notes should not rely on any information contained therein in
connection with their investment decision to acquire notes. In this prospectus,
unless the context indicates otherwise, "we," "us" and "our" refer to XOMA Ltd.
and its subsidiaries.
In making your investment decision, you should rely only on the information
contained or incorporated by reference in this prospectus. We have not
authorized anyone to provide you with any other information. If you receive any
other information, you should not rely on it. You should not assume that the
information contained in this prospectus is accurate as of any date other than
the date on the front cover of this prospectus.
Consent under the Exchange Control Act of 1972 of Bermuda (and its related
regulations) has been obtained from the Bermuda Monetary Authority for the issue
and transfer of the notes and the common shares issuable upon conversion of the
notes to and between non-residents of Bermuda for exchange control purposes
provided our shares remain listed on an appointed stock exchange, which includes
Nasdaq. This prospectus will be filed with the Registrar of Companies in Bermuda
in accordance with Bermuda law. In granting such consent and in accepting this
prospectus for filing, neither the Bermuda Monetary Authority nor the Registrar
of Companies in Bermuda accepts any responsibility for our financial soundness
or the correctness of any of the statements made or opinions expressed in this
prospectus.
Trademarks
NEUPREX(R) and Human Engineering(TM) are trademarks of XOMA Ltd. and/or our
licensees. All other trademarks or service marks appearing in this prospectus
and the documents we incorporate by reference are the property of their owners.
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial data,
including the consolidated financial statements and related notes thereto,
appearing elsewhere or incorporated by reference in this prospectus. In addition
to other information in this prospectus, the factors set forth under "Risk
factors" below should be considered carefully in evaluating an investment in the
notes offered hereby.
Our Company
We are a biopharmaceutical company that identifies, develops and
manufactures antibodies and other genetically engineered protein products to
treat immunological and inflammatory disorders, cancer and infectious diseases.
Our products are presently in various stages of development and are subject to
regulatory approval before they can be introduced commercially. We have a
royalty interest in RAPTIVA(R), an approved product for the treatment of
moderate-to-severe plaque psoriasis. RAPTIVA(R) is marketed in the United States
by Genentech, Inc. and outside the United States and Japan by Serono SA. In
January of 2005, we entered into a restructuring of our collaboration agreement
with Genentech related to RAPTIVA(R), as explained below.
Our other proprietary and collaborative product development programs
include:
o CHIR-12.12, an anti-CD40 antibody for treating B-cell tumors and
additional product candidates in connection with an antibody oncology
collaboration with Chiron Corporation (IND filed);
o bactericidal/permeability-increasing protein (BPI), including
NEUPREX(R), which targets a variety of infectious diseases and
inflammatory disorders and is exclusively licensed to Zephyr Sciences,
Inc. (Phase II);
o MLN2222, a recombinant protein for reducing the incidence of
post-operative events in coronary artery bypass graft surgery patients
with Millennium Pharmaceuticals, Inc. (Phase I);
o anti-gastrin antibody product candidates in conjunction with the
antibody collaboration for the treatment of gastrointestinal cancers
with Aphton Corporation (preclinical);
o ING-1, our proprietary anti-tumor monoclonal antibody for the
treatment of various adenocarcinomas, which is licensed to Triton
BioSystems, Inc. for use with their Targeted Nano-Therapeutics(TM)
(TNT(TM)) System (preclinical);
o XMP.629, a peptide derived from BPI that targets bacteria associated
with inflammatory lesions in acne patients, including those resistant
to current antibiotic treatments (under evaluation); and
o a TPO mimetic antibody program to treat chemotherapy-induced
thrombocytopenia in collaboration with Alexion Pharmaceuticals, Inc.
(preclinical).
We leverage our preclinical, process development, manufacturing, quality
and clinical development capabilities for development of our proprietary
products and also by entering into agreements to collaborate on the development
of products with other companies. We also have proprietary technologies relating
to recombinant antibodies and proteins, including bacterial cell expression
systems and our Human Engineering(TM) method for creating human-like antibodies.
These technologies are used in our own development programs and are also
available for outlicensing.
-2-
Key products and development programs
RAPTIVA(R)
RAPTIVA(R) is the first FDA-approved biologic therapy designed to provide
continuous control of chronic moderate-to-severe plaque psoriasis in adults age
18 or older who are candidates for systemic therapy or phototherapy. Although
psoriasis appears on the skin, it is actually caused by overactive cells in the
immune system. With psoriasis, special immune cells called T-cells become
overactive. This activity sets off a series of events that eventually make skin
cells multiply so fast, they begin to pile up on the surface of the skin. In
plaque psoriasis, as cells multiply faster and faster, they form red, scaly
patches on the surface of the skin that begin to shed as the build-up of cells
continues. These patches of skin, which are often itchy and painful, are known
as plaques or lesions. Plaque psoriasis is the most common form of psoriasis;
around 80% of the people who have psoriasis have this type. Patients can
self-administer RAPTIVA(R) as a single, once-weekly subcutaneous injection after
training by a healthcare professional. RAPTIVA(R) was developed in the U.S.
through a collaboration between Genentech and us and received FDA approval in
October of 2003. Genentech has reported net sales of RAPTIVA(R) in the United
States for the year ended December 31, 2004 of $56.3 million.
In April of 1996, we entered into an agreement with Genentech for the
development of RAPTIVA(R). In March of 2003, we entered into amended and
expanded agreements related to all aspects of the collaboration, to reflect the
then current understanding between the companies. The agreements called for us
to share in the development costs and to receive a 25% share of future U.S.
operating profits and losses and a royalty on sales outside the U.S. The
agreements also called for Genentech to finance our share of development costs
up until first FDA marketing approval via a convertible subordinated loan, and
our share of pre-launch marketing and sales costs via an additional commercial
loan facility. Under the loan agreement, upon FDA approval of the product, which
occurred October 27, 2003, we elected to pay $29.6 million of the development
loan in convertible preference shares and to defer repayment of the remaining
$40.0 million as an offset against our future proceeds from our 25% share of
U.S. operating profits on the product. On December 22, 2003, we issued the
preference shares to Genentech, which are convertible into approximately 3.8
million common shares at a price of $7.75 per common share. The $13.4 million of
outstanding principal and interest on the commercial loan was payable only in
cash and was paid in January and May of 2004.
RAPTIVA(R) is licensed by Genentech outside of the United States and Japan
through an agreement made with Serono in August of 2002. Serono announced in
September that it had received European Commission Marketing Authorisation for
RAPTIVA(R) to treat people with moderate-to-severe chronic plaque psoriasis for
whom other systemic treatments or phototherapy have been inadequate or
inappropriate. RAPTIVA(R) is also approved in Switzerland and Australia, as well
as Argentina, Mexico and Brazil. Serono has launched RAPTIVA(R) in Germany, UK,
Denmark, Sweden, Switzerland, Australia, Argentina, Brazil and Mexico. In March
of 2005, Genentech disclosed its intention to begin clinical testing of
RAPTIVA(R) in atopic dermatitis.
In January of 2005, we restructured our collaboration agreement with
Genentech. Key elements of the new arrangement include:
o The previous cost and profit sharing arrangement in the United States
was modified. We will earn a mid-single digit royalty on worldwide
sales of RAPTIVA(R) with an additional royalty rate on sales in the
United States in excess of a specified level. The original agreement
provided us with the option of electing a royalty-only participation
in RAPTIVA(R) results, with a higher worldwide royalty rate structure,
but required immediate repayment of the development loan.
-3-
o Genentech agreed to discharge our obligation to pay the $40.9 million
development loan and accrued interest. We will recognize the release
of this obligation as income in our first quarter 2005 financial
statements.
o We will no longer be responsible for funding any development or sales
and marketing activities or have the right to co-promote RAPTIVA(R).
This revised agreement is effective as of January 1, 2005, and as a result,
RAPTIVA(R) became immediately profitable for us, beginning in the first quarter
of 2005.
Oncology therapeutic antibodies program
In February of 2004, we entered into an exclusive, worldwide, multi-product
collaboration with Chiron to develop and commercialize antibody products for the
treatment of cancer. Under the terms of the agreement, the companies will
jointly research, develop, and commercialize multiple antibody product
candidates. The companies share expenses and revenues, generally on a 70-30
basis, with our share being 30%. Chiron's profit share is subject to a limited
upward adjustment, which, in turn, may be reduced if we achieve certain
milestones or if Chiron elects to extend the program from three to five years.
Financial terms include initial payments to us in 2004 totaling $10.0 million
and a loan facility, secured by our interest in the collaboration, of up to
$50.0 million to fund up to 75% of our share of expenses beginning in 2005. To
date there have been no draw downs under this facility.
In July of 2004, Chiron acquired Sagres Discovery, a privately held
discovery-stage company based in Davis, California, that specializes in the
discovery and validation of oncology targets. Further review of these targets
could identify additional antibody target candidates for our collaboration.
In December of 2004, several abstracts on the novel oncology compound
CHIR-12.12, an antagonist antibody targeting CD40, the most advanced product
candidate under this collaboration, were presented at the 46th American Society
of Hematology (ASH) Annual Meeting and Exposition in San Diego, California. In
vitro, CHIR12.12 has demonstrated dual mechanisms of B-cell tumor killing:
antibody-dependent cellular cytotoxicity (ADCC) of CD40-expressing tumors by
immune effector cells and inhibition of CD40-ligand mediated growth and
survival. The first investigative new drug application, or IND, was filed in
December of 2004. Initial Phase I studies in B-cell malignancies are expected to
begin in the first quarter of 2005.
BPI-based products
We are developing novel therapeutic products derived from a recombinant
bactericidal/permeability-increasing protein (rBPI). rBPI is a genetically
engineered version of a human host-defense protein (BPI) found in white blood
cells. rBPI kills bacteria and enhances the activity of antibiotics, in many
cases reversing bacterial resistance to the antibiotic. rBPI also has
anti-inflammatory properties. Furthermore, rBPI inhibits the function of
multiple growth factors involved in blood vessel formation and angiogenesis
(growth of new blood vessels). Angiogenesis is an essential component of
inflammation and solid tumor growth as well as diseases such as retinopathies.
In November of 2004, we entered into an exclusive worldwide licensing
agreement with Zephyr for the research, development and commercialization of
products related to BPI, including our NEUPREX(R) product which is a particular
fragment of rBPI and has been tested in clinical trials in several indications.
Under the terms of the agreement, we will be entitled to receive license fees
totaling up to $11.0 million and milestone payments totaling up to $62.0
million, as well as royalties on sales of future products developed and approved
under the agreement. Our objective is to accelerate development of these
products, and the agreement also includes due diligence provisions related to
their development in multiple indications, with Zephyr funding all future
research and development activities. The agreement does not cover BPI-derived
peptide products.
-4-
MLN2222
We are developing MLN2222 for certain vascular inflammation indications
pursuant to a collaboration agreement with Millennium that was announced in
November of 2001. On October 12, 2004, the companies amended their agreements
whereby Millennium assumed responsibility for all development work and expenses
for MLN2222 upon initiation of Phase II testing. We will continue to provide
quantities of bulk drug substance requested by Millennium at their expense for
Phase II trials. We will be entitled to receive an undisclosed royalty on future
net sales of MLN2222, as well as payments related to the achievement of certain
clinical and regulatory milestones. An investment agreement between us and
Millennium, which provided for possible future sales of our common shares to
Millennium, has been terminated. MLN2222 is currently in Phase I testing with
coronary artery bypass graft surgery patients.
Anti-gastrin antibody collaboration
In September of 2004, we entered into a worldwide collaboration with Aphton
to develop treatments for gastrointestinal (GI) and other gastrin-sensitive
cancers using anti-gastrin monoclonal antibodies. Under the terms of the
agreement, the companies will share all development expenses and all
commercialization profits and losses for all product candidates on a 70/30
basis, with our share being 30%. We will have worldwide manufacturing rights for
these products and the ability to share up to 30% in the commercialization
efforts in the United States. Aphton will share U.S. commercialization rights
and will have exclusive rights to commercialize all products outside the United
States. Antibodies to be developed under the collaboration will bind and
neutralize the hormone gastrin 17 that is believed to be involved in tumor
progression in GI cancers. Gastrin expression and the appearance of gastrin
receptors have been associated with increasing malignant characteristics of GI
tumors and with poorer prognostic outcomes. Specifically, gastrin has been shown
to be involved in the progression of colorectal, stomach, liver and pancreatic
cancers and inhibiting gastrin may inhibit such growth.
ING-1
ING-1 is a Human Engineered(TM) recombinant monoclonal antibody that binds
with high affinity to an antigen expressed on epithelial cell cancers (breast,
colorectal, prostate and others), and is designed to destroy cancer cells by
recruiting the patient's own immune system. Enrollment has been completed in two
Phase I studies testing intravenous administration and a third Phase I study
testing subcutaneous administration in advanced adenocarcinoma patients. The
ING-1 monoclonal antibody incorporates our patented Human Engineering(TM)
technology, designed to reduce immunogenicity.
In October of 2004, we entered into an agreement with Triton under which
Triton has in-licensed the exclusive worldwide rights to use the ING-1
monoclonal antibody with Triton's Targeted Nano-Therapeutics(TM) (TNT(TM))
System. The TNT(TM) System is an innovative product that ablates tumors by using
tiny magnetic spheres delivered, to the tumor, systemically with antibodies and
heated by means of a magnetic filed directed to the tumor. The tiny spheres
within the tumors are induced to generate heat to destroy the tumors by a
localized externally applied magnetic field. The combination of the ING-1
antibody with the TNT(TM) System is intended to create a novel, highly
selective, safe, and effective treatment for adenocarcinomas, such as breast,
colorectal, lung, ovary and prostate. The license to Triton includes U.S. and
foreign patent rights related to our ING-1 and Human Engineering(TM)
technologies along with several pending applications. ING-1 remains available
for licensing outside the field covered by the Triton license.
XMP.629
The XMP.629 peptide, derived from BPI, targets bacteria associated with
inflammatory lesions in acne patients, including those resistant to current
antibiotic treatments. Several preclinical studies showed the XMP.629 peptide to
be a potent agent against Propionibacterium acnes and related skin
microorganisms associated with acne, as well as demonstrating favorable topical
properties. Results from a Phase II randomized, double-blind, placebo-controlled
dose-ranging efficacy and safety study in 240 mild-to-moderate acne patients
un-
-5-
dergoing 12 weeks of daily topical administration of XMP.629 were inconclusive
for efficacy with an unexpectedly high response rate in the placebo group. The
drug appeared safe and well-tolerated in this study. Previous data from several
Phase I studies in healthy volunteers and acne patients suggested that the
topical application of XMP.629 is safe, non-irritating and well tolerated. We
are conducting further analysis to determine whether and how to continue
clinical development of the product.
TPO mimetic antibody program
In December of 2003, we and Alexion formed a collaboration for the
development and commercialization of a rationally designed human TPO mimetic
antibody to treat chemotherapy-induced thrombocytopenia. The antibody was
designed to mimic the activity of TPO, a naturally occurring protein responsible
for platelet production, while being structurally distinct. In November of 2004,
we and Alexion determined that the lead molecule in our collaboration did not
meet the criteria established in the program for continued development. The
companies are evaluating next steps for the collaboration, including a potential
alternative TPO mimetic compound for development.
Our business strategy
Our strategy is to develop and manufacture antibodies and other recombinant
protein products to treat cancer, immunological and inflammatory disorders, and
infectious diseases. In addition to developing proprietary products, we enter
into collaborations with other companies and research institutions. Our
objective in these collaborations is to leverage our development infrastructure
to broaden and strengthen our product pipeline beyond what we can accomplish
with proprietary products by diversifying our development risk and gaining
financial support from our collaboration partners. Our goal is to become
profitable over the next few years while continuing to strengthen our product
pipeline. We recognize the challenging nature of this goal, and the principal
elements of our strategy are to:
o Continue to build a portfolio of medically important product
candidates. We are building a pipeline of product candidates in
multiple stages of clinical and preclinical development in a variety
of therapeutic areas. We believe this tactic may increase the
likelihood of successful product approval and commercialization, while
reducing our exposure to the risk inherent in the development of any
one drug or focusing on a single therapeutic area.
o Seek to license or acquire complementary products and technologies. We
aim to supplement our internal drug discovery efforts through the
acquisition of products and technologies that complement our internal
product development strategy. We intend to continue to identify,
evaluate and pursue the licensing or acquisition of other
strategically valuable products and technologies.
o Leverage our core competencies. We believe that we have significant
expertise in recombinant protein development and production, which we
have used to establish a strong platform for the development of
antibody and other protein-related pharmaceutical products. Our goal
is to leverage these competencies to develop high-value products for
markets with important unmet medical needs. When strategically
advantageous, we may seek marketing arrangements for the further
advancement of our product candidates.
o Outlicense select product candidates. We have additional internally
developed product candidates that we will consider outlicensing when
we believe that it will bring us additional financial resources and
increase the likelihood of regulatory approval and successful
commercialization of such products in the United States and
internationally.
-6-
o Utilize excess manufacturing capacity. We currently have manufacturing
capacity in excess of our needs for our own proprietary and
collaborative products. We are actively seeking additional
relationships that would utilize this capacity and bring us additional
financial resources.
-7-
THE NOTES
Issuer XOMA Ltd., a Bermuda company.
Notes $60,000,000 principal amount of
6.50% Convertible Senior Notes
due 2012.
Maturity date February 1, 2012, unless earlier
converted, redeemed or
repurchased.
Ranking The notes are our direct,
unsecured and unsubordinated
obligations and rank equal in
priority with all of our
existing and future unsecured
and unsubordinated indebtedness
and senior in right of payment
to all of our future
subordinated indebtedness. The
notes effectively rank junior to
any of our secured indebtedness
and any of our indebtedness that
is guaranteed by our
subsidiaries. The notes are
structurally subordinated to all
liabilities of our subsidiaries.
As of December 31, 2004, after
giving effect to the January
2005 restructuring of our
collaboration with Genentech, we
had no outstanding debt. As of
the same date and also after
giving effect to the
restructuring of our
collaboration with Genentech,
our subsidiaries had an
aggregate of approximately $0.4
million of indebtedness
(consisting of capital lease
obligations and notes payable)
recorded on their balance
sheets. In connection with our
collaboration with Chiron,
Chiron has extended a line of
credit to our U.S. subsidiary
for $50 million, which is
currently undrawn.
Interest 6.50% per year on the principal
amount, payable semi-annually in
arrears on February 1 and August
1 of each year, beginning August
1, 2005.
Conversion rights The holders of notes may convert
the notes into our common shares
at an initial conversion rate of
533.4756 shares per $1,000
principal amount of notes (equal
to a conversion price of
approximately $1.87 per share),
subject to adjustment, at any
time prior to the close of
business on the maturity date.
Sinking fund None.
Redemption by us Prior to February 6, 2008, the
notes are not redeemable. On or
after February 6, 2008, we may
redeem for cash some or all of
the notes for a price equal to
100% of the principal amount of
the notes to be redeemed, plus
accrued and unpaid interest and
liquidated damages, if any, to
but excluding the redemption
date, if the closing price of
our common shares has exceeded
150% of the conversion price
then in effect for at least 20
trading days within a period of
30 consecutive trading days
ending on the trading day prior
to the date on which we mail the
provisional redemption notice,
which date shall be at least 20
days but no more than 60 days
prior to the redemption date.
Fundamental change If we undergo a fundamental
change (as defined in this
prospectus) prior to maturity,
the holders of notes will have
the right, at
-8-
their option, to require us to
repurchase some or all of the
notes for cash at a repurchase
price equal to 100% of the
principal amount of the notes
being repurchased, plus any
accrued and unpaid interest and
liquidated damages, if any, to
but excluding the applicable
repurchase date. In addition,
following certain fundamental
changes, we will increase the
conversion rate by a number of
additional common shares or, in
lieu thereof, we may in certain
circumstances elect to adjust
the conversion rate and related
conversion obligation so that
the notes are convertible into
shares of the acquiring,
continuing or surviving company,
in each case as described
herein.
Use of proceeds The net proceeds from the sale
of the securities by this
prospectus will be received by
the selling securityholders. We
will not receive any of the
proceeds from any sale by any
selling securityholder of the
securities covered by this
prospectus.
Book-entry form The notes were issued in
book-entry form and are
represented by global
certificates deposited with, or
on behalf of, The Depository
Trust Company ("DTC") and
registered in the name of a
nominee of DTC. Beneficial
interests in any of the notes
are shown on, and transfers are
effected only through, records
maintained by DTC or its nominee
and any such interest may not be
exchanged for certificated
securities except in limited
circumstances.
Listing and Trading The notes will not be listed on
any securities exchange. The
notes have been designated for
trading in the PORTAL market.
Any notes that are resold by
means of this prospectus will no
longer be eligible for trading
in the PORTAL market. Our common
shares are listed on the Nasdaq
National Market under the symbol
"XOMA."
