UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss. 240.14a-12
XOMA Ltd.
-------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set for the amount on which
the filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule of Registration Statement No.:
3) Filing Party: 4) Date Filed:
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XOMA LTD.
2910 Seventh Street
Berkeley, California 94710
(510) 204-7200
April 12, 2005
To Our Shareholders:
You are cordially invited to attend the annual general meeting of shareholders
of XOMA Ltd. on May 19, 2005 at 9:00 a.m. local time, which will be held at The
Claremont Hotel, Ashby and Domingo Avenues, Berkeley, California.
Details of business to be conducted at the annual general meeting are provided
in the enclosed Notice of Annual General Meeting of Shareholders and Proxy
Statement. Also enclosed for your information is a copy of our Annual Report to
Shareholders for 2004. Some of our shareholders will be accessing these
materials and appointing a proxy through the Internet and may not be receiving a
paper proxy card by mail.
We hope that you will attend the annual general meeting. In any event, please
promptly sign, date and return the enclosed proxy in the accompanying reply
envelope or appoint a proxy by telephone or through the Internet.
Sincerely yours,
John L. Castello
Chairman of the Board,
President and Chief Executive Officer
Enclosures
XOMA LTD.
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NOTICE OF ANNUAL GENERAL MEETING OF
SHAREHOLDERS
TO BE HELD AT 9:00 A.M. ON MAY 19, 2005
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To the Shareholders of XOMA Ltd.:
Notice is hereby given that the annual general meeting of shareholders of XOMA
Ltd. (the "Company") will be held at The Claremont Hotel, Ashby and Domingo
Avenues, Berkeley, California, on May 19, 2005, at 9:00 a.m. local time, for the
following purposes:
1. To elect directors;
2. To appoint Ernst & Young LLP to act as the Company's independent
auditors for the 2005 fiscal year and authorize the Board to agree to
such auditors' fee;
3. To receive the Company's audited financial statements for the 2004
fiscal year;
4. To approve the increase of the Company's authorized share capital by
the creation of an additional 75,000,000 Common Shares;
5. To consider and transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 1, 2005, as the
record date for the determination of shareholders entitled to notice of, and to
vote at, this meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
Christopher J. Margolin
Secretary
April 12, 2005
Berkeley, California
YOUR VOTE IS IMPORTANT
You are cordially invited to attend the meeting in person. Whether or not
you plan to attend the meeting, please promptly mark, sign and date the enclosed
proxy and mail it in the accompanying postage pre-paid envelope or appoint a
proxy by telephone or through the Internet.
XOMA LTD.
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PROXY STATEMENT
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TO THE SHAREHOLDERS:
The enclosed proxy is solicited on behalf of the Board of Directors of XOMA
Ltd., a company organized under the laws of Bermuda ("XOMA" or the "Company"),
for use at the annual general meeting of shareholders to be held at The
Claremont Hotel, Ashby and Domingo Avenues, Berkeley, California, on May 19,
2005, at 9:00 a.m. local time, or any adjournment or postponement thereof, at
which shareholders of record holding Common Shares on April 1, 2005, will be
entitled to vote. On April 1, 2005, the Company had issued and outstanding
86,251,670 common shares, par value US$.0005 per share ("Common Shares").
Holders of Common Shares are entitled to one vote for each share held.
All registered shareholders can appoint a proxy by paper proxy or by telephone
by following the instructions included with their proxy card. Shareholders whose
Common Shares are registered in the name of a bank or brokerage firm should
follow the instructions provided by their bank or brokerage firm on voting their
Common Shares. Shareholders whose Common Shares are registered in the name of a
bank or brokerage firm participating in the ADP Investor Communication Services
online program may appoint a proxy electronically through the Internet.
Instruction forms will be provided to shareholders whose bank or brokerage firm
is participating in ADP's program. Signing and returning the proxy card or
submitting the proxy by telephone or through the Internet does not affect the
right to vote in person at the annual general meeting.