-9-
SUMMARY CONSOLIDATED FINANCIAL DATA
We have derived our consolidated statement of operations data for the years
ended December 31, 2004, 2003 and 2002 and the selected balance sheet data at
December 31, 2004, from our audited consolidated financial statements
incorporated by reference in this prospectus. You should read the summary
financial data set forth below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with our
consolidated financial statements and related notes incorporated by reference in
this prospectus.
Year ended December 31,
---------------------------------------------------
2004 2003 2002
-------------- ------------- ----------------
(in thousands, except per share amounts)
Statement of Operations Data:
Total revenues.................................. $ 3,665 $ 24,412 $ 29,949
Operating costs and expenses:
Research and development.................... 49,784 61,063 42,817
Marketing, general and administrative....... 15,604 13,436 16,491
Collaboration arrangement................... 16,373 7,451 2,718
-------------- ------------- ----------------
Total.................................. 81,761 81,950 62,026
-------------- ------------- ----------------
Loss from operations:........................... (78,096) (57,538) (32,077)
-------------- ------------- ----------------
Other income (expense), net..................... (846) (1,115) (1,170)
-------------- ------------- ----------------
Net loss........................................ $ (78,942) $ (58,653) $ (33,247)(1)
============== ============= ================
Net loss per common share....................... $ (.93) $ (.78) $ (.47)
============== ============= ================
_______________
(1) In 2002, includes approximately $7.0 million in legal expenses related to
our litigation with Biosite Incorporated and certain shareholder
litigation. The litigation matters to which these expenses related were
settled or otherwise resolved in 2002.
December 31, 2004
-------------------------------------
Actual As adjusted
---------------- -----------------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments $ 24,319 $ 80,919
Working capital $ 3,004 $ 59,604
Total assets $ 46,260 $ 102,860
Notes payable $ 41,050 $ 56,716
Accumulated deficit $ (678,471) $ (637,537)
Shareholders' equity $ (24,610) $ 16,324
The preceding table sets forth our balance sheet data as of December 31, 2004:
o on an actual basis; and
o on an as-adjusted basis to reflect the January 2005 restructuring of
our collaboration with Genentech and the February 2005 receipt of the
estimated net proceeds from the sale of notes in this offering,
without giving effect to the exercise of the option granted to the
initial purchasers. The net proceeds from the issuance of the notes
was approximately $56.6 million after deducting the initial
purchasers' discount of approximately $2.6 million and our other fees
and estimated expenses of approximately $0.8 million.
-10-
RISK FACTORS
You should carefully consider the risks described below and all other
information contained in this prospectus before making an investment decision.
If any of the following risks, as well as other risks and uncertainties that are
not yet identified or that we currently think are not material, actually occur,
our business, financial condition and results of operations could be materially
and adversely affected. In that event, the value of the notes or our common
shares could decline, and you may lose part or all of your investment.
Risk related to our business
The Marketing And Sales Effort In Support Of The Only Product In Which We Have
An Interest That Has Received Regulatory Approval May Not Be Successful.
RAPTIVA(R), the only product in which we have an interest that has received
regulatory approval, was approved by the FDA on October 27, 2003, for the
treatment of chronic moderate-to-severe plaque psoriasis in adults who are
candidates for systemic therapy or phototherapy. Genentech and Serono,
Genentech's international marketing partner for RAPTIVA(R), are responsible for
the marketing and sales effort in support of this product, and Genentech has
only commenced the full intended scope of this effort in the United States
within the past year. In September of 2004, Serono announced that RAPTIVA(R) had
received approval for use in the European Union and the product was launched in
several European Union countries in the fourth quarter of 2004. We have no role
in marketing and sales efforts. Under our current arrangement with Genentech, we
are entitled to receive royalties on worldwide sales of RAPTIVA(R). Successful
commercialization of this product is subject to a number of risks, including
Genentech's and Serono's ability to implement their marketing and sales effort
and achieve sales, the strength of competition from other products being
marketed or developed to treat psoriasis, physicians' and patients' acceptance
of RAPTIVA(R) as a treatment for psoriasis, Genentech's ability to provide
manufacturing capacity to meet demand for the product, and pricing and
reimbursement issues. Certain of these risks are discussed in more detail below.
Because Our Products Are Still Being Developed, We Will Require Substantial
Funds To Continue; We Cannot Be Certain That Funds Will Be Available And, If
They Are Not Available, We May Have To Take Actions Which Could Adversely Affect
Your Investment.
If adequate funds are not available, we may have to raise additional funds
in a manner that may dilute or otherwise adversely affect the rights of existing
shareholders, curtail or cease operations, or file for bankruptcy protection in
extreme circumstances. We have spent, and we expect to continue to spend,
substantial funds in connection with:
o research and development relating to our products and production
technologies,
o expansion of our production capabilities,
o various human clinical trials, and
o protection of our intellectual property.
Based on current spending levels, anticipated revenues, partner funding,
remaining net proceeds received from our last underwritten public offering, and
proceeds from our convertible senior notes issued in February of 2005, we
estimate that we have sufficient cash resources to meet our anticipated net cash
needs through at least 2008. Any significant revenue shortfalls or increases in
planned spending on development programs could shorten this period. Additional
licensing arrangements or collaborations or otherwise entering into new equity
or other financing arrangements could extend this period. Progress or setbacks
by potentially competing
-11-
products may also affect our ability to raise new funding on acceptable terms.
As a result, we do not know when or whether:
o operations will generate meaningful funds,
o additional agreements for product development funding can be reached,
o strategic alliances can be negotiated, or
o adequate additional financing will be available for us to finance our
own development on acceptable terms.
Cash balances and operating cash flow are influenced primarily by the
timing and level of payments by our licensees and development partners, as well
as by our operating costs.
Most Of Our Therapeutic Products Have Not Received Regulatory Approval. If These
Products Do Not Receive Regulatory Approval, Neither Our Third Party
Collaborators Nor We Will Be Able To Manufacture And Market Them.
Our products cannot be manufactured and marketed in the United States and
other countries without required regulatory approvals. Only one of our
therapeutic products, RAPTIVA(R), has received regulatory approval. The United
States government and governments of other countries extensively regulate many
aspects of our products, including:
o testing,
o manufacturing,
o promotion and marketing, and
o exporting.
In the United States, the FDA regulates pharmaceutical products under the
Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of
biologics, the Public Health Service Act. At the present time, we believe that
most of our products will be regulated by the FDA as biologics. The review of
therapeutic biologic products has been transferred within the FDA from the
Center for Biologics Evaluation and Research to the Center for Drug Evaluation
and Research, the body that reviews drug products. Because implementation of
this plan may not be complete, we do not know when or how this change will
affect us. Changes in the regulatory approval policy during the development
period, changes in, or the enactment of, additional regulations or statutes or
changes in regulatory review for each submitted product application may cause
delays in the approval or rejection of an application. Even if the FDA or other
regulatory agency approves a product candidate, the approval may impose
significant restrictions on the indicated uses, conditions for use, labeling,
advertising, promotion, marketing and/or production of such product. Even for
approved products such as RAPTIVA(R), the FDA may impose ongoing requirements
for post-approval studies, including additional research and development and
clinical trials, and may subsequently withdraw approval based on these
additional trials. The FDA and other agencies also may impose various civil or
criminal sanctions for failure to comply with regulatory requirements, including
withdrawal of product approval. State regulations may also affect our proposed
products.
The FDA has substantial discretion in both the product approval process and
manufacturing facility approval process and, as a result of this discretion and
uncertainties about outcomes of testing, we cannot predict at what point, or
whether, the FDA will be satisfied with our or our collaborators' submissions or
whether the FDA will raise questions which may be material and delay or preclude
product approval or manufacturing facility ap-
-12-
proval. As we accumulate additional clinical data, we will submit it to the FDA,
which may have a material impact on the FDA product approval process.
Our potential products will require significant additional research and
development, extensive preclinical studies and clinical trials and regulatory
approval prior to any commercial sales. This process is lengthy and expensive,
often taking a number of years. As clinical results are frequently susceptible
to varying interpretations that may delay, limit or prevent regulatory
approvals, the length of time necessary to complete clinical trials and to
submit an application for marketing approval for a final decision by a
regulatory authority varies significantly. As a result, it is uncertain whether:
o our future filings will be delayed,
o our preclinical and clinical studies will be successful,
o we will be successful in generating viable product candidates to
targets,
o we will be able to provide necessary additional data,
o results of future clinical trials will justify further development, or
o we will ultimately achieve regulatory approval for any of these
products.
For example,
o In 1996, in conjunction with Genentech, we began testing RAPTIVA(R) in
patients with moderate-to-severe plaque psoriasis. In April of 2002,
Genentech and we announced that a pharmacokinetic study conducted on
RAPTIVA(R) comparing XOMA-produced material and Genentech-produced
material did not achieve the pre-defined statistical definition of
comparability, and the FDA requested that another Phase III study be
completed before the filing of a Biologics License Application for
RAPTIVA(R), delaying the filing beyond the previously-planned time
frame of the summer of 2002. In March of 2003, we announced completion
of enrollment in a Phase II study of RAPTIVA(R) in patients suffering
from rheumatoid arthritis. In May of 2003, Genentech and we announced
our decision to terminate Phase II testing of RAPTIVA(R) in patients
suffering from rheumatoid arthritis based on an evaluation by an
independent Data Safety Monitoring Board that suggested no overall net
clinical benefit in patients receiving the study drug. We also
completed enrollment in a Phase II study of RAPTIVA(R) as a possible
treatment for patients with psoriatic arthritis. In March of 2004, we
announced that the study did not reach statistical significance.
o In December of 1992, we began human testing of our NEUPREX(R) product,
a genetically engineered fragment of a particular human protein, and
licensed certain worldwide rights to Baxter in January of 2000. In
April of 2000, members of the FDA and representatives of XOMA and
Baxter discussed results from the Phase III trial that tested
NEUPREX(R) in pediatric patients with a potentially deadly bacterial
infection called meningococcemia, and senior representatives of the
FDA indicated that the data presented were not sufficient to support
the filing of an application for marketing approval at that time.
o In 2003, we completed two Phase I trials of XMP.629, a BPI-derived
topical peptide compound targeting acne, evaluating the safety, skin
irritation and pharmacokinetics. In January of 2004, we announced the
initiation of Phase II clinical testing in patients with
mild-to-moderate acne. In August of 2004, we announced the results of
a Phase II trial with XMP.629 gel. The results were inconclusive in
terms of clinical benefit of XMP.629 compared with vehicle gel.
-13-
o in November of 2004, in conjunction with Alexion, we determined that
the lead molecule in our TPO mimetic collaboration did not meet the
criteria established in the program for continued development. The
companies are evaluating next steps for the collaboration, including a
potential alternative TPO mimetic compound for development.
Given that regulatory review is an interactive and continuous process, we
maintain a policy of limiting announcements and comments upon the specific
details of the ongoing regulatory review of our products, subject to our
obligations under the securities laws, until definitive action is taken.
Because All Of Our Products Are Still Being Developed, We Have Sustained Losses
In The Past And We Expect To Sustain Losses In The Future.
We have experienced significant losses and, as of December 31, 2004, we had
an accumulated deficit of $678.5 million.
For the year ended December 31, 2004, we had a net loss of approximately
$78.9 million, or $0.93 per common share (basic and diluted). For the year ended
December 31, 2003, we had a net loss of approximately $58.7 million, or $0.78
per share (basic and diluted). We expect to incur additional losses in the
future.
Our ability to achieve profitability is dependent in large part on the
success of our development programs, obtaining regulatory approval for our
products and entering into new agreements for product development, manufacturing
and commercialization, all of which are uncertain. Our ability to fund our
ongoing operations is dependent on the foregoing factors and on our ability to
secure additional funds. Because all of our products are still being developed,
we do not know whether we will ever achieve profitability or whether cash flow
from future operations will be sufficient to meet our needs.
If Third Party Collaborators And Licensees Do Not Successfully Develop And
Market Our Products, We May Not Be Able To Do So On Our Own.
Our financial resources and our marketing experience and expertise are
limited. Consequently, we depend, to a large extent, upon securing the financial
resources and marketing capabilities of third parties.
o In April of 1996, we entered into an agreement with Genentech whereby
we agreed to co-develop Genentech's humanized monoclonal antibody
product RAPTIVA(R). In April of 1999, March of 2003, and January of
2005, the companies amended the agreement. In October of 2003,
RAPTIVA(R) was approved by the FDA for the treatment of adults with
chronic moderate-to-severe plaque psoriasis who are candidates for
systemic therapy or phototherapy, and, in September of 2004, Serono
announced the product's approval in the European Union. In January of
2005, we entered into a restructuring of our collaboration agreement
with Genentech which ended our existing cost and profit sharing
arrangement related to RAPTIVA(R) in the U.S. and entitles us to a
royalty interest on worldwide net sales.
o In November of 2001, we entered into a collaboration with Millennium
to develop two of Millennium's products for certain vascular
inflammation indications. In October of 2003, we announced that we had
discontinued one of these products, MLN2201. In December of 2003, we
announced the initiation of Phase I testing on the other product,
MLN2222.
o In December of 2003, we agreed to collaborate with Alexion for the
development and commercialization of an antibody to treat
chemotherapy-induced thrombocytopenia. The TPO mimetic antibody was
designed to mimic the activity of human thrombopoietin, a naturally
occurring protein responsible for platelet production.
-14-
o In March of 2004, we announced we had agreed to collaborate with
Chiron for the development and commercialization of antibody products
for the treatment of cancer. Under the terms of the agreement, the
companies will jointly research, develop, and commercialize multiple
antibody product candidates. In July of 2004, we announced the first
product candidate out of the collaboration, CHIR-12.12, an anti-CD40
antibody.
o In September of 2004, we entered into a collaboration with Aphton for
the treatment of gastrointestinal and other gastrin-sensitive cancers
using anti-gastrin monoclonal antibodies.
o In October of 2004, we announced the licensing of our ING-1 product to
Triton for use with their TNT(TM) System.
o In November of 2004, we announced the licensing of our BPI product
platform, including our NEUPREX(R) product, to Zephyr.
Because our collaborators and licensees are independent third parties, they
may be subject to different risks than we are and have significant discretion in
determining the efforts and resources they will apply. We do not know whether
Genentech, Millennium, Alexion, Chiron, Aphton, Triton or Zephyr will
successfully develop and market any of the products that are or may become the
subject of one of our collaboration or licensing arrangements. In particular,
each of these arrangements provides for either sharing of collaboration
expenses, which means that not only we but our collaborators must have
sufficient available funds for the collaborations to continue, or funding solely
by our collaborators or licensees. In addition, our collaboration with Chiron
provides for funding by it in the form of periodic loans, and we cannot be
certain that Chiron will have the necessary funds available when these loans are
to be made.
Even when we have a collaborative relationship, other circumstances may
prevent it from resulting in successful development of marketable products.
o In January of 2000, we licensed the worldwide rights to all
pharmaceutical compositions containing a particular human protein for
treatment of meningococcemia and additional potential future human
clinical indications to Baxter. In July of 2003, this arrangement was
terminated, and the rights returned to us.
o In January of 2001, we entered into a strategic process development
and manufacturing alliance with Onyx to scale up production to
commercial volume of one of Onyx's cancer products. In June of 2003,
Onyx notified us that it was discontinuing development of the product
and terminating the agreement so that it could focus on another of its
anticancer compounds.
Although we continue to evaluate additional strategic alliances and
potential partnerships, we do not know whether or when any such alliances or
partnerships will be entered into.
Certain Of Our Technologies Are Relatively New And Are In-Licensed From Third
Parties, So Our Capabilities Using Them Are Unproven And Subject To Additional
Risks.
Primarily as a result of our bacterial cell expression licensing program,
we have access to numerous phage display technologies licensed to us by other
parties. However, we have had access to these technologies for a relatively
short time and, to varying degrees, are still dependent on the licensing parties
for training and technical support for these technologies. In addition, our use
of these technologies is limited by certain contractual provisions in the
licenses relating to them and, although we have obtained numerous licenses,
intellectual property rights in the area of phage display are particularly
complex. We cannot be certain that these restrictions or the rights of others
will not impede our ability to utilize these technologies.
-15-
Because We Have No History Of Profitability And Because The Biotechnology Sector
Has Been Characterized By Highly Volatile Stock Prices, Announcements We Make
And General Market Conditions For Biotechnology Stocks Could Result In A Sudden
Change In The Value Of Our Common Shares.
As a biopharmaceutical company, we have experienced significant volatility
in our common shares. Fluctuations in our operating results and general market
conditions for biotechnology stocks could have a significant impact on the
volatility of our common share price. From January 1, 2004 through March 16,
2005, our share price has ranged from a high of $7.71 to a low of $1.02. On
March 16, 2005, the last reported sale price of the common shares as reported on
the Nasdaq National Market was $1.12 per share. Factors contributing to such
volatility include, but are not limited to:
o sales and estimated or forecasted sales of products,
o results of preclinical studies and clinical trials,
o information relating to the safety or efficacy of our products,
o developments regarding regulatory filings,
o announcements of new collaborations,
o failure to enter into collaborations,
o developments in existing collaborations,
o our funding requirements and the terms of our financing arrangements,
o announcements of technological innovations or new indications for our
therapeutic products,
o government regulations,
o developments in patent or other proprietary rights,
o the number of shares outstanding,
o the number of shares trading on an average trading day,
o announcements regarding other participants in the biotechnology and
pharmaceutical industries, and
o market speculation regarding any of the foregoing.
We Or Our Third Party Collaborators Or Licensees May Not Be Able To Increase
Existing Or Acquire New Manufacturing Capacity Sufficient To Meet Market Demand.
Genentech is responsible for manufacturing or arranging for the
manufacturing of commercial quantities of RAPTIVA(R). Should Genentech have
difficulty in providing manufacturing capacity to produce RAPTIVA(R) in
sufficient quantities, we do not know whether they will be able to meet market
demand. If any of our other products are approved, because we have never
commercially introduced any pharmaceutical products, we do not know whether the
capacity of our existing manufacturing facilities can be increased to produce
sufficient quantities of our products to meet market demand. Also, if we or our
third party collaborators or licensees
-16-
need additional manufacturing facilities to meet market demand, we cannot
predict that we will successfully obtain those facilities because we do not know
whether they will be available on acceptable terms. In addition, any
manufacturing facilities acquired or used to meet market demand must meet the
FDA's quality assurance guidelines.
We Do Not Know Whether There Will Be A Viable Market For RAPTIVA(R) Or Our Other
Products.
Even though Genentech and we received FDA approval in October of 2003 to
market RAPTIVA(R) and even if we receive regulatory approval for our other
products, our products may not be accepted in the marketplace. For example,
physicians and/or patients may not accept a product for a particular indication
because it has been biologically derived (and not discovered and developed by
more traditional means) or if no biologically derived products are currently in
widespread use in that indication. Similarly, physicians may not accept
RAPTIVA(R) if they believe other products to be more effective or are more
comfortable prescribing other products. Consequently, we do not know if
physicians or patients will adopt or use our products for their approved
indications.
Other Companies May Render Some Or All Of Our Products Noncompetitive Or
Obsolete.
Developments by others may render our products or technologies obsolete or
uncompetitive. Technologies developed and utilized by the biotechnology and
pharmaceutical industries are continuously and substantially changing.
Competition in the areas of genetically engineered DNA-based and antibody-based
technologies is intense and expected to increase in the future as a number of
established biotechnology firms and large chemical and pharmaceutical companies
advance in these fields. Many of these competitors may be able to develop
products and processes competitive with or superior to our own for many reasons,
including that they may have:
o significantly greater financial resources,
o larger research and development and marketing staffs,
o larger production facilities,
o entered into arrangements with, or acquired, biotechnology companies
to enhance their capabilities, or
o extensive experience in preclinical testing and human clinical trials.
These factors may enable others to develop products and processes
competitive with or superior to our own or those of our collaborators. In
addition, a significant amount of research in biotechnology is being carried out
in universities and other non-profit research organizations. These entities are
becoming increasingly interested in the commercial value of their work and may
become more aggressive in seeking patent protection and licensing arrangements.
Furthermore, positive or negative developments in connection with a
potentially competing product may have an adverse impact on our ability to raise
additional funding on acceptable terms. For example, if another product is
perceived to have a competitive advantage, or another product's failure is
perceived to increase the likelihood that our product will fail, then investors
may choose not to invest in us on terms we would accept or at all.