In the case of registered shareholders, a proxy may be revoked at any time prior
to its exercise by (a) giving written notice of such revocation to the Secretary
of the Company at the Company's principal office, 2910 Seventh Street, Berkeley,
California 94710, (b) appearing and voting in person at the annual general
meeting, (c) properly completing and executing a later-dated proxy and
delivering it to the Company at or before the annual general meeting or (d)
retransmitting a subsequent proxy by telephone before the annual general
meeting. Presence without voting at the annual general meeting will not
automatically revoke a proxy, and any revocation during the meeting will not
affect votes previously taken. Shareholders whose Common Shares are registered
in the name of a bank or brokerage firm should follow the instructions provided
by their bank or brokerage firm on revoking their previously appointed proxies.
Abstentions and broker non-votes are each included in the number of Common
Shares present and voting for purposes of establishing a quorum but are not
counted in tabulations of the votes cast on proposals presented to shareholders.
The Company will bear the entire cost of solicitation, including preparation,
assembly, printing, and mailing of this proxy statement, the proxy card, and any
additional material furnished to shareholders. Copies of solicitation material
will be furnished to brokerage houses, fiduciaries, and custodians holding in
their names Common Shares that are beneficially owned by others to forward to
such beneficial owners. The solicitation of proxies may be supplemented by one
or more of telephone, telegram, or personal solicitation by directors, officers,
or employees of the Company for no additional compensation. We have also engaged
Georgeson Shareholder Communications Inc. to assist in such solicitation at an
estimated fee of $7,500 plus disbursements. Shareholders appointing a proxy
through the Internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholder.
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The Company intends to mail this proxy statement and make it available on the
Internet on or about April 12, 2005.
SHARE OWNERSHIP
The following table sets forth certain information regarding all shareholders
known by the Company to be the beneficial owners of more than 5% of the
Company's outstanding Common Shares and regarding each director, each executive
officer and all directors and current executive officers as a group, together
with the approximate percentages of outstanding Common Shares owned by each of
them. Unless otherwise indicated, amounts are as of April 1, 2005 and each of
the shareholders has sole voting and investment power with respect to the Common
Shares beneficially owned, subject to community property laws where applicable.
Number of Percentage of
Common Shares Common Shares
Name of Beneficial Owner Beneficially Owned Beneficially Owned
------------------------ ------------------ ------------------
OrbiMed Group(1) 9,595,790 10.25%
Citigroup(2) 6,690,486 7.8%
Platinum Asset Management Limited(3) 6,054,203 7.1%
James G. Andress(4) 68,000 *
William K. Bowes, Jr.(5) 88,069 *
John L. Castello(6) 539,785 *
Peter B. Davis(7) 351,266 *
Clarence L. Dellio(8) 457,430 *
Arthur Kornberg, M.D.(9) 68,000 *
Christopher J. Margolin(10) 310,270 *
Steven C. Mendell(11) 97,000 *
Patrick J. Scannon, M.D., Ph.D.(12) 329,342 *
W. Denman Van Ness(13) 92,611 *
Patrick J. Zenner(14) 32,500 *
All executive officers and directors as a group
(11 persons)(15) 2,434,273 2.8%
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* Indicates less than 1%.
(1) As reported by the group comprised of OrbiMed Capital LLC, OrbiMed Advisors
LLC and Samuel U. Isaly (collectively, the "OrbiMed Group") on Schedule 13G
filed with the Securities and Exchange Commission on February 9, 2005.
Members of the OrbiMed Group are investment advisors and hold the
securities on behalf of other persons who have the right to receive or the
power to direct the receipt of dividends from, or proceeds from sale of,
such securities. No one such other person's interest in the securities
whose ownership is reported on the Schedule 13G relates to more than 5% of
the class. Amount is as of February 4, 2005.
(2) As reported by the group comprised of Smith Barney Fund Management LLC,
Citigroup Global Markets Holdings Inc. and Citigroup Inc. on Schedule 13G/A
filed with the Securities and Exchange Commission on February 14, 2005.
Amount is as of December 31, 2004.
(3) As reported by Platinum Asset Management Limited as trustee for Platinum
Asset Management Trust on Schedule 13G filed with the Securities and
Exchange Commission on October 20, 2005. Amount is believed to be as of
October 20, 2004.
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(4) Includes 66,000 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date.
(5) Includes 57,000 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date.