Without limiting the foregoing, we are aware that:
o In April of 2004, Amgen Inc. and its partner Wyeth Pharmaceuticals, a
division of Wyeth, announced that their rheumatoid arthritis and
psoriatic arthritis drug, Enbrel(R), had been ap-
-17-
proved by the FDA for the same psoriasis indication as RAPTIVA(R) and
in September of 2004 they announced that the product received approval
in the European Union in this same indication;
o Biogen Idec Inc. has been marketing Amevive(R) in the U.S. to treat
the same psoriasis indication as RAPTIVA(R) and announced in October
of 2004 that it had received approval in Canada;
o Centocor, Inc., a unit of Johnson & Johnson, has announced that it has
tested its rheumatoid arthritis and Crohn's disease drug, Remicade(R),
in psoriasis showing clinical benefits and that the European
Commission has granted approval of Remicade(R), in combination with
methotrexate, to treat psoriatic arthritis, in the European Union;
o Abbott Laboratories has presented data from a Phase II psoriasis trial
showing clinical benefits of its rheumatoid arthritis drug Humira(TM);
o Isotechnika has begun a Canadian Phase III trial of ISA247, a
trans-isomer of a cyclosporine analog, in 400 patients with moderate
to severe psoriasis; and
o other companies are developing monoclonal antibody or other products
for treatment of inflammatory skin disorders.
It is possible that other companies may be developing other products based
on the same human protein as our NEUPREX(R) product, and these product(s) may
prove to be more effective than NEUPREX(R).
Amgen is developing AMG 531, a recombinant protein, for the treatment of
immune thrombocytopenic purpura. This condition is related to thrombocytopenia,
the indication that is the subject of our collaboration with Alexion. AMG 531
has completed Phase I and II studies.
There are at least two competitors developing a complement inhibitor which
may compete with MLN2222. Alexion and its partner Proctor & Gamble have
initiated enrollment in a second Phase III trial of pexelizumab, a monoclonal
antibody. This study is expected to enroll approximately 4,000 patients
undergoing coronary artery bypass graft surgery. TP10 is a complement inhibitor
developed by AVANT Immunotherapeutics, Inc. for applications including the
limitation of complement-mediated damage following surgery on cardiopulmonary
bypass. AVANT anticipates completing enrollment in the Phase IIb study in
200-300 women undergoing cardiac bypass surgery as soon as possible. AVANT is
also working closely with its partner, Lonza Biologics plc, to complete process
development and scale-up efforts in preparation for the production of Phase III
clinical materials and the start of that trial by year-end 2005.
Currently, there are at least two companies developing topical peptide
treatments for acne which may compete with XMP.629. Migenix Inc., formerly
Micrologix Biotech, Inc., is developing MBI 594AN, a topical peptide that has
completed a Phase IIB trial for the treatment of acne, and Helix Biomedix, Inc.
is developing several peptide compounds.
In collaboration with Chiron, we are co-developing the monoclonal antibody
target CD40, and, at the current time, there are several CD40 related programs
under development, mostly focused on the development of CD40 ligand products.
For example, SGN-40 is a humanized monoclonal antibody under development by
Seattle Genetics, Inc. which is targeting CD40 antigen. SGN-40 is currently in
Phase I studies in multiple myeloma and non-Hodgkin's lymphoma, with an
additional Phase I study in chronic lymphocytic leukemia to begin in 2005.
Another example is 5d12, an antiCD40 antibody under development by Tanox, Inc.
for Crohn's disease. Chiron licensed the antibody to Tanox, Inc. in 1995 and
retains some commercialization and technology rights.
-18-
Even If We Or Our Third Party Collaborators Or Licensees Bring Products To
Market, We May Be Unable To Effectively Price Our Products Or Obtain Adequate
Reimbursement For Sales Of Our Products, Which Would Prevent Our Products From
Becoming Profitable.
If we or our third party collaborators or licensees succeed in bringing our
product candidates to the market, they may not be considered cost-effective, and
reimbursement to the patient may not be available or may not be sufficient to
allow us to sell our products on a competitive basis. In both the United States
and elsewhere, sales of medical products and treatments are dependent, in part,
on the availability of reimbursement to the patient from third-party payors,
such as government and private insurance plans. Third-party payors are
increasingly challenging the prices charged for pharmaceutical products and
services. Our business is affected by the efforts of government and third-party
payors to contain or reduce the cost of health care through various means. In
the United States, there have been and will continue to be a number of federal
and state proposals to implement government controls on pricing. In addition,
the emphasis on managed care in the United States has increased and will
continue to increase the pressure on the pricing of pharmaceutical products. We
cannot predict whether any legislative or regulatory proposals will be adopted
or the effect these proposals or managed care efforts may have on our business.
If Our And Our Partners' Patent Protection For Our Principal Products And
Processes Is Not Enforceable, We May Not Realize Our Profit Potential.
Because of the length of time and the expense associated with bringing new
products to the marketplace, we and our partners hold and are in the process of
applying for a number of patents in the United States and abroad to protect our
products and important processes and also have obtained or have the right to
obtain exclusive licenses to certain patents and applications filed by others.
However, the patent position of biotechnology companies generally is highly
uncertain and involves complex legal and factual questions, and no consistent
policy regarding the breadth of allowed claims has emerged from the actions of
the U.S. Patent and Trademark Office with respect to biotechnology patents.
Legal considerations surrounding the validity of biotechnology patents continue
to be in transition, and historical legal standards surrounding questions of
validity may not continue to be applied, and current defenses as to issued
biotechnology patents may not in fact be considered substantial in the future.
These factors have contributed to uncertainty as to:
o the degree and range of protection any patents will afford against
competitors with similar technologies,
o if and when patents will issue,
o whether or not others will obtain patents claiming aspects similar to
those covered by our patent applications, or
o the extent to which we will be successful in avoiding infringement of
any patents granted to others.
The Patent Office has issued approximately 75 patents to us related to our
products based on human bactericidal permeability-increasing protein, which we
call BPI, including novel compositions, their manufacture, formulation, assay
and use. In addition, we are the exclusive licensee of BPI-related patents and
applications owned by New York University and Incyte Pharmaceuticals, Inc. These
patents and licenses are now licensed and sublicensed to Zephyr. The Patent
Office has also issued nine patents to us related to our bacterial expression
technology.
If certain patents issued to others are upheld or if certain patent
applications filed by others issue and are upheld, we may require licenses from
others in order to develop and commercialize certain potential products
incorporating our technology or we may become involved in litigation to
determine the proprietary rights of others. These licenses, if required, may not
be available on acceptable terms, and any such litigation may be costly
-19-
and may have other adverse effects on our business, such as inhibiting
our ability to compete in the marketplace and absorbing significant
management time.
Due to the uncertainties regarding biotechnology patents, we also have
relied and will continue to rely upon trade secrets, know-how and continuing
technological advancement to develop and maintain our competitive position. All
of our employees have signed confidentiality agreements under which they have
agreed not to use or disclose any of our proprietary information. Research and
development contracts and relationships between us and our scientific
consultants and potential customers provide access to aspects of our know-how
that are protected generally under confidentiality agreements. These
confidentiality agreements may not be honored or may not be enforced by a court.
To the extent proprietary information is divulged to competitors or to the
public generally, such disclosure may adversely affect our ability to develop or
commercialize our products by giving others a competitive advantage or by
undermining our patent position.
Protecting Our Intellectual Property Can Be Costly And Expose Us To Risks Of
Counterclaims Against Us.
We may be required to engage in litigation or other proceedings to protect
our intellectual property. The cost to us of this litigation, even if resolved
in our favor, could be substantial. Such litigation could also divert
management's attention and resources. In addition, if this litigation is
resolved against us, our patents may be declared invalid, and we could be held
liable for significant damages. In addition, if the litigation included a claim
of infringement by us of another party's patent that was resolved against us, we
or our collaborators may be enjoined from developing, manufacturing, selling or
importing products, processes or services unless we obtain a license from the
other party.
The Financial Terms Of Future Collaborative or Licensing Arrangements Could
Result In Dilution Of Our Share Value.
Funding from collaboration partners and others has in the past and may in
the future involve purchases of our shares. Because we do not currently have any
such arrangements, we cannot be certain how the purchase price of such shares,
the relevant market price or premium, if any, will be determined or when such
determinations will be made. Any such arrangement could result in dilution in
the value of our shares.
Because Many Of The Companies We Do Business With Are Also In The Biotechnology
Sector, The Volatility Of That Sector Can Affect Us Indirectly As Well As
Directly.
The same factors that affect us directly because we are a biotechnology
company can also adversely impact us indirectly by affecting the ability of our
collaborators, partners and others we do business with to meet their obligations
to us or our ability to realize the value of the consideration provided to us by
these other companies.
For example, in connection with our licensing transactions relating to our
bacterial expression technology, we have in the past and may in the future agree
to accept equity securities of the licensee in payment of license fees. The
future value of these or any other shares we receive is subject both to market
risks affecting our ability to realize the value of these shares and more
generally to the business and other risks to which the issuer of these shares
may be subject.
As We Do More Business Internationally, We Will Be Subject To Additional
Political, Economic And Regulatory Uncertainties.
We may not be able to successfully operate in any foreign market. We
believe that, because the pharmaceutical industry is global in nature,
international activities will be a significant part of our future business
activities and that, when and if we are able to generate income, a substantial
portion of that income will be derived from product sales and other activities
outside the United States. Foreign regulatory agencies often estab-
-20-
lish standards different from those in the United States, and an inability to
obtain foreign regulatory approvals on a timely basis could put us at a
competitive disadvantage or make it uneconomical to proceed with a product's
development. International operations may be limited or disrupted by:
o imposition of government controls,
o export license requirements,
o political or economic instability,
o trade restrictions,
o changes in tariffs,
o restrictions on repatriating profits,
o exchange rate fluctuations,
o withholding and other taxation, and
o difficulties in staffing and managing international operations.
Because We Are A Relatively Small Biopharmaceutical Company With Limited
Resources, We May Not Be Able To Attract And Retain Qualified Personnel, And The
Loss Of Key Personnel Could Delay Or Prevent Achieving Our Objectives.
Our success in developing marketable products and achieving a competitive
position will depend, in part, on our ability to attract and retain qualified
scientific and management personnel, particularly in areas requiring specific
technical, scientific or medical expertise. There is intense competition for
such personnel. Our research, product development and business efforts could be
adversely affected by the loss of one or more key members of our scientific or
management staff, particularly our executive officers: John L. Castello, our
Chairman of the Board, President and Chief Executive Officer; Patrick J.
Scannon, M.D., Ph.D., our Senior Vice President and Chief Scientific and Medical
Officer; Peter B. Davis, our Vice President, Finance and Chief Financial
Officer; and Christopher J. Margolin, our Vice President, General Counsel and
Secretary. We have employment agreements with each of these executive officers.
We currently have no key person insurance on any of our employees. Clarence L.
Dellio, our former Senior Vice President and Chief Operating Officer, retired
from our company effective as of December 31, 2004.
We Are Exposed To An Increased Risk Of Product Liability Claims.
The testing, marketing and sales of medical products entails an inherent
risk of allegations of product liability. We believe that we currently have
adequate levels of insurance for our development and manufacturing activities;
however, in the event of one or more large, unforeseen awards, such levels may
not provide adequate coverage. A significant product liability claim for which
we were not covered by insurance would have to be paid from cash or other
assets. To the extent we have sufficient insurance coverage, such a claim would
result in higher subsequent insurance rates.
We May Be Subject To Increased Risks Because We Are A Bermuda Company.
Alleged abuses by certain companies that have changed their legal domicile from
jurisdictions within the United States to Bermuda have created an environment
where, notwithstanding that we changed our legal domicile in a
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transaction that was approved by our shareholders and fully taxable to our
company under U.S. law, we may be exposed to various prejudicial actions,
including:
o "blacklisting" of our common shares by certain pension funds;
o legislation restricting certain types of transactions; and
o punitive tax legislation.
We do not know whether any of these things will happen, but if implemented
one or more of them may have an adverse impact on our future operations or our
share price.
If You Were To Obtain A Judgment Against Us, It May Be Difficult To Enforce
Against Us Because We Are A Foreign Entity.
We are a Bermuda company. All or a substantial portion of our assets,
including substantially all of our intellectual property, may be located outside
the United States. As a result, it may be difficult for shareholders and others
to enforce in United States courts judgments obtained against us. We have
irrevocably agreed that we may be served with process with respect to actions
based on offers and sales of securities made hereby in the United States by
serving Christopher J. Margolin, c/o XOMA Ltd., 2910 Seventh Street, Berkeley,
California 94710, our United States agent appointed for that purpose.
Uncertainty exists as to whether Bermuda courts would enforce judgments of
United States courts obtained in actions against XOMA or our directors and
officers that are predicated upon the civil liability provisions of the U.S.
securities laws or entertain original actions brought in Bermuda against XOMA or
such persons predicated upon the U.S. securities laws. There is no treaty in
effect between the United States and Bermuda providing for such enforcement, and
there are grounds upon which Bermuda courts may not enforce judgments of United
States courts. Certain remedies available under the United States federal
securities laws may not be allowed in Bermuda courts as contrary to that
nation's policy.
Our Shareholder Rights Agreement Or Bye-laws May Prevent Transactions That Could
Be Beneficial To Our Shareholders And May Insulate Our Management From Removal.
In February of 2003, we adopted a new shareholder rights agreement (to
replace the shareholder rights agreement that had expired), which could make it
considerably more difficult or costly for a person or group to acquire control
of XOMA in a transaction that our board of directors opposes.
Our bye-laws:
o require certain procedures to be followed and time periods to be met
for any shareholder to propose matters to be considered at annual
meetings of shareholders, including nominating directors for election
at those meetings;
o authorize our board of directors to issue up to 1,000,000 preference
shares without shareholder approval and to set the rights, preferences
and other designations, including voting rights, of those shares as
the board of directors may determine; and
o contain provisions, similar to those contained in the Delaware General
Corporation Law that may make business combinations with interested
shareholders more difficult.
These provisions of our shareholders rights agreement and our bye-laws,
alone or in combination with each other, may discourage transactions involving
actual or potential changes of control, including transactions that otherwise
could involve payment of a premium over prevailing market prices to holders of
common shares, could limit the ability of shareholders to approve transactions
that they may deem to be in their best interests, and could make it considerably
more difficult for a potential acquirer to replace management.
-22-
Risks related to the notes
The notes are effectively subordinated to any secured debt we may incur in the
future and structurally subordinated to any liabilities of our subsidiaries.
The notes are not secured by any of our assets or those of our
subsidiaries. As a result, the notes are effectively subordinated to any
existing secured debt and any secured debt that we may incur in the future. In
any liquidation, dissolution, bankruptcy or other similar proceeding, the
holders of our secured debt may assert rights against the secured assets in
order to receive full payment of their debt before the assets may be used to pay
the holders of the notes. In addition, the notes are structurally subordinated
to any existing and future liabilities of our subsidiaries. As of December 31,
2004, after giving effect to the restructuring of our collaboration with
Genentech, our subsidiaries had approximately $0.4 million of indebtedness
(consisting of capital lease obligations and notes payable) recorded on their
balance sheets. In connection with our collaboration with Chiron, Chiron has
extended a line of credit to our U.S. subsidiary for $50 million to fund up to
75% of our expenses thereunder, which is currently undrawn. This line of credit
is secured by a pledge of our interest in the collaboration. Once drawn, the
indebtedness owed to Chiron is structurally senior to the indebtedness evidenced
by the notes and effectively senior to such indebtedness to the extent of the
assets securing the line of credit.
An active trading market for the notes may not develop.
The notes are a recent issue of securities with no established trading
market and will not be listed on any securities exchange. Although the notes
have been designated for trading in the PORTAL market, there can be no assurance
that an active trading market for the notes will develop or be sustained. If
such a market were to develop, the notes could trade at prices that may be
higher or lower than their offering price depending upon many factors, including
prevailing interest rates, our operating results and the markets for similar
securities. There can be no assurance that the future market for the notes will
not be subject to volatility. Accordingly, no assurance can be given as to the
liquidity of the notes.
We expect that the trading value of the notes will be significantly affected by
the price of our common shares and other factors.
The market price of the notes is expected to be significantly affected by
the market price of our common shares. This may result in greater volatility in
the trading value of the notes than would be expected for nonconvertible debt
securities.
After giving effect to the issuance of the notes, our level of leverage and debt
service obligations could adversely affect our financial condition and prevent
us from fulfilling our obligations to you under the notes.
As of December 31, 2004, after giving effect to the restructuring of our
collaboration with Genentech and the issuance of the notes and assuming they had
occurred on that date, we (including our subsidiaries) would have had
approximately $60.0 million of indebtedness outstanding. We may not be able to
generate cash sufficient to pay the principal of, interest on and other amounts
due in respect of our indebtedness when due. We and our subsidiaries may also
incur additional debt that may be secured. In connection with our collaboration
with Chiron, Chiron has extended a line of credit to us (through our U.S.
subsidiary) for $50 million to fund up to 75% of our expenses thereunder, which
is currently undrawn. This line of credit is secured by a pledge of our interest
in the collaboration.
Our level of debt and debt service obligations could have important effects
on your investment in the notes. These effects may include:
o making it more difficult for us to satisfy our obligations to you with
respect to the notes and our obligations to other persons with respect
to our other debt;
-23-
o limiting our ability to obtain additional financing or renew existing
financing at maturity on satisfactory terms to fund our working
capital requirements, capital expenditures, acquisitions, investments,
debt service requirements and other general corporate requirements;
o increasing our vulnerability to general economic downturns,
competition and industry conditions, which could place us at a
competitive disadvantage compared to our competitors that are less
leveraged;
o increasing our exposure to rising interest rates to the extent any of
our borrowings are at variable interest rates;
o reducing the availability of our cash flow to fund our working capital
requirements, capital expenditures, acquisitions, investments and
other general corporate requirements because we will be required to
use a substantial portion of our cash flow to service debt
obligations; and
o limiting our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate.
Our ability to pay principal and interest on the notes and to satisfy our
other debt obligations will depend upon our future operating performance and the
availability of refinancing debt. If we are unable to service our debt and fund
our business, we may be forced to reduce or delay capital expenditures, seek
additional debt financing or equity capital, restructure or refinance our debt
or sell assets. We cannot assure you that we would be able to obtain additional
financing, refinance existing debt or sell assets on satisfactory terms or at
all.
Our cash flow and consequent ability to meet our debt obligations depends in
part on the earnings of our subsidiaries, and on dividends and other payments
from our subsidiaries.
Under certain circumstances, contractual and legal restrictions, as well as
the financial condition and operating requirements of our subsidiaries, could
limit our ability to obtain cash from our subsidiaries for the purpose of
meeting debt service obligations, including the payment of principal and
interest on the notes. In addition, substantially all of our operating revenues
are earned by and held in our subsidiaries, and substantially all of our
material operating agreements have been entered into by our subsidiaries. Any
rights to receive assets of any subsidiary upon its liquidation or
reorganization and the consequent right of the holders of the notes to
participate in those assets will be subject to the claims of that subsidiary's
creditors, including trade creditors, except to the extent that we are
recognized as a creditor of that subsidiary, in which case our claims would
still be subordinate to any security interests in the assets of that subsidiary.
If you hold notes, you will not be entitled to any rights with respect to our
common shares, but you will be subject to any changes made with respect to our
common shares.
If you hold notes, you will not be entitled to any rights with respect to
our common shares (including, without limitation, voting rights and rights to
receive any dividends or other distributions on our common shares), but you will
be subject to all changes affecting our common shares. You will only be entitled
to rights on the common shares if and when we deliver common shares to you in
connection with conversion of your notes. For example, in the event that an
amendment is proposed to our memorandum of continuance or bye-laws requiring
shareholder approval and the record date for determining the shareholders of
record entitled to vote on the amendment occurs prior to delivery to you of the
common shares, you will not be entitled to vote on the amendment, although you
will nevertheless be subject to any changes in the powers, preferences or
special rights of our common shares.
-24-
We may not have the ability to raise the funds necessary to repurchase the notes
upon a fundamental change as required by the indenture governing the notes.
Following a fundamental change as described under "Description of
notes--Fundamental change permits purchase of notes at the option of the
holder," holders of notes may require us to repurchase their notes for cash. A
fundamental change may also constitute an event of default or prepayment under,
and result in the acceleration of the maturity of, our then-existing
indebtedness. We cannot assure you that we will have sufficient financial
resources, or will be able to arrange financing, to pay the repurchase price in
cash with respect to any notes tendered by holders for repurchase upon a
fundamental change. Our failure to repurchase the notes when required would
result in an event of default with respect to the notes.
We may issue additional equity securities and thereby materially and adversely
affect the price of our common shares.
We are not restricted from issuing additional equity securities during the
life of the notes. We are authorized to issue, without shareholder approval,
1,000,000 preference shares, of which 2,959 were outstanding as of March 18,
2005, which may give other shareholders dividend, conversion, voting, and
liquidation rights, among other rights, which may be superior to the rights of
holders of our common shares. In addition, we are authorized to issue, without
shareholder approval, up to 135,000,000 common shares, of which 85,825,478 were
outstanding as of March 9, 2005. If we issue additional equity securities, the
price of our common shares and, in turn, the price of the notes may be
materially and adversely affected.
-25-
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
We are subject to the information requirements of the Exchange Act, and we
file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
SEC's public reference room facility located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings are also available to
the public from the SEC's Web site at www.sec.gov. In addition, you can read and
copy our SEC filings at the office of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
We "incorporate by reference" in this prospectus the information that we
file with the SEC, which means that we can disclose important information to you
by referring you to another document that we have filed with the SEC. The
information incorporated by reference is an important part of this prospectus.
Any statement that is contained in a document incorporated by reference in this
prospectus shall be modified or superseded for the purposes of this prospectus
to the extent that a statement contained in this prospectus or in any other
subsequently filed document that is also incorporated by reference in this
prospectus modifies or supersedes such statement. Any such statement so modified
or superseded shall not be considered, except as so modified or superseded, to
constitute a part of this prospectus.
We incorporate by reference the documents listed below and any documents to
the extent filed with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus but before the end of the
offering made under this prospectus:
o our annual report on Form 10-K for the fiscal year ended December 31,
2004;
o our current report on Form 8-K/A filed January 13, 2005 as amended by
amendment on Form 8-K/A filed January 21, 2005 (file no. 0-14710);
o our current report on Form 8-K filed January 31, 2005 (file no.
0-14710);
o our current report on Form 8-K filed February 2, 2005 (file no.
0-14710);
o our current report on Form 8-K filed February 8, 2005 (file no.
0-14710);
o our current report on Form 8-K filed February 28, 2005 (file no.
0-14710);
o our current report on Form 8-K filed March 9, 2005 (file no. 0-14710);
o our current report on Form 8-K filed March 11, 2005 (file no.
0-14710); and
o our definitive proxy statement filed with the SEC for our annual
meeting of shareholders filed on April 9, 2004.
We will furnish without charge to you, on written or oral request, a copy
of any or all of the documents incorporated by reference, other than exhibits
that are specifically incorporated by reference into such documents. You should
direct any requests for documents to XOMA Ltd., Attention: Secretary, 2910
Seventh Street, Berkeley, California 94710, Telephone: (510) 204-7200.
-26-
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this prospectus are forward-looking in
nature, including those relating to our potential for profitability, future
sales of RAPTIVA(R), the sufficiency of our cash resources, as well as other
statements related to current plans for product development and existing and
potential collaborative and licensing relationships, or that otherwise relate to
future periods and other statements that are not historical facts. The words
"believe," "plan," "intend," "expect" and similar expressions are intended to
identify forward-looking statements. We caution you not to place undue reliance
on these forward-looking statements. They apply only as of the date of this
prospectus except that statements incorporated by reference from previously
filed reports apply as of the date made. The occurrence of the events described,
and the achievement of the intended results, depend on many events, some or all
of which are not predictable or not within our control. Actual results may
differ materially from those anticipated in any forward-looking statements. Many
risks and uncertainties are inherent in the biopharmaceutical industry. Others
are more specific to our business. Many of the significant risks related to our
business are described in this prospectus. These include, among others: our
ability to achieve profitability will depend on the success of the sales efforts
for RAPTIVA(R), our ability to effectively anticipate and manage our
expenditures and the availability of capital market and other financing; the
sales efforts for RAPTIVA(R) may not be successful if Genentech, Inc. or its
partner, Serono SA, fails to meet its commercialization goals, due to the
strength of the competition, if physicians do not adopt the product as treatment
for their patients or if remaining regulatory approvals are not obtained; and
the period for which our cash resources are sufficient could be shortened if
expenditures are made earlier or in larger amounts than anticipated or are
unanticipated, if anticipated revenues or cost sharing arrangements do not
materialize, or if funds are not otherwise available on acceptable terms. These
and other risks, including those related to the results of preclinical testing;
the timing or results of pending and future clinical trials (including the
design and progress of clinical trials; safety and efficacy of the products
being tested; action, inaction or delay by the FDA, European or other regulators
or their advisory bodies; and analysis or interpretation by, or submission to,
these entities or others of scientific data); changes in the status of existing
collaborative relationships; the ability of collaborators and other partners to
meet their obligations; competition; market demand for products; scale-up and
marketing capabilities; availability of additional licensing or collaboration
opportunities; international operations; share price volatility; our financing
needs and opportunities; uncertainties regarding the status of biotechnology
patents; uncertainties as to the costs of protecting intellectual property; and
risks associated with our status as a Bermuda company are described in more
detail in "Risk factors." We undertake no obligation to update any
forward-looking statements, regardless of any new information, future events,
actual results or other occurrences, except to the extent required by law. We
advise you, however, to consult any additional disclosures we make in our
reports to the SEC on Forms 10-K, 10-Q and 8-K.
-27-
PRICE RANGE OF COMMON SHARES AND DIVIDEND INFORMATION
Our common shares trade on the Nasdaq National Market under the symbol
"XOMA." The following table sets forth the quarterly range of high and low
reported sale prices of our common shares on the Nasdaq National Market for the
periods indicated (in United States dollars):
---------------------------------------------------------------------------------------------------------
High Low
---------------------------------------------------------------------------------------------------------
2003:
First Quarter $ 4.60 $ 2.84
Second Quarter $ 8.00 $ 3.79
Third Quarter $ 10.70 $ 5.04
Fourth Quarter $ 8.25 $ 5.85
2004:
First Quarter $ 7.71 $ 4.24
Second Quarter $ 5.51 $ 3.75
Third Quarter $ 4.67 $ 1.94
Fourth Quarter $ 3.02 $ 1.86
2005:
First Quarter (through March 16) $ 2.74 $ 1.02
---------------------------------------------------------------------------------------------------------
On March 16, 2005, the last reported sale price of our common shares as
reported on the Nasdaq National Market was $1.12 per share. As of March 8, 2005,
there were approximately 2,913 record holders of our common shares, one of which
is Cede & Co., a nominee for Depository Trust Company ("DTC"). All of the common
shares held by brokerage firms, banks and other financial institutions as
nominees for beneficial owners are deposited into participant accounts at DTC
and are therefore considered to be held of record by Cede & Co. as one
shareholder.
We have not paid dividends on our common shares. We currently do not intend
to pay dividends and intends to retain any earnings for use in our business and
the financing of our capital requirements for the foreseeable future. The
payment of any future cash dividends on our common shares will necessarily be
dependent upon our earnings and financial needs, along with applicable legal and
contractual restrictions.
-28-
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
each of the last five years.
Year ended December 31
--------------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------- --------------- ------------ ------------- --------------- -------------
Ratio of earnings to fixed charges N/A(1) N/A(1) N/A(1) N/A(1) N/A(1)
(1) Earnings were insufficient to cover fixed charges by $78.9 million, $58.7
million, $33.2 million, $28.0 million and $29.5 million for the years ended
December 31, 2004, 2003, 2002, 2001 and 2000. For these purposes, earnings are
defined as income before income taxes and fixed charges and fixed charges are
defined as interest expense and the portion of rental expense which is deemed to
represent interest.
-29-
USE OF PROCEEDS
We have used and intend to continue to use the net proceeds from our sale
of the notes to the selling securityholders for general corporate purposes,
including current research and development projects, the development of new
products or technologies, equipment acquisitions, general working capital and
operating expenses.
We have not determined the amounts we plan to spend on any of the areas
listed above or the timing of these expenditures. As a result, our management
will have broad discretion to allocate the net proceeds from the issuance of the
notes. Pending application of the net proceeds as described above, we intend to
invest the net proceeds of our sale of the notes to the selling securityholders
in short-term, investment-grade, interest-bearing securities.
We will not receive any proceeds from the resale of the notes or the common
shares offered by this prospectus. To the extent common shares are issued upon
conversion of the notes, we will benefit from the resulting cancellation of
indebtedness.
-30-
DESCRIPTION OF THE NOTES
The notes were issued under an indenture between us and Wells Fargo Bank,
National Association, as trustee, dated February 7, 2005. The terms of the notes
include those provided in the indenture and those provided in the registration
rights agreement, which we entered into with the initial purchasers. As used in
this section, the words "we," "us," "our" and "XOMA" refer to XOMA Ltd. and not
our subsidiaries.
The following description of provisions of the notes is not complete and is
subject to, and qualified in its entirety by reference to, the notes, the
indenture and the registration rights agreement. You may request a copy of any
of the foregoing documents from the trustee.
General
The notes are our general unsecured and unsubordinated obligations and are
convertible into our common shares as described under "--Conversion rights"
below. The notes are initially limited to $60 million aggregate principal amount
and will mature on February 1, 2012, unless earlier repurchased by us at our
option beginning on February 6, 2008 or at the option of the holder upon the
occurrence of a fundamental change (as defined below).
The notes bear interest from February 7, 2005 at the rate of 6.50 percent
per year. Interest is payable semiannually on February 1 and August 1 of each
year beginning August 1, 2005, to holders of record at the close of business on
the preceding January 15 and July 15, respectively. We may pay interest on notes
represented by certificated notes by check mailed to such holders. However, a
holder of notes with an aggregate principal amount in excess of $5.0 million
will be paid by wire transfer in immediately available funds at the election of
such holder. Interest is computed on the basis of a 360-day year comprised of
twelve 30-day months. Interest will cease to accrue on a note upon its maturity,
conversion or purchase by us.
Principal will be payable, and the notes may be presented for conversion,
registration of transfer and exchange, without service charge, at our office or
agency in New York City, which shall initially be the office or agency of the
trustee in New York, New York. See "--Form, denomination and registration"
below.
We may, without the consent of the holders, increase the principal amount
of the notes by issuing additional notes under the indenture in the future on
the same terms and conditions, except for any differences in the issue price and
interest accrued prior to the issue date of the additional notes, and with the
same CUSIP number as the notes offered hereby, provided that such additional
notes must be part of the same issue as the notes offered hereby for United
States federal income tax purposes. The notes offered by this prospectus and any
additional notes would rank equally and ratably and would be treated as a single
class for all purposes under the indenture.
The indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of our securities or the incurrence
of indebtedness. The indenture also does not contain any covenants or other
provisions that afford protection to holders of notes in the event of a highly
leveraged transaction or a fundamental change of XOMA except to the extent
described under "--Fundamental change permits purchase of notes at the option of
the holder" below.
Conversion rights
The holders of notes may, at any time prior to the close of business on the
final maturity date of the notes, convert any outstanding notes (or portions
thereof) into our common shares, initially convertible at a conversion rate of
533.4756 of our common shares per $1,000 principal amount of notes, which is
equal to an initial conversion price of approximately $1.87 per share.
-31-
The conversion rate is subject to adjustment upon the occurrence of those
events described below. Holders may convert notes only in denominations of
$1,000 and whole multiples of $1,000. If we call notes for redemption, you may
convert the notes only until the close of business on the second business day
immediately preceding the redemption date unless we fail to pay the redemption
price. Except as described below, no adjustment will be made on conversion of
any notes for interest accrued thereon or dividends paid on any common shares.
Our delivery to the holder of the full number of our common shares into which a
note is convertible, together with any cash payment for such holder's fractional
shares, will be deemed to satisfy our obligation to pay the principal amount of
the note and any accrued and unpaid interest. Any accrued and unpaid interest
will be deemed paid in full rather than canceled, extinguished or forfeited. In
addition, a holder may be entitled to receive a make-whole premium as described
under "--Make-whole."
If notes are converted after a record date but prior to the next succeeding
interest payment date, holders of such notes at the close of business on the
record date will receive the interest payable on such notes on the corresponding
interest payment date notwithstanding the conversion. Such notes, upon surrender
for conversion, must be accompanied by funds equal to the amount of interest
payable on the principal amount of notes so converted. We are not required to
issue fractional common shares upon conversion of notes and instead will pay a
cash adjustment based upon the market price of the common shares on the last
trading day before the date of the conversion.
A holder may exercise the right of conversion by delivering the note to be
converted to the specified office of a conversion agent, with a completed notice
of conversion, together with any funds that may be required as described in the
preceding paragraph. The conversion date will be the date on which the notes,
the notice of conversion and any required funds have been so delivered. A holder
delivering a note for conversion will not be required to pay any taxes or duties
relating to the issuance or delivery of the common shares for such conversion,
but will be required to pay any tax or duty which may be payable relating to any
transfer involved in the issuance or delivery of the common shares in a name
other than the holder of the note. Certificates representing common shares will
be issued or delivered only after all applicable taxes and duties, if any,
payable by the holder have been paid. If any note is converted prior to the
expiration of the holding period applicable for sales thereof under Rule 144(k)
under the Securities Act (or any successor provision), the common shares
issuable upon conversion will not be issued or delivered in a name other than
that of the holder of the note unless the applicable restrictions on transfer
have been satisfied.
Ranking
The notes are our unsecured and unsubordinated obligations. The notes rank
equal in priority with all of our existing and future unsecured and
unsubordinated indebtedness. However, the notes are effectively subordinated to
our existing and future secured indebtedness to the extent of the assets
securing such indebtedness. As of December 31, 2004, after giving effect to the
restructuring of our collaboration with Genentech, we had no outstanding debt.
In addition, the notes are structurally subordinated to all existing and future
liabilities of our subsidiaries. XOMA's cash flow and consequent ability to meet
its debt obligations depends in part on the earnings of its subsidiaries, and on
dividends and other payments from its subsidiaries. Under certain circumstances,
contractual and legal restrictions, as well as the financial condition and
operating requirements of XOMA's subsidiaries, could limit its ability to obtain
cash from its subsidiaries for the purpose of meeting debt service obligations,
including the payment of principal and interest on the notes. Any rights to
receive assets of any subsidiary upon its liquidation or reorganization and the
consequent right of the holders of the notes to participate in those assets will
be subject to the claims of that subsidiary's creditors, including trade
creditors, except to the extent that XOMA is recognized as a creditor of that
subsidiary, in which case its claims would still be subordinate to any security
interests in the assets of that subsidiary. As of December 31, 2004, after
giving effect to the restructuring of our collaboration with Genentech, our
subsidiaries had liabilities for capital leases and notes payable of
approximately $0.4 million.
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Optional redemption by us
Prior to February 6, 2008, the notes will not be redeemable at our option.
Beginning on February 6, 2008, we may redeem the notes in whole or in part for
cash at any time at a redemption price equal to 100 percent of the principal
amount of the notes plus any accrued and unpaid interest and liquidated damages,
if any, on the notes to but not including the redemption date, if the closing
price of the common shares has exceeded 150 percent of the conversion price then
in effect for at least 20 trading days in any consecutive 30 trading day period.
In addition, if on any interest payment date occurring after February 6,
2008, the aggregate principal amount of the notes outstanding is less than 15
percent of the aggregate principal amount of notes outstanding at issuance, we
may redeem the notes, in whole but not in part, at a redemption price equal to
100 percent of the principal amount of the notes plus any accrued and unpaid
interest and liquidated damages, if any, on the notes to but not including the
redemption date.
The "conversion price" as of any day will equal $1,000 divided by the
conversion rate. If we redeem the notes, we will make an additional payment
equal to the total value of the aggregate amount of the interest otherwise
payable on the notes from the last day through which interest was paid on the
notes through the date of redemption. We must make these payments on all notes
called for redemption, including notes converted after the date we mailed the
notice.
If we redeem the notes, we will pay accrued and unpaid interest and
liquidated damages, if any, on all notes called for redemption, including notes
converted after the date we mailed the notice.
We will give at least 20 days but not more than 60 days notice of
redemption by mail to holders of notes. Notes or portions of notes called for
redemption will be convertible by the holder until the close of business on the
business day prior to the redemption date.
If we do not redeem all of the notes, the trustee will select the notes to
be redeemed in principal amount of $1,000 or in whole multiples thereof, by lot
or on a pro rata basis or by another method that the trustee considers fair and
appropriate. If any notes are to be redeemed in part only, we will issue a new
note or notes with a principal amount equal to the unredeemed principal portion
thereof. If a portion of your notes is selected for partial redemption and you
convert a portion of your notes, the converted portion will be deemed to be
taken from the portion selected for redemption.
Make-whole
If and only to the extent you elect to convert your notes in connection
with a transaction described under the second bullet point of the change of
control definition as described below under "--Fundamental change permits
purchase of notes at the option of the holder" that occurs on or prior to
February 1, 2012, pursuant to which 5 percent or more of the consideration for
our common shares (other than cash payments for fractional shares and cash
payments made in respect of dissenters' appraisal rights) in such fundamental
change transaction consists of cash or securities (or other property) that are
not traded or scheduled to be traded immediately following such transaction on a
U.S. national securities exchange or the Nasdaq National Market, we will
increase the conversion rate for the notes surrendered for conversion by a
number of additional shares (the "additional shares") as described below.
The number of additional shares will be determined by reference to the
table below, based on the date on which such change of control transaction
becomes effective (the "effective date") and the price paid per share for our
common shares in such fundamental change transaction (the "share price"). If
holders of our common shares receive only cash in such fundamental change
transaction, the share price shall be the cash amount paid per share. Otherwise,
the share price shall be the average of the closing prices of our common shares
on the five trading days prior to but not including the effective date of such
fundamental change transaction.
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The additional shares will be delivered to holders who elect to convert
their notes on the later of (1) the fifth business day following the effective
date and (2) the third business day following the final day of the cash
settlement averaging period.
The share prices set forth in the first row of the table below (i.e.,
column headers) will be adjusted as of any date on which the conversion rate of
the notes is adjusted, as described above under "--Adjustments to conversion
rate." The adjusted share prices will equal the share prices applicable
immediately prior to such adjustment, multiplied by a fraction, the numerator of
which is the conversion rate immediately prior to the adjustment giving rise to
the share price adjustment and the denominator of which is the conversion rate
as so adjusted. The number of additional shares will be adjusted in the same
manner as the conversion rate as set forth under "Adjustments to conversion
rate."
The following table sets forth the hypothetical share price and number of
additional shares to be issuable per $1,000 principal amount of notes:
----------------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ------- -------
$1.63 $1.75 $2.25 $2.75 $3.25 $3.75 $4.25 $4.75 $5.25 $5.75 $6.25 $6.75
----------------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ------- -------
Effective Date
February 1, 2005 50.00 50.00 50.00 50.00 50.00 20.89 16.56 13.25 10.65 8.58 6.90 0.00
February 1, 2006 50.00 50.00 50.00 50.00 21.09 16.47 13.15 10.61 8.61 7.00 5.67 0.00
February 1, 2007 50.00 50.00 50.00 18.07 12.78 9.81 7.85 6.41 5.28 4.35 3.58 0.00
February 1, 2008 50.00 50.00 18.02 1.72 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
February 1, 2009 50.00 50.00 16.87 0.87 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
February 1, 2010 50.00 50.00 16.32 0.60 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
February 1, 2011 50.00 50.00 14.03 0.52 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
February 1, 2012 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----------------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ------- -------
The exact share prices and effective dates may not be set forth in the
table above, in which case:
o If the share price is between two share price amounts in the table or
the effective date is between two effective dates in the table, the
number of additional shares will be determined by a straight-line
interpolation between the number of additional shares set forth for
the higher and lower share price amounts and the two dates, as
applicable, based on a 365-day year.
o If the share price is in excess of $6.75 per share (subject to
adjustment), no additional shares will be issuable upon conversion.
o If the share price is less than the share price on the date of
issuance (subject to adjustment), no additional shares will be
issuable upon conversion.
Notwithstanding the foregoing, in no event will the total number of common
shares issuable upon conversion per $1,000 principal amount of notes exceed
583.4756, subject to adjustments in the same manner as the conversion rate as
set forth under "--Adjustments to conversion rate."
Our obligation to satisfy the additional shares requirement could be
considered a penalty, in which case the enforceability thereof would be subject
to general principles of reasonableness of economic remedies.
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Conversion after a public acquirer change of control
Notwithstanding the foregoing, in the case of a public acquirer change of
control (as defined below), we may, in lieu of paying a make-whole premium as
described in "--Make-whole" above, elect to adjust the conversion rate and the
related conversion obligation such that from and after the effective date of
such public acquirer change of control, holders of the notes will be entitled to
convert their notes (subject to the satisfaction of the conditions to conversion
described under "--Conversion rights") into a number of shares of public
acquirer common shares (as defined below) by adjusting the conversion rate in
effect immediately before the public acquirer change of control by a fraction:
o the numerator of which will be (i) in the case of a consolidation,
amalgamation, merger or binding share exchange, pursuant to which our
common shares are converted into cash, securities or other property,
the average value of all cash and any other consideration (as
determined by our board of directors) paid or payable per share of our
common shares or (ii) in the case of any other public acquirer change
of control, the average of the last reported sale price of our common
shares for the five consecutive trading days prior to but excluding
the effective date of such public acquirer change of control, and
o the denominator of which will be the average of the last reported sale
prices of the public acquirer common shares for the five consecutive
trading days commencing on the trading day next succeeding the
effective date of such public acquirer change of control.
A "public acquirer change of control" means any event constituting a
"change of control" that would otherwise obligate us to pay a make-whole premium
as described above under "--Make-whole" and the acquirer (or any entity that is
a directly or indirectly wholly-owned subsidiary of the acquirer or of which the
acquirer is a directly or indirectly wholly-owned subsidiary) has a class of
common shares traded on a national securities exchange or quoted on the Nasdaq
National Market or which will be so traded or quoted when issued or exchanged in
connection with such event (the "public acquirer common shares").