(6) Includes 19,217 Common Shares held by The John L. and Katherine C. Castello
Trust, of which Mr. Castello is a trustee. Includes 443,749 Common Shares
issuable upon the exercise of options exercisable as of 60 days after the
record date. Does not include 15,105 Common Shares that have vested
pursuant to the Company's Deferred Savings Plan.
(7) Includes 122,307 Common Shares held by The Davis Family Trust, of which Mr.
Davis is a trustee. Includes 228,959 Common Shares issuable upon the
exercise of options exercisable as of 60 days after the record date. Does
not include 13,314 Common Shares that have vested pursuant to the Company's
Deferred Savings Plan.
(8) Includes 345,000 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date. Does not include 15,976
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan. Mr. Dellio retired effective as of December 31, 2004 but is required
to be included in this table by SEC rules.
(9) Includes 57,000 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date.
(10) Includes 254,583 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date. Does not include 15,512
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan.
(11) Includes 57,000 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date. Does not include 631
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan and are now held in a rollover IRA account.
(12) Includes 223,750 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date. Does not include 15,976
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan.
(13) Includes 49,481 Common Shares held by The Van Ness 1983 Revocable Trust, of
which Mr. Van Ness is a trustee. Includes 42,000 Common Shares issuable
upon the exercise of options exercisable as of 60 days after the record
date.
(14) Represents 32,500 Common Shares issuable upon the exercise of options
exercisable as of 60 days after the record date.
(15) Includes 1,807,541 Common Shares issuable upon exercise of options
exercisable as of 60 days after the record date. Does not include 76,514
Common Shares that have vested pursuant to the Company's Deferred Savings
Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of the named executive officers
for the last three completed fiscal years of the Company:
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SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Other Annual Securities All Other
Bonus Compensation Underlying Compensation
---------------------------- ----- ---------- --------- ------------ ------------ -------------
Name and Principal Position Year Salary ($) ($)(1) ($)(2) Options (#) ($)(3)
John L. Castello 2004 $500,000 N/A $956 100,000 $30,692
(Chairman of the Board, President 2003 $500,000 N/A $12,080 100,000 $30,182
and Chief Executive Officer) 2002 $500,000 N/A $8,789 50,000 $31,849
Clarence L. Dellio 2004 $315,000 $96,319 $20,716 40,000 $10,838
(Former Senior Vice President 2003 $305,000 $47,920 $13,461 40,000
and $9,639
Chief Operating Officer) 2002 $285,833 $67,320 $13,638 55,000 $8,043
Patrick J. Scannon, M.D., Ph.D. 2004 $340,000 $79,127 $3,615 30,000 $10,838
(Senior Vice President and Chief 2003 $340,000 $69,022 $2,615 30,000 $9,787
Scientific and Medical Officer) 2002 $340,000 $69,208 $3,865 25,000 $10,388
Peter B. Davis 2004 $280,000 $76,661 $0 30,000 $10,081
(Vice President, Finance and 2003 $270,000 $36,899 $0 40,000
Chief $8,806
Financial Officer) 2002 $260,000 $58,746 $0 25,000 $7,806
Christopher J. Margolin 2004 $280,000 $67,519 $12,846 30,000 $10,563
(Vice President, General Counsel 2003 $270,000 $56,696 $12,384 50,000 $9,348
and Secretary) 2002 $260,000 $54,675 $10,962 25,000 $7,806
----------------------
(1) Each amount in this column for 2004, 2003 and 2002 represents awards under
the Company's Management Incentive Compensation Plan in the following
amounts: Mr. Dellio--$22,402 and 2,230 Common Shares in 2004 (relating to
performance in 2003); $16,091 in 2003 and 2,643 Common Shares in each of
2004 and 2003 (relating to performance in 2002); $14,454 in 2002 and 862
Common Shares in each of 2004, 2003 and 2002 (relating to performance in
2001); $7,092 and 429 Common Shares in each of 2003 and 2002 (relating to
performance in 2000); and 1,072 Common Shares in 2002 (relating to
performance in 1999); Dr. Scannon--$21,771 and 2,167 Common Shares in 2004
(relating to performance in 2003); $17,160 in each of 2004 and 2003 and
3,382 Common Shares in 2003 (relating to performance in 2002); $18,426 in
each of 2004, 2003 and 2002 and 1,099 Common Shares in 2002 (relating to
performance in 2001); $16,277 in each of 2003 and 2002 (relating to
performance in 2000); and $16,080 in 2002 (relating to performance in
1999); Mr. Davis--$19,018 and 1,700 Common Shares in 2004 (relating to
performance in 2003); $13,900 in 2003 and 2,299 Common Shares in each of
2004 and 2003 (relating to performance in 2002); $13,155 in 2002 and 737
Common Shares in each of 2004, 2003 and 2002 (relating to performance in
2001); $13,053 in 2001 and 742 Common Shares in each of 2003 and 2002
(relating to performance in 2000); and 887 Common Shares in 2002 (relating
to performance in 1999); Mr. Margolin--$19,693 and 1,684 Common Shares in
2004 (relating to performance in 2003); $14,160 in each of 2004 and 2003
and 2,449 Common Shares in 2003 (relating to performance in 2002); $13,972
in each of 2004, 2003 and 2002 and 822 Common Shares in 2002 (relating to
performance in 2001); $14,403 in each of 2003 and 2002 (relating to
performance in 2000); and $12,328 in 2002 (relating to performance in
1999).