After the adjustment of the conversion rate in connection with a public
acquirer change of control, the conversion rate will be subject to further
similar adjustments in the event that any of the events described in
"--Conversion rights" above occur thereafter.
Upon a public acquirer change of control, if we so elect, holders may
convert their notes at the adjusted conversion rate described in the third
preceding paragraph but will not be entitled to the make-whole premium described
under "--Make-whole." We are required to notify holders of our election in our
notice to holders of such transaction. As described under "--Conversion rights,"
holders may convert their notes upon a public acquirer change of control during
the period specified therein. In addition, the holder can also, subject to
certain conditions, require us to repurchase all or a portion of its notes as
described under "--Fundamental change permits purchase of notes at the option of
the holder" below.
Adjustments to conversion rate
The initial conversion rate will be adjusted for certain events, including:
o the issuance of XOMA common shares as a dividend, bonus issue or other
distribution on XOMA common shares and certain subdivisions and
consolidations of XOMA common shares;
o the issuance to all holders of XOMA common shares of certain rights or
warrants entitling them for a period of not more than 45 days to
purchase XOMA common shares at less than the market price of XOMA
common shares on the trading day immediately preceding the time of
announcement of such issuance;
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o the dividend, bonus issue or other distribution to all holders of XOMA
common shares of shares of XOMA's share capital (other than common
shares), evidences of indebtedness or assets (including securities,
but excluding (A) those rights and warrants referred to above, (B)
dividends, bonus issue and other distributions in connection with a
reclassification, amalgamation, consolidation, statutory share
exchange, merger, combination, sale or conveyance resulting in a
change in the conversion consideration pursuant to the second
succeeding paragraph or (C) dividends or distributions paid
exclusively in cash);
o dividends or other distributions consisting exclusively of cash to all
holders of XOMA common shares; and
o the purchase of XOMA common shares pursuant to a tender offer or
exchange offer made by XOMA or any of its subsidiaries to the extent
that the same involves an aggregate consideration that, together with
any cash and the fair market value of any other consideration paid in
any other tender offer by XOMA or any of its subsidiaries for XOMA
common shares expiring within the 12 months preceding the expiration
of such tender offer for which no adjustment has been made, exceeds
the last reported sale price of our common shares on the trading day
next succeeding the last date on which tenders or exchanges may be
made.
No adjustment in the conversion rate will be required unless such
adjustment would require a change of at least one percent in the conversion rate
then in effect at such time. Any adjustment that would otherwise be required to
be made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion rate will not be adjusted for
the issuance of our common shares or any securities convertible into or
exchangeable for our common shares or carrying the right to purchase any of the
foregoing. We will not make any adjustment if holders of notes are entitled to
participate in the transactions described above.
In the case of:
o any reclassification or change of XOMA common shares (other than a
change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or consolidation)
or
o an amalgamation, consolidation, statutory share exchange, merger or
combination involving XOMA or
o a sale or conveyance to another corporation of all or substantially
all of XOMA's property and assets,
in each case as a result of which holders of XOMA common shares are entitled to
receive shares, other securities, other property or assets (including cash or
any combination thereof) with respect to or in exchange for XOMA common shares,
the holders of the notes then outstanding will be entitled thereafter to convert
those notes into the kind and amount of shares of shares, other securities or
other property or assets (including cash or any combination thereof) which they
would have owned or been entitled to receive upon such reclassification,
amalgamation, consolidation, merger, combination, sale or conveyance had such
notes been converted into XOMA common shares immediately prior to such
reclassification, amalgamation, consolidation, merger, combination, sale or
conveyance (subject to our right to elect to adjust the conversion rate and the
related conversion obligation as set forth in "--Conversion after a public
acquirer change of control").
We may not become a party to any such transaction unless its terms are
consistent with the foregoing.
If a taxable distribution to holders of XOMA common shares or other
transaction occurs which results in any adjustment of the conversion rate, the
holders of notes may, in certain circumstances, be deemed to have
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received a distribution subject to U.S. income tax as a dividend. In certain
other circumstances, the absence of an adjustment may result in a taxable
dividend to the holders of common shares. See the section of this prospectus
entitled "Material United States federal tax consequences."
Subject to applicable Nasdaq Marketplace rules regarding shareholder
approval, we may from time to time, to the extent permitted by law, increase the
conversion rate of the notes by any amount for any period of at least 20 days.
In that case we will give at least 15 days' notice of such increase. We may make
such increases in the conversion rate, in addition to those set forth above, as
the board of directors deems advisable to avoid or diminish any income tax to
holders of XOMA common shares resulting from any dividend or distribution of
shares (or rights to acquire shares) or from any event treated as such for
income tax purposes.
Holders of the notes will receive, upon conversion of the notes, in
addition to our common shares, the rights under our existing rights plan or, if
we amend our rights plan or adopt a new rights plan while notes remain
outstanding, the rights under that rights plan as so amended or replaced unless,
prior to the conversion, the rights have expired, terminated or been redeemed or
unless the rights have separated from our common shares, in which case the
applicable conversion rate will be adjusted at the time of separation as if we
had distributed to all holders of our common shares, evidences of indebtedness
or assets described in the third bullet point of the first paragraph of this
section, subject to readjustment upon the subsequent expiration, termination or
redemption of the rights.
Fundamental change permits purchase of notes at the option of the holder
If a fundamental change (as defined below) occurs, each holder of notes
will have the right to require us to repurchase all of that holder's notes, or
any portion of those notes that is equal to $1,000 or a whole multiple of
$1,000, on the date that is 45 days after the date we give notice of a
fundamental change at a repurchase price equal to 100 percent of the aggregate
principal amount of the notes to be repurchased, together with interest and
liquidated damages, if any, accrued and unpaid to, but excluding, the repurchase
date. If such purchase date is after a record date but on or prior to an
interest payment date, however, then the interest payable on such date will be
paid to the holder of record of the notes on the relevant record date.
Within 30 days after the occurrence of a fundamental change, we are
required to give notice to all holders of record of notes, as provided in the
indenture, stating among other things, the occurrence of a fundamental change
and of their resulting purchase right. We must also deliver a copy of our notice
to the trustee.
In order to exercise the purchase right upon a fundamental change, a holder
must deliver prior to the fundamental change purchase date a fundamental change
purchase notice stating among other things:
o if certificated notes have been issued, the certificate numbers of the
notes to be delivered for purchase;
o the portion of the principal amount of notes to be purchased, in
integral multiples of $1,000; and
o that the notes are to be purchased by us pursuant to the applicable
provisions of the notes and the indenture.
If the notes are not in certificated form, a holder's fundamental change
purchase notice must comply with appropriate DTC procedures.
A holder may withdraw any fundamental change purchase notice upon a
fundamental change by a written notice of withdrawal delivered to the paying
agent prior to the close of business on the business day prior to the
fundamental change purchase date. The notice of withdrawal must state:
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o the principal amount of the withdrawn notes;
o if certificated notes have been issued, the certificate numbers of the
withdrawn notes; and
o the principal amount, if any, of the notes which remains subject to
the fundamental change purchase notice.
In connection with any purchase offer in the event of a fundamental change,
we will, if required:
o comply with the provisions of Rule 13e-4, Rule 14e-1, and any other
tender offer rules under the Exchange Act which may then be
applicable; and
o file a Schedule TO or any other required schedule under the Exchange
Act.
Payment of the fundamental change purchase price for a note for which a
fundamental change purchase notice has been delivered and not validly withdrawn
is conditioned upon book-entry transfer or delivery of the note, together with
necessary endorsements, to the paying agent at any time after delivery of such
fundamental change purchase notice. Payment of the fundamental change purchase
price for the note will be made promptly following the later of the fundamental
change purchase date or the time of book-entry transfer or delivery of the note.
If the paying agent holds money sufficient to pay the fundamental change
purchase price of the note on the fundamental change purchase date in accordance
with the terms of the indenture, then, immediately after the fundamental change
purchase date, the note will cease to be outstanding and interest on such note
will cease to accrue, whether or not the note is delivered to the paying agent.
Thereafter, all other rights of the holder will terminate, other than the right
to receive the fundamental change purchase price upon delivery of the note.
A "fundamental change" will be deemed to have occurred upon a change of
control or a termination in trading.
A "change of control" will be deemed to have occurred at such time after
the original issuance of the notes when the following has occurred:
o any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) acquires the beneficial ownership (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly
or indirectly, through a purchase, amalgamation, merger or other
acquisition transaction, of 50 percent or more of the total voting
power of the total outstanding voting shares of XOMA other than an
acquisition by us, any of our subsidiaries or any of our employee
benefit plans;
o XOMA consolidates with, or amalgamates or merges with or into, another
person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person
consolidates with or amalgamates or merges with or into XOMA, other
than:
o any transaction (A) that does not result in any reclassification,
conversion, exchange or cancellation of XOMA's outstanding share
capital and (B) pursuant to which holders of XOMA's share capital
immediately prior to the transaction have the entitlement to
exercise, directly or indirectly, 50 percent or more of the total
voting power of all XOMA's share capital entitled to vote
generally in the election of directors of the continuing or
surviving person immediately after the transaction;
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o any amalgamation or merger solely for the purpose of changing
XOMA's jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding common
shares solely into shares of common equity of the surviving or
continuing entity; or
o any transaction in which at least 95% of the consideration for
the common shares (excluding cash payments for fractional shares
and cash payments made in respect of dissenters' appraisal
rights) in the transaction or transactions otherwise constituting
a change of control consists of shares of common equity traded on
a U.S. national securities exchange or quoted on The NASDAQ
National Market(R), or which will be so traded or quoted when
issued or exchanged in connection with the fundamental change,
and as a result of such transaction or transactions the notes
become convertible solely into such shares of common equity; or
o during any consecutive two-year period, individuals who at the
beginning of that two-year period constituted the board of directors
of XOMA (together with any new directors whose election to such board
of directors, or whose nomination for election by shareholders, was
approved by a vote of a majority of the directors then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the board of directors of
XOMA then in office;
o XOMA's shareholders pass a special resolution approving a liquidation
or dissolution and no additional approvals of shareholders are
required under applicable law to cause a liquidation or dissolution.
The definition of change of control includes a phrase relating to the
conveyance, transfer, lease, or other disposition of "all or substantially all"
of XOMA's assets. There is no precise established definition of the phrase
"substantially all" under applicable law. Accordingly, the ability of a holder
of notes to require us to repurchase such notes as a result of a conveyance,
transfer, lease, or other disposition of less than all of XOMA's assets may be
uncertain.
A "termination in trading" will be deemed to have occurred if our common
shares (or other common shares into which the notes are then convertible) are
neither listed for trading on a United States national or regional securities
exchange nor approved for trading on the Nasdaq National Market, Nasdaq SmallCap
Market or any other established United States system of automated dissemination
of quotations of securities prices.
Beneficial ownership will be determined in accordance with Rule 13d-3
promulgated by the SEC under the Exchange Act. The term "person" includes any
syndicate or group that would be deemed to be a "person" under Section 13(d)(3)
of the Exchange Act.
In some circumstances, the fundamental change purchase feature of the notes
may make more difficult or discourage a takeover of us and thus the removal of
incumbent management. The fundamental change purchase feature, however, is not
the result of management's knowledge of any specific effort to accumulate common
shares or to obtain control of us by means of an amalgamation, merger, tender
offer, solicitation or otherwise, or part of a plan by management to adopt a
series of anti-takeover provisions. Instead, the fundamental change purchase
feature is the result of negotiations between us and the initial purchasers.
We may, to the extent permitted by applicable law, at any time purchase the
notes in the open market or by tender at any price or by private agreement. Any
notes surrendered to the trustee may not be reissued or resold and will be
canceled promptly.
The foregoing provisions would not necessarily protect holders of the notes
if highly leveraged or other transactions involving us occur that may adversely
affect holders. Our ability to repurchase notes upon the occurrence of a
fundamental change is subject to important limitations. The occurrence of a
fundamental change
-39-
could cause an event of default under, or be prohibited or limited by, the terms
of indebtedness that we may incur in the future. Further, we cannot assure you
that we would have the financial resources, or would be able to arrange
financing, to pay the repurchase price for all the notes that might be delivered
by holders of notes seeking to exercise the repurchase right. Any failure by us
to repurchase the notes when required following a fundamental change would
result in an event of default under the indenture. Any such default may, in
turn, cause a default under indebtedness that we may incur in the future.
No notes may be purchased by us at the option of holders upon the
occurrence of a fundamental change if there has occurred and is continuing an
event of default with respect to the notes, other than a default in the payment
of the fundamental change purchase price with respect to the notes.
Events of default
Each of the following constitutes an event of default under the indenture:
o our failure to pay when due the principal on any of the notes at
maturity or exercise of a repurchase right or otherwise;
o our failure to pay an installment of interest (including liquidated
damages, if any) on any of the notes for 30 days after the date when
due;
o failure by us to deliver our common shares, together with cash instead
of fractional shares when those common shares, or cash instead of
fractional shares are required to be delivered following conversion of
a note, and that default continues for 10 days;
o failure by us to give a fundamental change notice within 30 days of
the occurrence of the fundamental change;
o our failure to perform or observe any other term, covenant or
agreement contained in the notes or the indenture for a period of 60
days after written notice of such failure, requiring us to remedy the
same, shall have been given to us by the trustee or to us and the
trustee by the holders of at least 25 percent in aggregate principal
amount of the notes then outstanding;
o either (a) our failure or the failure of any of our significant
subsidiaries to make any payment by the end of the applicable grace
period, if any, after the final scheduled payment date for such
payment with respect to any indebtedness for borrowed money in an
aggregate principal amount in excess of $10 million, or (b) the
acceleration of indebtedness for borrowed money of the company or any
of our significant subsidiaries in an aggregate amount in excess of
$10 million because of a default with respect to such indebtedness,
without such indebtedness referred to in either (a) or (b) above
having been discharged, cured, waived, rescinded or annulled, for a
period of 30 days after written notice to us by the trustee or to us
and the trustee by holders of at least 25 percent in aggregate
principal amount of the notes then outstanding;
o our failure or the failure of any of our significant subsidiaries to
make any payment on a final judgment aggregating in excess of $10
million, without such judgment having been paid, discharged or stayed
for a period of 60 days; and
o certain events of our bankruptcy, insolvency or reorganization.
The term "significant subsidiary" means a subsidiary, including its
subsidiaries, that meets any of the following conditions:
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o XOMA's and its other subsidiaries' investments in and advances to the
subsidiary exceed 10 percent of the total assets of XOMA and its
subsidiaries consolidated as of the end of the most recently completed
fiscal year,
o XOMA's and its other subsidiaries' proportionate share of the total
assets (after intercompany eliminations) of the subsidiary exceeds 10
percent of the total assets of XOMA and its subsidiaries consolidated
as of the end of the most recently completed fiscal year, or
o XOMA's and its other subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the
subsidiary exceeds 10 percent of such income of XOMA and its
subsidiaries consolidated for the most recently completed fiscal year.
The indenture provides that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the notes notice of
all uncured defaults known to it, but the trustee shall be protected in
withholding such notice if it, in good faith, determines that the withholding of
such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the notes when due or in the payment of any repurchase
obligation.
If an event of default specified in the eighth bullet point above occurs
and is continuing, then automatically the principal of all the notes and the
interest thereon shall become immediately due and payable. If an event of
default shall occur and be continuing, other than with respect to the eighth
bullet point above (the default not having been cured or waived as provided
under "--Modifications and waiver" below), the trustee or the holders of at
least 25 percent in aggregate principal amount of the notes then outstanding may
declare the notes due and payable at their principal amount together with
accrued interest, and thereupon the trustee may, at its discretion, proceed to
protect and enforce the rights of the holders of notes by appropriate judicial
proceedings. Such declaration may be rescinded or annulled with the written
consent of the holders of a majority in aggregate principal amount of the notes
then outstanding upon the conditions provided in the indenture. However, if an
event of default is cured prior to such declaration by the trustee or holders of
the notes as discussed above, the trustee and the holders of the notes will not
be able to make such declaration as a result of that cured event of default.
Overdue payments of interest, liquidated damages and premium, if any, and
principal shall accrue interest at 7 percent.
The indenture contains a provision entitling the trustee, subject to the
duty of the trustee during default to act with the required standard of care, to
be indemnified by the holders of notes before proceeding to exercise any right
or power under the indenture at the request of such holders. The indenture
provides that the holders of a majority in aggregate principal amount of the
notes then outstanding through their written consent may direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or exercising any trust or power conferred upon the trustee.
We are required to furnish annually to the trustee a statement as to the
fulfillment of our obligations under the indenture.
Consolidation, amalgamation, merger or assumption
We may, without the consent of the holders of notes, consolidate or
amalgamate with, merge or convert into or transfer all or substantially all of
our assets to any other entity organized under the laws of Bermuda or the United
States or any of its political subdivisions provided that:
o the surviving or continuing entity remains liable for or assumes all
our obligations under the indenture and the notes;
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o at the time of such transaction, no event of default, and no event
which, after notice or lapse of time, would become an event of
default, shall have happened and be continuing; and
o certain other conditions are met.
Modifications and waiver
The indenture (including the terms and conditions of the notes) may be
modified or amended by us and the trustee, without the consent of the holder of
any note, for the purposes of, among other things:
o adding to our covenants for the benefit of the holders of notes;
o surrendering any right or power conferred upon us, including, without
limitation, the right to pay the repurchase price in our common
shares;
o providing for the continuation or assumption of our obligations to the
holders of notes in the case of an amalgamation, merger,
consolidation, conveyance, transfer or lease;
o increasing the conversion rate or reducing the conversion price,
provided that the increase or reduction will not adversely affect the
interests of holders of notes in any material respect;
o complying with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act of 1939, as amended;
o making any changes or modification to the indenture necessary in
connection with the registration of the notes under the Securities Act
as contemplated by the registration rights agreement, provided that
this action does not adversely affect the interest of the holders of
the notes in any material respects;
o curing any ambiguity or correcting or supplementing any defective
provision contained in the indenture; provided that such modification
or amendment does not adversely affect the interests of the holders of
the notes in any material respect; provided, however, that any change
to conform the indenture to the description of the notes contained in
this prospectus shall be deemed not to adversely affect the interests
of the holders of the notes in any material respect;
o establish the forms or terms of the notes;
o evidence the acceptance of appointment by a successor trustee;
o adding or modifying any other provisions which we and the trustee may
deem necessary or desirable and which will not adversely affect the
interests of the holders of notes in any material respect;
o complying with the requirements regarding amalgamation, merger or
transfer of assets; or
o providing for uncertified notes in addition to the certificated notes
so long as such uncertificated notes are in registered form for the
purposes of the Internal Revenue Code of 1986, as amended.
Modifications and amendments to the indenture or to the terms and
conditions of the notes may also be made, and any past default by us may be
waived with the written consent of the holders of at least a majority in
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aggregate principal amount of the notes at the time outstanding. However, no
such modification, amendment or waiver may, without the written consent or the
affirmative vote of the holder of each note so affected:
o change the payment date of the principal of or any installment of
interest on that note (including any payment of liquidated damages or
make-whole premium);
o reduce the principal amount of, or any make-whole premium or interest
on (including any payment of liquidated damages), any note;
o change the currency of payment of such note or interest thereon;
o impair the right to institute suit for the enforcement of any payment
on or with respect to any note;
o except as otherwise permitted or contemplated by provisions concerning
corporate reorganizations, adversely affect the repurchase option of
holders upon a fundamental change or the conversion rights of holders
of the notes; or
o reduce the percentage in aggregate principal amount of notes
outstanding necessary to modify or amend the indenture or to waive any
past default.
Satisfaction and discharge
We may discharge our obligations under the indenture while notes remain
outstanding, subject to certain conditions, if we have deposited with the
trustee an amount sufficient to pay and discharge all outstanding notes on the
date of their scheduled maturity together with any interest payable thereon.
However, we will remain obligated to issue our common shares upon conversion of
the notes until such maturity as described under "--Conversion rights."
Form, denomination and registration
The notes were issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and whole multiples of $1,000.
Global notes; book-entry form
Except as provided below, the notes are evidenced by one or more global
notes deposited with the trustee as custodian for The Depository Trust Company,
New York, New York ("DTC"), and registered in the name of Cede & Co. as DTC's
nominee. Record ownership of the global notes may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee,
except as set forth below. An owner may hold its interests in a global note
directly through DTC if such owner is a participant in DTC, or indirectly
through organizations which are direct DTC participants. Transfers between
direct DTC participants will be effected in the ordinary way in accordance with
DTC's rules and will be settled in same-day funds. Owners may also beneficially
own interests in the global notes held by DTC through certain banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a direct DTC participant, either directly or
indirectly. So long as Cede & Co., as nominee of DTC, is the registered owner of
the global notes, Cede & Co. for all purposes is considered the sole holder of
the global notes. Except as provided below, owners of beneficial interests in
the global notes are not entitled to have certificates registered in their
names, did not receive nor were entitled to receive physical delivery of
certificates in definitive form, and are not considered holders thereof. The
laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer a
beneficial interest in the global notes to such persons may be limited. We will
wire, through the facilities of the trustee, principal, premium, if any, and
interest payments on the global notes to Cede & Co., the nominee for DTC, as the
registered owner of the global notes. We, the
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trustee and any paying agent have no responsibility or liability for paying
amounts due on the global notes to owners of beneficial interests in the global
notes. It is DTC's current practice, upon receipt of any payment of principal of
and premium, if any, and interest on the global notes, to credit participants'
accounts on the payment date in amounts proportionate to their respective
beneficial interests in the notes represented by the global notes, as shown on
the records of DTC, unless DTC believes that it will not receive payment on the
payment date. Payments by DTC participants to owners of beneficial interests in
notes represented by the global notes held through DTC participants is the
responsibility of DTC participants, as is now the case with securities held for
the accounts of customers registered in "street name."
If you would like to convert your notes into our common shares pursuant to
the terms of the notes, you should contact your broker or other direct or
indirect DTC participant to obtain information on procedures, including proper
forms and cut-off times, for submitting those requests. Because DTC can only act
on behalf of DTC participants, who in turn act on behalf of indirect DTC
participants and other banks, your ability to pledge your interest in the notes
represented by global notes to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate. Neither we nor the trustee (nor
any registrar, paying agent or conversion agent under the indenture) have any
responsibility for the performance by DTC or direct or indirect DTC participants
of their obligations under the rules and procedures governing their operations.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes, including, without limitation, the presentation of notes for
conversion as described below, only at the direction of one or more direct DTC
participants to whose account with DTC interests in the global notes are
credited and only for the principal amount of the notes for which directions
have been given.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for DTC participants and to facilitate the clearance and
settlement of securities transactions between DTC participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations such as the initial purchasers.
Certain DTC participants or their representatives, together with other entities,
own DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a custodial
relationship with, a participant, either directly or indirectly. Although DTC
has agreed to the foregoing procedures in order to facilitate transfers of
interests in the global notes among DTC participants, it is under no obligation
to perform or continue to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by us within 90 days,
we will cause notes to be issued in definitive form in exchange for the global
notes. None of us, the trustee or any of their respective agents have any
responsibility for the performance by DTC or direct or indirect DTC participants
of their obligations under the rules and procedures governing their operations,
including maintaining, supervising or reviewing the records relating to, or
payments made on account of, beneficial ownership interests in global notes.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
Certificated notes may be issued in exchange for beneficial interests in
notes represented by the global notes only in the limited circumstances set
forth in the indenture.
Governing law
The indenture and the notes are governed by, and construed in accordance
with, the law of the State of New York.
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Concerning the trustee
Wells Fargo Bank, National Association, as trustee under the indenture, has
been appointed by us as paying agent, conversion agent, registrar and custodian
with regard to the notes. The trustee or its affiliates has provided and may
from time to time in the future provide banking and other services to us in the
ordinary course of their business.
Transfer agent and registrar
The transfer agent and registrar for our common shares is Mellon Investor
Services LLC, and its telephone number is (800) 356-2017.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of certain material U.S. federal income tax
considerations relevant to the purchase, ownership and disposition (including a
conversion into common shares) of the notes and the ownership and disposition of
common shares. It is not, however, a complete analysis of all the potential tax
considerations. This summary is based on the provisions of the United States
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations promulgated thereunder, judicial authority and current
administrative rulings and practice, all of which are subject to change,
possibly on a retroactive basis.
This summary deals only with holders that purchase their notes or common
shares for cash and hold notes or common shares as "capital assets" (generally,
property held for investment). This summary does not deal with all aspects of
U.S. federal income taxation that might be relevant to particular holders in
light of their personal investment circumstances or special status, nor does it
address tax considerations applicable to investors that may be subject to
special tax rules, such as certain financial institutions, tax-exempt
organizations, S corporations, partnerships or other pass-through entities,
insurance companies, broker-dealers, dealers or traders in securities or
currencies, certain expatriates, taxpayers subject to the alternative minimum
tax, and Non-U.S. Holders, as described below, as to which income or gain with
respect to the notes or common shares is effectively connected with the conduct
of a trade or business in the United States. It also does not discuss notes or
common shares held as part of a hedge, straddle, "synthetic security" or other
integrated investment composed of a note or common shares and one or more other
investments, or situations in which the functional currency of a U.S. Holder, as
described below, is not the U.S. dollar. Moreover, it does not discuss the
effect of any applicable state, local or foreign tax laws.
As used herein, a "U.S. Holder" means a beneficial holder of a note or
common shares that is, for U.S. federal income tax purposes: (1) a citizen or
resident of the United States, (2) a domestic corporation or any other entity
taxable as a corporation created or organized under the laws of the United
States or any of its political subdivisions, (3) an estate the income of which
is subject to United States federal income taxation regardless of its source, or
(4) a trust if (a) a U.S. court is able to exercise primary supervision over the
trust's administration and one or more United States persons have the authority
to control all of the trust's substantial decisions or (b) it has a valid
election in effect to be treated as a United States person. A "Non-U.S. Holder"
means a nonresident alien or a corporation, estate or trust that is not a U.S.
Holder.
The following discussion is for general information only. Investors
considering the purchase of notes should consult their own tax advisors with
respect to the application of the U.S. federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction or under any applicable tax
treaty.
Treatment of U.S. Holders
Payment of interest
U.S. Holders will be required to recognize as ordinary income any interest
paid or accrued on the notes, in accordance with their regular method of
accounting for U.S. federal income tax purposes. Some or all of such interest
will be U.S. source interest.
Market discount
If a U.S. Holder purchases a note for an amount that is less than its
"revised issue price," the amount of such difference is treated as "market
discount" for U.S. federal income tax purposes, unless such difference is less
than .0025 multiplied by the stated redemption price at maturity multiplied by
the number of complete years
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until maturity (from the date of acquisition). The revised issue price of a note
for these purposes should be equal to its issue price.
Under the market discount rules of the Code, a U.S. Holder is required to
treat any gain on the sale, exchange, retirement or other taxable disposition of
a note as ordinary income to the extent of the accrued market discount that has
not been previously included in income. If a U.S. Holder disposes of a note with
market discount in certain otherwise nontaxable transactions, such holder may be
required to include accrued market discount as ordinary income as if the holder
had sold the note at its then fair market value. If a U.S. Holder acquires a
note with market discount and receives common shares upon conversion of the
note, the amount of accrued market discount not previously included in income
with respect to the converted note through the date of conversion will be
treated as ordinary income when such U.S. Holder disposes of the common shares
to the extent of gain recognized upon the disposition of such common shares.
In general, market discount accrues on a ratable basis over the remaining
term of the note unless a U.S. Holder makes an irrevocable election to accrue
market discount on a constant yield to maturity basis. A U.S. Holder may elect
to include market discount in income currently as it accrues. An election made
to include market discount in income as it accrues will apply to all debt
instruments that a U.S. Holder acquires on or after the first day of the first
taxable year to which the election applies and is irrevocable without the
consent of the Internal Revenue Service.
A U.S. Holder might be required to defer all or a portion of the interest
expense on indebtedness incurred or continued to purchase or carry a note with
market discount unless such U.S. Holder has elected to include market discount
in income as it accrues.
The rules governing market discount are complex and U.S. Holders should
consult their own tax advisors concerning the application of these rules.
Amortizable bond premium
In general, if a U.S. Holder purchases a note for an amount in excess of
its face amount, such excess will constitute "amortizable bond premium." In
general, a U.S. Holder may elect to amortize the bond premium as an offset to
interest income otherwise required to be included in income in respect of the
note during taxable year using a constant-yield method over the remaining term
of the note (or, if it results in a smaller amount of amortizable premium, until
an earlier call date). Under U.S. Treasury Regulations, the amount of
amortizable bond premium that may be deducted in any accrual period is limited
to the amount by which a U.S. Holder's total interest inclusions on the note in
prior accrual periods exceed the total amount treated as a bond premium
deduction in prior accrual periods. If any of the excess bond premium is not
deductible, that amount is carried forward to the next accrual period. Any
election to amortize bond premium applies to all taxable debt instruments
acquired by the U.S. Holder on or after the first day of the first taxable year
to which such election applies and may be revoked only with the consent of the
Internal Revenue Service.
Constructive dividends
The conversion price of the notes is subject to adjustment under certain
circumstances. Certain adjustments (or failures to make adjustments) to the
conversion price of the notes may result in a taxable constructive dividend
distribution to a U.S. Holder of a note. This will occur if and to the extent
that certain adjustments in the conversion price, which may occur in limited
circumstances (particularly an adjustment to reflect a taxable dividend to
holders of our common shares), increase the proportionate interest of a U.S.
Holder of a note in our earnings and profits or assets. The amount of any
constructive dividend distribution will be limited to the amount of our current
and accumulated earnings and profits, as determined for U.S. federal income tax
purposes. Because a constructive dividend may occur whether or not a U.S. Holder
ever exercises the conversion privilege, the holder may recognize income even
though the holder does not receive any cash or property as a result of the
adjustment (or failure to adjust). Adjustments to the conversion price made
pursuant to a bona fide, reasonable
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adjustment formula that has the effect of preventing dilution in the interest of
the holders of the notes, however, will generally not be considered to result in
a constructive dividend distribution.
Generally, constructive dividends in respect of the notes, if any,
described above, would be taxed in the same manner as actual dividends or
distributions below under "Dividends on common shares." Generally, a U.S.
Holder's tax basis in a note will be increased to the extent any such
constructive distribution is treated as a dividend.
Sale, exchange or redemption of the notes
Subject to the market discount rules discussed above and the passive
foreign instrument company ("PFIC") rules discussed below, upon the sale,
exchange or redemption of a note (other than a conversion of a note), a U.S.
Holder generally will recognize capital gain or loss equal to the difference
between (1) the amount of cash plus the fair market value of any other property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued and unpaid interest, which amount will be treated as
interest subject to the rules discussed above under "Payment of interest") and
(2) such holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax
basis in a note generally will equal the U.S. Holder's purchase price for the
note, increased by any market discount such U.S. Holder has previously included
in income and decreased by any amortizable bond premium such U.S. Holder has
taken into account with respect to the note. Such capital gain or loss will be
long-term capital gain or loss if the U.S. Holder's holding period in the note
is more than one year at the time of sale, exchange or redemption. The
deductibility of net capital losses is subject to limitations and long-term gain
realized by individual U.S. Holders generally is subject to taxation at
preferential rates.
Conversion of the notes
The conversion of the notes into common shares will not be a taxable event,
other than in respect of cash received in lieu of fractional common shares. Cash
received in lieu of fractional common shares should be treated as a payment in
exchange for the fractional share of common shares (rather than as a dividend).
A U.S. Holder will recognize a taxable capital gain or loss in respect of such
payment in an amount equal to the difference between (1) the amount of cash
received in lieu of the fractional share of common shares and (2) the U.S.
Holder's adjusted tax basis attributable to such fractional share.
Following conversion, a U.S. Holder generally will have the same tax basis
(reduced by the portion of tax basis allocated to any fractional shares for
which cash is received) and should have the same holding period in common shares
received upon conversion as the U.S. Holder had in the underlying converted
notes.
Dividends on common shares
In general (and subject to the PFIC rules discussed below), any
distribution made to a U.S. Holder in respect of the common shares will
constitute dividends for U.S. federal income tax purposes to the extent of our
current or accumulated earnings and profits, as determined under U.S. federal
income tax principles. If holding period requirements are met (and assuming we
are not a PFIC), dividends paid to individuals will generally qualify for the
reduced maximum tax rate of 15% (through December 31, 2008) because our common
shares are "readily tradable on an established securities market in the United
States." Dividends paid to corporations will not qualify for the
dividends-received deduction.
To the extent that a U.S. Holder receives distributions on our common
shares that would otherwise constitute dividends for U.S. federal income tax
purposes but that exceed our current and accumulated earnings and profits, the
distribution will be treated first as a non-taxable return of capital, which
reduces the holder's basis in the common shares. Any distribution in excess of
the holder's basis in the common shares will be treated as capital gain,
long-term or short-term, depending on whether the holder's holding period
exceeds one year.
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Sale or exchange of common shares
Subject to the market discount rules discussed above and the PFIC rules
discussed below, upon the sale or exchange of common shares, a U.S. Holder
generally will recognize U.S. source capital gain or loss equal to the
difference between (1) the amount of cash and the fair market value of any
property received upon the sale or exchange and (2) such holder's adjusted tax
basis in the common shares. Such capital gain or loss will be long-term if the
U.S. Holder's holding period in the common shares is more than one year at the
time of the sale or exchange. A U.S. Holder's basis and holding period in a
common shares received upon conversion of a note are determined as discussed
above under "Conversion of the notes."
PFIC status
A non-U.S. corporation generally will be a PFIC for United States federal
income tax purposes if in any tax year either 75% or more of its gross income is
"passive income" (generally including (without limitation) dividends, interest,
annuities and certain royalties and rents not derived in the active conduct of a
business) or the average value of its assets that produce passive income or are
held for the production of passive income is at least 50% of the total value of
its assets. In determining whether we meet the 50% test, cash is considered a
passive asset and the total value of our assets will be treated as equal to the
sum of the aggregate value of our outstanding shares plus our liabilities.
We believe that we were not a PFIC for the 2004 taxable year. However,
because PFIC status depends on the composition of a company's income and assets
and the fair market value of its assets (including goodwill), which may be
volatile in our industry, there can be no assurance that we will not be
considered a PFIC for 2005 or any subsequent year. For example, taking into
account our existing cash balances and the amount of cash raised from the
issuance of the notes, if the value of our shares were to materially decline, it
is possible that we could become a PFIC. Additionally, due to the complexity of
the PFIC provisions and the limited authority available to interpret such
provisions, there can be no assurance that our determination regarding our
current PFIC status or anticipated future PFIC status could not be successfully
challenged by the Internal Revenue Service.
If we were found to be a PFIC for any taxable year in which a U.S. Holder
held common shares (or, under Proposed Treasury Regulations that would be
retroactive to 1992 if adopted, notes), certain favorable consequences described
above would not apply and other adverse consequences could apply to the U.S.
Holder including a recharacterization of certain capital gain as ordinary income
potentially resulting in a material increase in the amount of tax that the U.S.
Holder would owe, the possible imposition of interest charges, an imposition of
tax earlier than would otherwise be imposed, the unavailability of the
preferential 15% tax rate for dividends and additional tax form filing
requirements. A U.S. Holder owning shares (or convertible debt under the
Proposed Treasury Regulations) in a PFIC (or a corporation that might become a
PFIC) may be able to avoid or mitigate these adverse tax consequences by making
certain elections, including "qualified electing fund" or "mark-to-market"
elections, if deemed appropriate based on guidance provided by their tax
advisor. However, a "qualified electing fund" election will not be available to
holders of notes. U.S. Holders should consult with their tax advisors as to the
applicability and effect of these elections, the advisability of making such
elections and the timing requirements applicable to such elections.
Information reporting and backup withholding
A U.S. Holder may be subject to information reporting and backup
withholding tax (currently at a rate of 28%) on payments of (i) interest and
principal on the notes, (ii) proceeds from the sale or other disposition
(including a redemption) of the notes or the common shares and (iii) dividends
on the common shares. Certain holders (including, among others, corporations and
certain tax-exempt organizations) are generally not subject to information
reporting and backup withholding. A U.S. Holder generally will be subject to
information reporting and backup withholding if such holder is not otherwise
exempt and in the case of backup withholding such holder:
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o fails to furnish its taxpayer identification number, or TIN, which,
for an individual, is ordinarily his or her social security number,
o furnishes an incorrect TIN,
o is notified by the IRS that it has failed to properly report payments
of interest or dividends, or
o fails to certify, under penalties of perjury, that it has furnished a
correct TIN and that the IRS has not notified the U.S. Holder that it
is subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may be
credited against a holder's U.S. federal income tax liability and may entitle
such holder to a refund, provided such holder timely furnishes certain
information to the IRS.
Treatment of Non-U.S. Holders
Payments of interest
Section 884(f)(1)(A) of the Code provides that any interest paid by the
U.S. trade or business of a foreign corporation will be treated as if it were
paid by a domestic corporation, thus subjecting such interest to a "branch
interest withholding tax." Because we are engaged in a U.S. trade or business,
some or all of the interest paid on the notes may be subject to the 30% branch
interest withholding tax, unless the interest qualifies for the "portfolio
interest exemption" or the interest is effectively connected with a U.S. trade
or business of the Non-U.S. Holder. The portfolio interest exemption will
generally apply if each of the following requirements is satisfied:
o the interest is not effectively connected with the Non-U.S. Holder's
trade or business in the U.S.;
o the Non-U.S. Holder does not actually or constructively own 10% or
more of our voting shares;
o the Non-U.S. Holder is not a controlled foreign corporation, within
the meaning of the Code, that is actually or constructively related to
us; and
o the Non-U.S. Holder provides the withholding agent with the
appropriate certification.
The certification requirement generally will be satisfied if the Non-U.S.
Holder provides the withholding agent with a statement on IRS Form W-8BEN (or
suitable substitute or successor form), together with all appropriate
attachments, signed under penalties of perjury, identifying the Non-U.S. Holder
and stating, among other things, that the Non-U.S. Holder is not a U.S. person.
If the interest is effectively connected with a U.S. trade or business of
the Non-U.S. Holder such Non-U.S. Holder generally will be subject to U.S.
federal income tax in the same manner as U.S. Holders, as described above,
unless an applicable income tax treaty provides otherwise. Additionally,
Non-U.S. Holders that are corporations could be subject to a branch profits tax
with respect to any such U.S. trade or business interest at a rate of 30% (or at
a reduced rate under an applicable income tax treaty).
Prospective Non-U.S. Holders should consult their tax advisors regarding
the application of these U.S. federal income tax laws to their particular
situation.
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Dividends
Dividends on our common shares received by a Non-U.S. Holder generally will
not be subject to U.S. federal income or withholding tax unless such dividends
are effectively connected with a Non-U.S. Holder's conduct of a trade or
business in the United States (and, if a tax treaty applies, are attributable to
a Non-U.S. Holder's U.S. permanent establishment), in which case such dividends
generally will be subject to U.S. federal income tax on a net income basis at
the regular graduated U.S. federal income tax rates. Additionally, Non-U.S.
Holders that are corporations could be subject to a branch profits tax with
respect to any such dividends at a rate of 30% (or at a reduced rate under an
applicable income tax treaty).
Sale or disposition of notes or common shares
In general, the gain realized on any sale or exchange of a note or common
shares received by a Non-U.S. Holder will not be subject to United States
federal income or withholding tax, unless (1) such gain is effectively connected
with the conduct by the holder of a trade or business in the United States or
(2) in the case of gain realized by an individual holder, the holder is present
in the United States for 183 days or more in the taxable year of the sale and
certain other conditions are met.
Information reporting and backup withholding
In certain circumstances, a Non-U.S. Holder may be subject to information
reporting and/or backup withholding tax (currently at a rate of 28%) on payments
of (i) interest and principal on the notes, (ii) proceeds from the sale or other
disposition (including a redemption) of the notes or the common shares and (iii)
dividends on the common shares, unless certain certification and identification
procedures are met or an exemption otherwise applies.
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SELLING SECURITYHOLDERS
The notes were originally issued by us to J.P. Morgan Securities Inc.,
Adams Harkness, Inc., Deutsche Bank Securities, Inc., First Albany Capital Inc.
and Jefferies & Company, Inc. in a transaction exempt from the registration
requirements of the Securities Act and were immediately resold by the initial
purchasers in reliance on Rule 144A to persons who represented to the initial
purchasers that they were qualified institutional buyers. Each institution that
purchased the notes from the initial purchasers and that has provided us with a
questionnaire setting forth the information specified below, and that selling
securityholder's transferees, pledgees, donees and successors (collectively, the
"selling securityholders"), may from time to time offer and sell pursuant to
this prospectus or a supplement hereto any or all of the notes held by that
selling securityholder and common shares into which the notes are convertible.
The following table sets forth information as of March 18, 2005 with
respect to the selling securityholders and the principal amounts of notes
beneficially owned by each selling securityholder that may be offered under this
prospectus. This information is based on information provided by or on behalf of
the selling securityholders pursuant to the questionnaires referred to above. No
holder of the notes may sell the notes or shares without furnishing to us a
questionnaire setting forth the information specified below. However, as of the
date of this prospectus, not every holder has provided to us a questionnaire.
Therefore, the heading "Other" in the "Name" column below represents the notes
and shares held by holders who have not yet returned to us their questionnaire.