(2) Mr. Castello's amounts in this column for 2004, 2003 and 2002 include
financial services provided to Mr. Castello in the amount of $400 and
$4,888 and $3,113, respectively. Mr. Castello's amounts in this column for
2004, 2003 and 2002 represent taxes paid by XOMA on Mr. Castello's behalf
in the amounts of $556, $3,347 and $1,830, respectively. All of Dr.
Scannon's amount for 2003 and $2,615 of the amount for 2004 and 2002,
$14,468 of Mr. Dellio's amounts for 2004 and all of Mr. Dellio's amounts
for 2003 amd 2002, and all of Mr. Margolin's amounts in this column for
2004, 2003 and 2002 and the balance of Mr. Castello's amounts for 2003 and
2002 represent cash payments in lieu of earned vacation and/or personal
holidays. Dr. Scannon's amounts for 2004 and 2002 include $1,000 and
$1,250, respectively, for patent awards. Mr. Dellio's amount for 2004
includes $6,248 as a retirement gift.
(3) Amounts in this column for 2004, 2003 and 2002 include the Company's Common
Shares contributed to accounts under the Company's Deferred Savings Plan,
valued at fiscal year-end formula prices of $2.611,
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$6.6392 and $4.2885, respectively, per share, in the following amounts: Mr.
Castello-- 2,876 Common Shares for 2004, 1,054 Common Shares for 2003 and
1,399 Common Shares for 2002; Mr. Dellio, Dr. Scannon, Mr. Davis and Mr.
Margolin-- 3,064 Common Shares each for 2004, 1,054 Common Shares each for
2003 and 1,399 Common Shares each for 2002. Amounts for 2004, 2003 and 2002
also include group term life insurance premiums in the following amounts:
Mr. Castello--$5,182 for 2004 and 2003 and $7,849 for 2002; Mr.
Dellio--$2,838 for 2004, $2,639 for 2003 and $2,043 for 2002; Dr.