The selling securityholders may offer all, some or none of the notes or
common shares into which the notes are convertible. In addition, the selling
securityholders may have sold, transferred or otherwise disposed of all or a
portion of their notes since the date on which they provided the information
regarding their notes in transactions exempt from the registration requirements
of the Securities Act. No selling securityholder beneficially owns one percent
or more of the notes or of our common shares, assuming conversion of the selling
securityholders' notes, except as otherwise indicated in the table below.
Information concerning the selling securityholders may change from time to
time and any changed information will be set forth in supplements to this
prospectus if and when necessary. In addition, the conversion rate and,
therefore, the number of common shares issuable upon conversion of the notes are
subject to adjustment under certain circumstances.
Common
Principal Common Shares
Amount Shares Notes Owned
of Notes Beneficially Owned After
Beneficially Owned Conversion After Completion
Owned and Prior to Shares Completion of Material
Name Offered Offering(1) Offered(2) of Offering(3) Offering(3) Relationships(4)
---- ------- ----------- ---------- -------------- ----------- ----------------
AHFP Context $175,000 -- 93,358 -- -- None
Context Convertible $650,000 -- 346,759 -- -- None
Arbitrage Fund, LP
Context Convertible $1,825,000 -- 973,593 -- -- None
Arbitrage Offshore, Ltd.
CNH CA Master Account, L.P. $1,500,000 -- 800,213 -- -- None
EagleRock Master Fund, LP $1,350,000 -- 720,193 -- -- None
Grace Brothers, Ltd. $750,000 -- 400,106 -- -- None
Grace Convertible Arbitrage $950,000 -- 506,801 -- -- None
Fund, Ltd.
JP Morgan Securities Inc. $650,000 -- 346,759 -- -- None
Lyxor/Context Fund Ltd. $350,000 -- 186,716 -- -- None
McMahan Securities Co., L.P. $250,000 -- 133,368 -- -- None
Nader Tavakols $150,000 -- 80,021 -- -- None
National Bank of Canada $250,000 -- 133,368 -- -- None
National Bank of Canada $795,000 -- 424,113 -- -- None
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Tenor Opportunity Master $955,000 -- 509,469 -- -- None
Fund Ltd.
Windmill Master Fund, L.P. $1,000,000 -- 533,475 -- -- None
OTHER $48,050,000 -- 25,633,502 --
_______________
(1) Does not include common shares issuable upon conversion of the notes.
(2) Represents common shares issuable upon conversion of the notes that are
beneficially owned and offered by the selling securityholder, assuming a
conversion ratio of 533.4756 common shares per $1,000 principal amount of
notes and a cash payment in lieu of any fractional share interest. The
number of common shares issuable upon conversion is subject to adjustment
as described under "Description of the Notes--Conversion rights."
(3) Assumes that all of the notes and/or all of the common shares into which
the notes are convertible are sold.
(4) Includes any position, office or other material relationship which the
selling securityholder has had within the past three years with XOMA Ltd.
or any of its predecessors or affiliates.
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DESCRIPTION OF SHARE CAPITAL
The following statements with respect to our share capital are subject to
the detailed provisions of our memorandum of continuance and bye-laws. These
statements do not purport to be complete and, while we believe the descriptions
of the material provisions of the memorandum of continuance and bye-laws
incorporated by reference are accurate statements with respect to such material
provisions, such statements are subject to the detailed provisions in the
memorandum of continuance and bye-laws, to which reference is hereby made for a
full description of such provisions.
COMMON SHARES
General
The memorandum of continuance and the bye-laws provide that our authorized
common share capital is limited to 135,000,000 common shares, par value
U.S.$.0005 per share. As of March 9, 2005, there were 85,825,478 common shares
outstanding.
Voting
The holders of common shares are entitled to one vote per share. All
actions submitted to a vote of shareholders shall be voted on by the holders of
common shares, voting together as a single class (together with the Series A
preference shares (as described below), if any) and any other series of
preference shares with corresponding voting rights, except as provided by law.
Dividends
Holders of common shares are entitled to participate, on a share for share
basis, with the holders of any other common shares outstanding, with respect to
any dividends declared by our board of directors, subject to the rights of
holders of preference shares. Dividends will generally be payable in U.S.
dollars. We have not paid cash dividends on the common shares. We currently do
not intend to pay dividends and intend to retain any of our earnings for use in
our business and the financing of our capital requirements for the foreseeable
future. The payment of any future cash dividends on the common shares is
necessarily dependent upon our earnings and financial needs, along with
applicable legal and contractual restrictions.
Liquidation
On a liquidation of XOMA, holders of common shares will be entitled to
receive any assets remaining after the payment of our debts and the expenses of
the liquidation, subject to such special rights as may be attached to any other
class of shares.
Redemption
The common shares are not subject to redemption either by us or the holders
thereof.
Variation of rights
Under our bye-laws, if at any time our share capital is divided into
different classes of shares, the rights attached to any class (unless otherwise
provided by the terms of the issue of the shares of that class) may be varied
with the consent in writing of the holders of a majority of the issued shares of
that class or with the sanction of a resolution passed by the holders of a
majority of such shares at a separate general meeting.
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PREFERENCE SHARES
General
Under our memorandum of continuance and bye-laws, we have the authority to
issue 1,000,000 preference shares, par value U.S.$.05 per share. Of these,
135,000 preference shares have been designated Series A Preference Shares and
8,000 preference shares have been designated Series B Preference Shares. Under
our bye-laws, subject to the special rights attaching to any class of our shares
not being varied and to any resolution approved by the holders of 75% of the
issued shares entitled to vote in respect thereof, our board of directors may
establish one or more classes or series of preference shares having the number
of shares, designations, relative voting rights, dividend rates, liquidation and
other rights, preferences and limitations that the board of directors fixes
without any shareholder approval.
The Series A preference shares
There are no Series A preference shares outstanding. Pursuant to the rights
of the Series A preference shares, subject to the rights of holders of any
shares of any series of preference shares ranking prior and superior, the
holders of Series A preference shares are entitled to receive, when, as and if
declared by our board of directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year, commencing on the first dividend payment
date after the first issuance of a share or fraction of a share of Series A
preference shares, in an amount per share equal to the greater of (a) U.S.$1.00
or (b) 1,000 times the aggregate per share amount of all cash dividends, plus
1,000 times the aggregate per share amount of all non-cash dividends or other
distributions, other than a dividend or bonus issue payable in common shares,
declared on the common shares since the immediately preceding dividend payment
date, or, with respect to the first dividend payment date, since the first
issuance of Series A preference shares.
In addition to any other voting rights required by law, holders of Series A
preference shares have the right to vote on all matters submitted to a vote of
our shareholders with each share of Series A preference shares entitled to 1,000
votes. Except as otherwise provided by law, holders of Series A preference
shares, holders of common shares and holders of any other shares having general
voting rights vote together as one class on all matters submitted to a vote of
our shareholders.
Unless otherwise provided in the rights attaching to a subsequently
designated series of our preference shares, the Series A preference shares rank
junior to any other series of preference shares subsequently issued as to the
payment of dividends and distribution of assets on liquidation, dissolution or
winding-up and rank senior to the common shares. Upon any liquidation,
dissolution or winding-up of XOMA, no distributions shall be made to holders of
shares ranking junior to the Series A preference shares unless, prior thereto,
the holders of Series A preference shares have received an amount equal to
accrued and unpaid dividends and distributions, whether or not declared, to the
date of such payment, plus an amount equal to the greater of (1) U.S.$100.00 per
share or (2) an aggregate amount per share equal to 1,000 times the aggregate
amount to be distributed per share to holders of common shares or to the holders
of shares ranking on parity with the Series A preference shares, except
distributions made ratably on the Series A preference shares and all other such
parity shares in proportion to the total amount to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding-up.
If we enter into any consolidation, amalgamation, merger, combination or
other transaction in which common shares are exchanged for or changed into cash,
other securities and/or any other property, then any Series A preference shares
outstanding shall at the same time be similarly exchanged or changed in an
amount per share equal to 1,000 times the aggregate amount of cash, securities
and/or other property, as the case may be, into which or for which each common
share is changed or exchanged.
The Series A preference shares are not redeemable.
-55-
Preference share purchase rights
Our board of directors has adopted a shareholder rights agreement, or
rights agreement, which is substantially identical to our previous shareholder
rights agreement.
Pursuant to the rights agreement, we issued one preference share purchase
right, or right, for each outstanding common share. Each right entitles the
holder to purchase from us a unit consisting of one one-thousandth of a Series A
preference share at a cash exercise price of $30.00 per unit, subject to
adjustment.
The rights are attached to all outstanding common shares. The rights will
separate from the common shares and will be distributed to holders of common
shares upon the earliest of (i) ten business days after the first public
announcement that a person or group of affiliated or associated persons (a
person or group of affiliated or associated persons being referred to as an
Acquiring Person) has acquired beneficial ownership of 20% or more of the common
shares then outstanding (the date of said announcement being referred to as the
Share Acquisition Date), (ii) ten business days following the commencement of a
tender offer or exchange offer that would result in a person or group of persons
becoming an Acquiring Person or (iii) the declaration by our board of directors
that any person is an "Adverse Person" (the earliest of such dates being
referred to as the Distribution Date).
Our board of directors may generally declare a person to be an Adverse
Person after a declaration that such person has become the beneficial owner of
10% or more of the outstanding common shares and a determination that (i) such
beneficial ownership by such person is intended to cause or is reasonably likely
to cause us to repurchase the common shares owned by such person or to cause us
to enter into other transactions not in our best long-term interests or (ii)
such beneficial ownership is reasonably likely to cause a material adverse
impact on our business or prospects. The rights are not exercisable until the
Distribution Date and will expire on December 31, 2012, unless previously
redeemed or exchanged by us.
In the event that a person becomes an Acquiring Person or our board of
directors determines that a person is an Adverse Person, each holder of a right
will thereafter have the right (each right being referred to as a Subscription
Right) to receive upon exercise that number of units of Series A preference
shares having a market value of two times the exercise price of the rights. In
the event that, at any time following the Share Acquisition Date, (i) we
consolidate with, or merge or amalgamate with and into, any person, and we are
not the surviving corporation; (ii) any person consolidates or amalgamates with
us, or merges or amalgamates with and into us and we are the continuing or
surviving corporation of such transaction and, in connection with such
transaction, all or part of the common shares are changed into or exchanged for
other securities of any other person or cash or any other property, or (iii) 50%
or more of our assets are sold or otherwise transferred, provision shall be made
so that each holder of a right shall thereafter have the right (each right being
referred to as a Merger Right) to receive, upon exercise, common shares of the
acquiring company having a market value equal to two times the exercise price of
the rights. Rights that are beneficially owned by an Acquiring or Adverse Person
may, under certain circumstances, become null and void.
At any time after a person becomes an Acquiring Person or our board of
directors determines that a person is an Adverse Person, our board of directors
may exchange all or any part of the then outstanding and exercisable rights for
common shares or units of Series A preference shares at an exchange ratio of one
common share or one unit of Series A preference shares per right.
Notwithstanding the foregoing, our board of directors generally will not be
empowered to effect such exchange at any time after any person becomes the
beneficial owner of 50% or more of the common shares then outstanding.
The rights may be redeemed in whole, but not in part, at a price of U.S.
$.001 per right by our board of directors at any time prior to the date on which
a person is declared to be an Adverse Person, the tenth business day after the
Share Acquisition Date, the occurrence of an event giving rise to the Merger
Right or the expiration date of the rights agreement.
-56-
Prior to the earlier of the Distribution Date and the Share Acquisition
Date, our board may amend the rights agreement as we deem necessary or desirable
without the approval of any holders of rights or common shares. From and after
the earlier of the Distribution Date and the Share Acquisition Date, the rights
agreement may be amended without the approval of any holders of rights only to
(i) cure an ambiguity, (ii) correct defective or inconsistent provisions, (iii)
shorten or lengthen any time period in the rights agreement if directors in
office prior to the acquisition of shares continue to represent a majority of
the board, or (iv) change provisions as we deem necessary, but that will not
adversely affect the interests of holders of the rights. Under no circumstances,
however, can the rights agreement be amended to lengthen a time period relating
to when the rights may be redeemed if the rights are not then redeemable.
The Series B preference shares
8,000 Series B preference shares have been designated for issuance, of
which 2,959 Series B preference shares were issued upon conversion of the
convertible subordinated loans to us made by Genentech in connection with the
funding of our development costs for RAPTIVA(R) following the regulatory
approval of RAPTIVA(R). Pursuant to the rights of the Series B preference
shares, the holders of Series B preference shares will not be entitled to
receive any dividends on the Series B preference shares.
The Series B preference shares rank senior with respect to rights on
liquidation, winding-up and dissolution of XOMA to all classes of common shares.
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
XOMA, holders of Series B preference shares will be entitled to receive
U.S.$10,000 per share of Series B preference shares before any distribution is
made on the common shares. The holders of Series B preference shares have no
voting rights, except as required under Bermuda law.
The holders of Series B preference shares have the right to convert Series
B preference shares into common shares at a conversion price equal to
approximately $7.75 per common share, subject to customary anti-dilution
adjustments.
The Series B preference shares will be automatically converted into common
shares at their then effective conversion rate immediately upon the transfer by
the initial holder to any third party which is not an affiliate of such holder.
We will have the right, at any time and from time to time, to redeem any or
all Series B preference shares for cash in an amount equal to the conversion
price multiplied by the number of common shares into which each such share of
Series B preference shares would then be convertible.
OUTSTANDING WARRANTS
XOMA issued 250,000 common stock purchase warrants to Incyte in July of
1998, of which 125,000 remain outstanding. Each Incyte warrant outstanding
entitles the holder thereof to purchase one common share, subject to
anti-dilution adjustments. A holder may exercise the Incyte warrants at an
exercise price of $6.00 per share up until the earlier of July 9, 2008 or a date
10 days after the related license becomes fully paid up. Incyte is the holder of
these warrants and received them as part of the consideration for the grant to
XOMA of an exclusive license to all of Incyte's patent rights relating to BPI.
The warrants described above were issued in reliance on the exemption from
registration provided in Section 4(2) of the Securities Act. None of the
warrants described above have been registered under the Securities Act and none
may be transferred except pursuant to an effective registration statement under
the Securities Act or pursuant to an exception from registration thereunder.
Additionally, these warrants contain certain restrictions on their transfer.
XOMA is not obligated and does not intend to register the warrants under the
Securities Act.
-57-
PLAN OF DISTRIBUTION
The selling securityholders and their successors, which term includes their
transferees, pledgees or donees or their successors, may sell the notes and the
underlying common shares directly to purchasers or through underwriters,
broker-dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions from the selling securityholders or the purchasers.
These discounts, concessions or commissions as to any particular underwriter,
broker-dealer or agent may be in excess of those customary in the types of
transactions involved.
The securities may be sold in one or more transactions at:
o fixed prices;
o prevailing market prices at the time of sale;
o prices related to the prevailing market prices;
o varying prices determined at the time of sale; or
o negotiated prices.
These sales may be effected in transactions:
o on any national securities exchange or quotation service on which our
common shares may be listed or quoted at the time of sale, including
the Nasdaq National Market;
o in the over-the-counter market;
o otherwise than on such exchanges or services or in the
over-the-counter market;
o through the writing of options, whether the options are listed on an
options exchange or otherwise; or
o through the settlement of short sales.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as agent on both sides of the trade.
In connection with the sale of the notes and the underlying common shares or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions. These broker-dealers or
financial institutions may in turn engage in short sales of the common shares in
the course of hedging the positions they assume with selling securityholders.
The selling securityholders may also sell the notes and the underlying common
shares short and deliver these securities to close out such short positions, or
loan or pledge the notes or the underlying common shares to broker-dealers that
in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of the
notes or the underlying common shares offered by them hereby will be the
purchase price of the notes or common shares less discounts and commissions, if
any. Each of the selling securityholders reserves the right to accept and,
together with their agents from time to time, to reject, in whole or in part,
any proposed purchase of notes or common shares to be made directly or through
agents. We will not receive any of the proceeds from this offering.
Our outstanding common shares are listed for trading on the Nasdaq National
Market. We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market and can
-58-
give no assurance about the development of any trading market for the notes. In
order to comply with the securities laws of some states, if applicable, the
notes and the underlying common shares may be sold in these jurisdictions only
through registered or licensed brokers or dealers.
Broker-dealers or agents who participate in the sale of the notes and the
underlying common shares are "underwriters" within the meaning of Section 2(11)
of the Securities Act. Selling securityholders who participate in the sale of
the notes and the underlying common shares may also be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act.
Profits on the sale of the notes and the underlying common shares by selling
securityholders and any discounts, commissions or concessions received by any
broker-dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. Selling securityholders who are deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act will
be subject to the prospectus delivery requirements of the Securities Act. To the
extent the selling securityholders are deemed to be "underwriters," they may be
subject to statutory liabilities, including, but not limited to, Sections 11, 12
and 17 of the Securities Act.
The selling securityholders and any other person participating in a
distribution are subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder. Regulation M of the Exchange Act may limit the
timing of purchases and sales of any of the securities by the selling
securityholders and any other person. In addition, Regulation M may restrict the
ability of any person engaged in the distribution of the securities to engage in
market-making activities with respect to the particular securities being
distributed for a period of up to five business days before the distribution.
The selling securityholders have acknowledged that they understand their
obligations to comply with the provisions of the Exchange Act and the rules
thereunder relating to stock manipulation, particularly Regulation M, and have
agreed that they will not engage in any transaction in violation of such
provisions.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholder and any underwriter,
broker-dealer or agent regarding the sale of the common shares by the selling
securityholders.
A selling securityholder may decide not to sell any notes or the underlying
common shares described in this prospectus. We cannot assure holders that any
selling securityholder will use this prospectus to sell any or all of the notes
or the underlying common shares. Any securities covered by this prospectus which
qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be
sold under Rule 144 or Rule 144A rather than pursuant to this prospectus. In
addition, a selling securityholder may transfer, devise or gift the notes and
the underlying common shares by other means not described in this prospectus.
With respect to a particular offering of the notes and the underlying
common shares, to the extent required, an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part will be prepared and will set forth the
following information:
o the specific notes or common shares to be offered and sold;
o the names of the selling securityholders;
o the respective purchase prices and public offering prices and other
material terms of the offering;
o the names of any participating agents, broker-dealers or underwriters;
and
o any applicable commissions, discounts, concessions and other items
constituting, compensation from the selling securityholders.
-59-
We entered into the registration rights agreement for the benefit of
holders of the notes to register their notes and the underlying common shares
under applicable federal and state securities laws under certain circumstances
and at certain times. The registration rights agreement provides that we and the
selling securityholders will indemnify each other and their respective
directors, officers and controlling persons against specific liabilities in
connection with the offer and sale of the notes and the underlying common
shares, including liabilities under the Securities Act, or will be entitled to
contribution in connection with those liabilities. We will pay all of our
expenses and specified expenses incurred by the selling securityholders
incidental to the registration, offering and sale of the notes and the
underlying common shares to the public.
LEGAL OPINION
The validity of the notes and common shares issuable upon conversion of the
notes to which this prospectus relates has been passed upon for XOMA by Conyers
Dill & Pearman, located in Hamilton, Bermuda and Cahill Gordon & Reindel LLP,
New York, New York.
EXPERTS
The consolidated financial statements of XOMA Ltd. and XOMA Ltd.
management's assessment of the effectiveness of internal control over financial
reporting as of December 31, 2004 appearing in XOMA Ltd.'s Annual Report (Form
10-K) for the year ended December 31, 2004, have been audited by Ernst & Young
LLP, independent registered public accounting firm, as set forth in its reports
thereon included therein and incorporated herein by reference. Such consolidated
financial statements and management's assessment have been incorporated herein
by reference in reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
WHERE YOU CAN GET MORE INFORMATION
This prospectus is part of a registration statement that we have filed with
the SEC. The registration statement contains exhibits and other information not
included in this prospectus. At your request, we will provide you, without
charge, a copy of any documents incorporated by reference in, or included as
exhibits to, our registration statement. If you would like more information,
write or call us at:
XOMA Ltd.
2910 Seventh Street
Berkeley, CA 94710
Telephone: (510) 204-7273
XOMA files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
and other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
room. XOMA's SEC filings are also available to the public on the SEC Internet
site at http://www.sec.gov.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with this offering are as follows:
Amount
to be Paid
----------
SEC registration fee ........................................... $7,062
Legal fees and expenses (including Blue Sky fees and expenses).. 75,000
Accounting fees and expenses ................................... 20,000
Miscellaneous .................................................. 2,938
Total ................................................. $105,000
Item 15. Indemnification of Directors and Officers
Under Bermuda law, a company is permitted to indemnify any officer or
director, out of the funds of the company, against (i) any liability incurred by
him or her in defending any proceedings, whether civil or criminal, in which
judgment is given in his or her favor, or in which he or she is acquitted, or in
which relief from liability is granted to him or her by the court pursuant to
the Companies Act 1981 of Bermuda and (ii) any loss or liability resulting from
negligence, default, breach of duty or breach of trust, save for his or her
fraud or dishonesty.
The bye-laws of XOMA provide for the indemnity by XOMA of the officers,
directors and employees of XOMA to the fullest extent permitted by law.
Expenses (including attorneys' fees) incurred by an officer or director of
XOMA in defending any civil, criminal, administrative or investigative action,
suit or proceeding shall be paid by XOMA in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by XOMA pursuant to the
Companies Act 1981 of Bermuda.
An officer or director of XOMA shall not be personally liable to XOMA or
its shareholders for monetary damages for any breach of fiduciary duty as a
director or officer, except to the extent that such limitation is prohibited by
the Companies Act 1981 of Bermuda.
The indemnification and advancement of expenses and the limitation of
liability provided by the bye-laws shall not be deemed exclusive of any other
rights which any officer, director or employee, as such, may have or hereafter
acquire under the Companies Act 1981 of Bermuda, any other provision of the
bye-laws, or any agreement or otherwise. Any repeal or modification of the
aforementioned provisions of the bye-laws shall not adversely affect any right
or protection existing at the time of such repeal or modification.
II-1
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Page
------ ----
3.1 Memorandum of Continuance of XOMA Ltd. (Exhibit
3.4) (1)
3.2 Bye-Laws of XOMA Ltd. (as amended) (Exhibit
3.2) (1)
4.1 Shareholder Rights Agreement dated as of
February 26, 2003 by and between XOMA Ltd. and
Mellon Investor Services LLC as Rights Agent
(Exhibit 4.1) (1)
4.2 Form of Resolution Regarding Preferences and
Rights of Series A Preference Shares (Exhibit
4.2) (1)
4.3 Form of Resolution Regarding Preferences and
Rights of Series B Preference Shares (Exhibit
4.3) (2)
4.4 Form of Common Stock Purchase Warrant (Incyte
Warrants) (Exhibit 2) (3)
4.5 Indenture dated as of February 7, 2005, between
XOMA Ltd. and Wells Fargo Bank, National
Association, as trustee (Exhibit 4.1)(4)
5.1 Opinion of Conyers Dill & Pearman
5.2 Opinion of Cahill Gordon & Reindel LLP
10.1 Registration Rights Agreement dated as of
February 7, 2005, between XOMA Ltd. and J.P.
Morgan Securities Inc. on behalf of the initial
purchasers (Exhibit 4.2) (4)
12.1 Statements regarding Computation of Ratio of
Earnings to Fixed Charges
23.1 Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm
23.2 Consent of Conyers Dill & Pearman (included in
Exhibit 5.1)
23.3 Consent of Cahill Gordon & Reindel LLP
(included in Exhibit 5.2)
24.1 Power of Attorney (included on signature page
to Registration Statement)
25.1 Form T-1 Statement of Eligibility of Wells
Fargo Bank, National Association, as trustee
under the Indenture relating to XOMA Ltd.'s
6.50% Convertible Senior Notes due 2012
II-2
_______________
(1) Incorporated by reference to the referenced exhibit to XOMA's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002 (File No.
0-14710).
(2) Incorporated by reference to the referenced exhibit to XOMA's Registration
Statement on Form S-4 filed November 27, 1998, as amended (File No.
333-68045).
(3) Incorporated by reference to the referenced exhibit to XOMA's Current
Report on Form 8-K dated July 9, 1998 filed July 16, 1998 (File No.
0-14710).
(4) Incorporated by reference to the referenced exhibit to XOMA's Current
Report on Form 8-K filed on February 8, 2004 (File No. 0-14710).
II-3
Item 17. Undertakings
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in the post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-5
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Berkeley, State of California, on March 18, 2005.
XOMA LTD.
By: /s/ John L. Castello
----------------------------------
Name: John L. Castello
Title: Chairman of the Board,
President and Chief
Executive Officer
II-6
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John L. Castello and Christopher J.
Margolin, and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) and supplements to this registration
statement, and to file the same, with the SEC and the Bermuda Registrar of
Companies, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
Chairman of the Board, President and Chief March 18, 2005
Executive Officer (Principal Executive
/s/ John L. Castello Officer)
---------------------------
John L. Castello
Chief Scientific and Medical Officer and March 18, 2005
/s/ Patrick J. Scannon Director
---------------------------
Patrick J. Scannon
Vice President, Finance and Chief Financial March 18, 2005
Officer (Principal Financial and Accounting
/s/ Peter B. Davis Officer)
---------------------------
Peter B. Davis
/s/ James G. Andress Director March 18, 2005
---------------------------
James G. Andress
/s/ William K. Bowes, Jr. Director March 18, 2005
---------------------------
William K. Bowes, Jr.
/s/ Arthur Kornberg Director March 18, 2005
---------------------------
Arthur Kornberg
/s/ Steven C. Mendell Director March 18, 2005
---------------------------
Steven C. Mendell
/s/ W. Denman Van Ness Director March 18, 2005
---------------------------
W. Denman Van Ness
/s/ Patrick J. Zenner Director March 18, 2005
---------------------------
Patrick J. Zenner
II-7
EXHIBIT INDEX
Exhibit
Number Page
------ ----
3.1 Memorandum of Continuance of XOMA Ltd. (Exhibit
3.4) (1)
3.2 Bye-Laws of XOMA Ltd. (as amended) (Exhibit
3.2) (1)
4.1 Shareholder Rights Agreement dated as of
February 26, 2003 by and between XOMA Ltd. and
Mellon Investor Services LLC as Rights Agent
(Exhibit 4.1) (1)
4.2 Form of Resolution Regarding Preferences and
Rights of Series A Preference Shares (Exhibit
4.2) (1)
4.3 Form of Resolution Regarding Preferences and
Rights of Series B Preference Shares (Exhibit
4.3) (2)
4.4 Form of Common Stock Purchase Warrant (Incyte
Warrants) (Exhibit 2) (3)
4.5 Indenture dated as of February 7, 2005, between
XOMA Ltd. and Wells Fargo Bank, National
Association, as trustee (Exhibit 4.1)(4)
5.1 Opinion of Conyers Dill & Pearman
5.2 Opinion of Cahill Gordon & Reindel LLP
10.1 Registration Rights Agreement dated as of
February 7, 2005, between XOMA Ltd. and J.P.
Morgan Securities Inc. on behalf of the initial
purchasers (Exhibit 4.2) (4)
12.1 Statements regarding Computation of Ratio of
Earnings to Fixed Charges
23.1 Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm
23.2 Consent of Conyers Dill & Pearman (included in
Exhibit 5.1)
23.3 Consent of Cahill Gordon & Reindel LLP
(included in Exhibit 5.2)
24.1 Power of Attorney (included on signature page
to Registration Statement)
25.1 Form T-1 Statement of Eligibility of Wells
Fargo Bank, National Association, as trustee
under the Indenture relating to XOMA Ltd.'s
6.50% Convertible Senior Notes due 2012
_______________
(1) Incorporated by reference to the referenced exhibit to XOMA's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002 (File No.
0-14710).
(2) Incorporated by reference to the referenced exhibit to XOMA's Registration
Statement on Form S-4 filed November 27, 1998, as amended (File No.
333-68045).
(3) Incorporated by reference to the referenced exhibit to XOMA's Current
Report on Form 8-K dated July 9, 1998 filed July 16, 1998 (File No.
0-14710).
(4) Incorporated by reference to the referenced exhibit to XOMA's Current
Report on Form 8-K filed on February 8, 2004 (File No. 0-14710).
-2-
EXHIBIT 5.1
[Letterhead of Conyers Dill & Pearman]
18 March 2005
XOMA Ltd.
2910 Seventh Street
Berkeley, California 94710
USA
Dear Sirs
XOMA Ltd. (the "Company")
We have acted as special legal counsel in Bermuda to the Company in connection
with the Registration Statement on Form S-3 (the "Registration Statement", which
term does not include any other instrument or agreement whether or not
specifically referred to therein or attached as an exhibit or schedule thereto)
filed with the U.S. Securities and Exchange Commission (the "Commission") on 18
March 2005 relating to the registration under the U.S. Securities Act of 1933,
as amended (the "Securities Act"), of $60,000,000 in aggregate principal amount
of the Company's 6.50% Convertible Senior Notes due 2012 (the "Notes") and an
aggregate of 35,008,536 common shares par value US$.0005 per share (the
"Shares") issuable upon the conversion of the Notes.
For the purposes of giving this opinion, we have examined a facsimile copy of an
indenture (the "Indenture") dated 7 February 2005 between the Company and Wells
Fargo Bank, National Association as trustee.
We have also reviewed the memorandum of continuance and the bye-laws of the
Company, each certified by the Secretary of the Company on 18 March 2005,
certified resolutions passed at a meeting of the Company's directors held on 8
December 2004, certified resolutions passed at a meeting of the Company's
financing committee held on 1 February 2005 and certified resolutions passed at
a meeting of the Company's shareholders held on 31 January 2000, (together, the
"Resolutions") and such other documents and made such enquiries as to questions
of law as we have deemed necessary in order to render the opinion set forth
below.
We have assumed (a) the genuineness and authenticity of all signatures and the
conformity to the originals of all copies (whether or not certified) examined by
us and the authenticity and completeness of the originals from which such copies
were taken; (b) that where a document has been examined by us in draft form, it
will be or has been executed in the form of that draft, and where a number of
drafts of a document have been examined by us all changes thereto have been
marked or otherwise drawn to our attention; (c) the capacity, power and
authority of each of the parties to the Indenture, other than the Company, to
enter into and perform its respective obligations under the Indenture; (d) the
due execution of the Indenture by each of the parties thereto, other than the
Company, and the delivery thereof by each of the parties thereto; (e) the
accuracy and completeness of all factual representations made in the Indenture
and the other documents reviewed by us; (f) that the resolutions contained in
the Resolutions remain in full force and effect and have not been rescinded or
amended; (g) that there is no provision of the law of any jurisdiction, other
than Bermuda, which would have any implication in relation to the
opinions expressed herein; (h) the validity and binding effect under the laws of
the State of New York (the "Foreign Laws") of the Indenture in accordance with
its terms; (i) that none of the parties to the Indenture has carried on or will
carry on activities, other than the performance of its obligations under the
Indenture, which would constitute the carrying on of investment business in or
from Bermuda and that none of the parties to the Indenture, other than the
Company, will perform its obligations under the Indenture in or from Bermuda;
(j) that on the date of entering into the Indenture the Company is and after
entering into the Indenture will be able to pay its liabilities as they become
due; (k) that the Company will have sufficient authorised capital to effect the
issue of any of the Shares at the time of the conversion of any Note; (l) that
the Notes have been duly issued and paid for in accordance with the terms of the
Indenture; and (m) that the Company's shares will be listed on an appointed
stock exchange, as defined in the Companies Act 1981, and the consent to the
issue and free transfer of the Company's shares and other securities given by
the Bermuda Monetary Authority as of 8 February 2000 will not have been revoked
or amended at the time of issuance of any Shares.
We express no opinion as to the enforceability of any provision of the Indenture
which provides for the payment of a specified rate of interest on the amount of
a judgment after the date of judgment or which purports to fetter the statutory
powers of the Company.
We have made no investigation of and express no opinion in relation to the laws
of any jurisdiction other than Bermuda. This opinion is to be governed by and
construed in accordance with the laws of Bermuda and is limited to and is given
on the basis of the current law and practice in Bermuda. This opinion is issued
solely for the purpose set out above and is not to be relied upon in respect of
any other matter.
On the basis of and subject to the foregoing, we are of the opinion that:
1. The Notes and Shares have been duly authorised in accordance with the
Company's memorandum of continuance and bye-laws.
2. When issued and delivered upon conversion of the Notes in accordance
with the terms of the Indenture and the Notes, the Shares will be
validly issued, fully paid and non-assessable (meaning that no further
sums are required to be paid by the holders thereof in connection with
the issue of such shares).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Opinion" in the Registration Statement. In giving this consent, we do not admit
that we are experts within the meaning of Section 11 of the Securities Act or
that we are in the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the Commission promulgated
thereunder.
Yours faithfully
CONYERS DILL & PEARMAN
/s/ CONYERS DILL & PEARMAN
-2-
EXHIBIT 5.2
[CAHILL GORDON & REINDEL LLP LETTERHEAD]
March 18, 2005
XOMA Ltd.
2910 Seventh Street
Berkeley, California 94710
Re: XOMA Ltd.
Ladies and Gentlemen:
We have acted as special U.S. counsel to XOMA Ltd., a Bermuda company (the
"Company"), and this opinion is rendered in connection with the preparation and
filing by the Company of a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933 (the "Act"), for the registration
of (i) $60,000,000 aggregate principal amount of the 6.50% Convertible Senior
Notes due 2012 (the "Notes") of the Company, and (ii) the 35,008,536 Common
Shares, par value US$0.0005 per share, of the Company which may be issued upon
conversion of the Notes (the "Shares").
In connection with the opinions expressed herein, we have examined, and
have relied as to matters of fact upon, the indenture, dated February 7, 2005
between Wells Fargo Bank, National Association, as trustee (the "Trustee") and
the Company (the "Indenture") and originals or copies, certified or otherwise
identified to our satisfaction, of such corporate records, agreements, documents
and other instruments and such certificates or comparable documents or public
officials and directors, officers, employees and representatives of the Company,
and have made such further investigations, as we have deemed relevant and
appropriate as a basis for the opinions hereinafter set forth. In such
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the conformity to the originals of all
documents submitted to us as copies and the authenticity of all originals. We
have also assumed that all agreements, documents and other instruments examined
by us to which the Company is a party (including the Indenture) have been duly
authorized, executed and delivered by the Company in accordance with all laws
applicable to the Company and that the Indenture has been duly authorized,
executed and delivered by the Trustee in accordance with all laws applicable to
the Trustee.
Based upon and subject to the foregoing, we are of the opinion that
assuming the due authorization, execution and delivery of the Notes by the
Company under Bermuda law, the Notes constitute valid and binding obligations of
the Company, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
general principles of equity.
We are members of the Bar of the State of New York, and we express no
opinion as to the laws of any jurisdiction other than the General Obligations
Law of the State of New York, the Limited Liability Company Act of the State of
Delaware and the federal securities laws of the United States.
This opinion is expressed as of the date hereof, and we take no
responsibility to advise you of any changes subsequent to the date hereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference of our firm under the caption "Legal
Opinion" in the Registration Statement and the prospectus forming a part
thereof. Our consent to such reference does not constitute a consent under
Section 7 of the Act and in consenting to such reference we have not certified
any part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under Section 7 or under the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ CAHILL GORDON & REINDEL LLP
-2-
EXHIBIT 12.1
Statements Regarding Computations of Ratio of Earnings to Charges
(in thousands)
Year ended December 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Net Loss $ (78,942) $ (58,653) $ (33,247) $ (28,040) $ (29,412)
Fixed Charges 2,395 3,017 3,179 3,833 3,992
---------- ---------- ---------- ---------- ----------
Earnings as defined $ (76,547) $ (55,636) $ (30,068) $ (24,207) $ (25,420)
========== ========== ========== ========== ==========
Fixed Charges:
Interest expense $ 1,229 $ 1,875 $ 2,041 $ 2,570 $ 2,680
Estimated interest component of rent expense 1,166 1,142 1,138 1,263 1,312
---------- ---------- ---------- ---------- ----------
Total fixed charges $ 2,395 $ 3,017 $ 3,179 $ 3,833 $ 3,992
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges N/A N/A N/A N/A N/A
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of XOMA Ltd. for the
registration of $60,000,000 in aggregate principal amount of XOMA Ltd.'s 6.50%
Convertible Senior Notes due 2012 and 35,008,536 of its common shares issuable
on conversion of the Notes and to the incorporation by reference therein of our
reports dated March 11, 2005 with respect to the consolidated financial
statements of XOMA Ltd., XOMA Ltd. management's assessment of the effectiveness
of internal control over financial reporting and the effectiveness of internal
control over financial reporting, included in its Annual Report (Form 10-K) for
the year ended December 31, 2004, filed with the Securities and Exchange
Commission.
/S/ ERNST & YOUNG LLP
Palo Alto, California
March 17, 2005
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
_____________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
WELLS FARGO BANK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
Not Applicable 94-1347393
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
420 Montgomery Street
San Francisco, CA 94163
(Address of principal executive offices) (Zip code)
Wells Fargo & Company
Law Department, Trust Section
MAC N9305-172
Sixth and Marquette, 17th Floor
Minneapolis, MN 55479
(agent for services)
_____________________________
XOMA Ltd.
(Exact name of obligor as specified in its charter)
BERMUDA 52-2154066
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2910 Seventh Street
Berkeley, CA 94710
(Address of principal executive offices) (Zip code)
_____________________________
6.50% CONVERTIBLE SENIOR NOTES DUE 2012
(Title of the indenture securities)
================================================================================
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Comptroller of the Currency,
Treasury Department
Washington, D.C. 20230
Federal Deposit Insurance Corporation
Washington, D.C. 20429
Federal Reserve Bank of San Francisco
San Francisco, CA 94120
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of
this Statement of Eligibility. Wells Fargo
Bank incorporates by reference into this Form
T-1 exhibits attached hereto.
Exhibit 1. A copy of the Articles of Association of the trustee now in effect. *
Exhibit 2. A copy of the Comptroller of the Currency Certificate of Corporate
Existence for Wells Fargo Bank, National Association, dated
November 28, 2001. *
Exhibit 3. A copy of the authorization of the trustee to exercise corporate
trust powers. A copy of the Comptroller of the Currency Certificate
of Corporate Existence (with Fiduciary Powers) for Wells Fargo Bank,
National Association, dated November 28, 2001. *
Exhibit 4. Copy of By-laws of the trustee as now in effect. *
Exhibit 5. Not applicable.
Exhibit 6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
Exhibit 7. Attached is a copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or
examining authority.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement number 333-87398.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Wells Fargo Bank, National Association, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles and State
of California on the 18th day of March, 2005.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Maddy Hall
-----------------------------------
Name: Maddy Hall
Title: Trust Officer
Exhibit 6
March 18, 2005
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request thereof.
Very truly yours,
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Maddy Hall
------------------------------
Name: Maddy Hall
Title: Trust Officer
Consolidated Report of Condition of
Wells Fargo Bank National Association
of 101 North Phillips Avenue, Sioux Falls, SD 57104
And Foreign and Domestic Subsidiaries,
at the close of business December 31, 2004,
filed in accordance with 12 U.S.C. ss.161 for National Banks.
Dollar Amounts In Millions
--------------------------
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin...................... $ 12,653
Interest-bearing balances............................................... 3,281
Securities:
Held-to-maturity securities............................................. 0
Available-for-sale securities........................................... 28,571
Federal funds sold and securities purchased under agreements to resell:
Federal funds sold in domestic offices.................................. 2,544
Securities purchased under agreements to resell......................... 1,114
Loans and lease financing receivables:
Loans and leases held for sale ......................................... 33,027
Loans and leases, net of unearned income................................ 246,371
LESS: Allowance for loan and lease losses............................... 2,428
Loans and leases, net of unearned income and allowance.................. 243,943
Trading Assets.............................................................. 7,177
Premises and fixed assets (including capitalized leases).................... 3,386
Other real estate owned..................................................... 134
Investments in unconsolidated subsidiaries and associated companies......... 343
Customers' liability to this bank on acceptances outstanding................ 137
Intangible assets:
Goodwill................................................................ 8,614
Other intangible assets................................................. 8,582
Other assets................................................................ 12,750
-------------
Total assets.............................................. $ 366,256
=============
LIABILITIES
Deposits:
In domestic offices..................................................... $ 264,717
Noninterest-bearing................................................ 78,210
Interest-bearing................................................... 186,507
In foreign offices, Edge and Agreement subsidiaries, and IBFs........... 16,987
Noninterest-bearing................................................ 4
Interest-bearing................................................... 16,983
Federal funds purchased and securities sold under agreements to repurchase:
Federal funds purchased in domestic offices............................. 10,533
Securities sold under agreements to repurchase.......................... 3,258
Trading liabilities 4,727
Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases)............................... 14,870
Bank's liability on acceptances executed and outstanding.................... 137
Subordinated notes and debentures........................................... 5,119
Other liabilities........................................................... 11,158
Total liabilities........................................................... $ 331,506
-------------
Minority interest in consolidated subsidiaries.............................. 55
Dollar Amounts In Millions
--------------------------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............................... 0
Common stock................................................................ 520
Surplus (exclude all surplus related to preferred stock).................... 24,521
Retained earnings........................................................... 8,976
Accumulated other comprehensive income...................................... 678
Other equity capital components............................................. 0
-------------
Total equity capital........................................................ 34,695
-------------
Total liabilities, minority interest, and equity capital.................... $ 366,256
=============
I, Karen B. Martin, Vice President of the above-named bank do hereby declare
that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
Karen B. Martin
Vice President
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
John Stumpf
Carrie Tolstedt Directors
Pat Callahan