Scannon--$2,838 for 2004, 2003 and 2002; Mr. Davis--$2081 for 2004 and
$1,806 for each of 2003 and 2002; Mr. Margolin--$2,563for 2004, $2,348 for
2003 and $1,806 for each of 2002. Mr. Castello's amounts in this column
include life insurance premiums paid in the amount of $18,000 for each of
2004, 2003 and 2002. Dr. Scannon's amounts for 2003 and 2002 include $(51)
and $1,550, respectively, which represent the difference between (i) the
amount of interest Dr. Scannon would have been required to pay in interest
for each such year had the loan made to him by the Company pursuant to his
employment agreement been made at the then-prevailing market rate and (ii)
the amount of interest payable on the loan for each such year in accordance
with its terms. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
The following table contains information concerning the grant of options under
the Company's option plans to the named executive officers as of the end of the
last completed fiscal year of the Company. No share appreciation rights ("SARs")
were granted during the last fiscal year and none were held at the end of the
fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realized Value of
Assumed Annual Rates of
Share Price Appreciation
Individual Grants For Option Term (1)
% of
Total
Number of Options
Securities Granted to Exercies
Underlying Employees or
Name Options In Fiscal Base Price Expiration
Granted(#) Year ($/SH) Date O$ ($) 5% ($) 10%($)
------------------------- ----------- ---------- ---------- ---------- ------- --------- -----------
John L. Castello 100,000 8.4% $5.77 2/25/14 0 $362,872 $919,589
Clarence L. Dellio 40,000 3.3% $5.77 2/25/14 0 $145,149 $367,836
Patrick J. Scannon, M.D., 30,000 2.5% $5.77 2/25/14 0 $108,862 $275,877
Ph.D
Peter B. Davis 30,000 2.5% $5.77 2/25/14 0 $108,862 $275,877
Christopher J. Margolin 30,000 2.5% $5.77 2/25/14 0 $108,862 $275,877
(1) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their ten-year option terms. These gains are based
on assumed rates of share price appreciation of 0%, 5% and 10% compounded
annually from the dates the respective options were granted. Options
granted with exercise prices equal to the market price of the underlying
Common Shares on the date of grant will have no value unless the Company's
share price increases above the exercise prices as a result of actions by
the executives that improve the Company's performance and/or other factors
affecting such price.
The following table sets forth information with respect to the named executive
officers concerning the exercise of options during the last completed fiscal
year of the Company and unexercised options held as of the end of the fiscal
year. No SARs were exercised during the last fiscal year and none were held at
the end of the fiscal year.
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AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of Securities Value of Unexercised in-the-
Underlying Unexercised Money Options
Options at FY-End at FY-End ($)(1)
----------------------------- -----------------------------
Shares
Acquired
Name On Value
Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
--------------------------- ------------ --------- ----------- ------------- ----------- --------------
John L. Castello 0 $0 989,999 195,001 $25,875 $0
Clarence L. Dellio 23,969 $99,172 282,584 83,249 $4,479 $0
Patrick J. Scannon M.D., 75,000 $185,528 356,251 63,749 $4,125 $0
Ph.D
Peter B. Davis 0 $0 270,418 69,582 $1,650 $0
Christopher J. Margolin 75,000 $374,112 234,584 75,416 $0 $0
(1) The amounts listed in the two columns are based on the closing price per
share of $2.59 on December 31, 2004, as reported on The Nasdaq Stock
Market, less the applicable option exercise prices.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has entered into an employment agreement with Mr. Castello, dated as
of April 29, 1992, that provides for his employment as President and Chief
Executive Officer at a salary of $500,000 per year. Under this agreement, Mr.
Castello also receives all standard Company employee benefits and supplemental
life insurance for the amount that an annual premium of $18,000 provides. The
agreement also provides for a grant of options for 500,000 Common Shares under
the Company's 1981 Share Option Plan (the "Option Plan"), which was made in
1992.
Mr. Castello's employment may be terminated, with or without cause, at the will
of either party. If terminated by the Company for any reason other than due
cause or by Mr. Castello for good reason, Mr. Castello must be paid his then
current base salary and benefits for one year. If terminated for due cause, he
is entitled to no further compensation. Good reason includes, in the context of
a change of control, the assignment to Mr. Castello of duties inconsistent with
his prior duties; his removal from, or failure to re-elect him to, any position
he held immediately prior to the change in control; any termination by the
Company within three years of the change of control other than for due cause or
upon disability or death; a good faith determination by Mr. Castello that
changes in circumstances resulting from the change in control leave him
substantially unable to perform his duties, after notice; the failure of the
Company's successor or the transferee of its assets or business to assume its
obligations under the agreement; or, a significant relocation of the Company's
executive offices. Good reason also includes any reduction in base pay or
benefits or any breach of the agreement by the Company.
The Company has entered into an employment agreement with Dr. Scannon, dated as
of March 26, 2005, that provides for his employment as Senior Vice President and
Chief Scientific and Medical Officer at a salary of $350,000 per year. Under
this agreement, Dr. Scannon is entitled to participate in any benefit plan for
which key executives of the Company are eligible, including the Management
Incentive Compensation Plan established effective July 1, 1993 (as amended, the
"MICP"). Upon termination of his employment for any reason other than cause, or
upon resignation, Dr. Scannon must be paid his then current base salary and
benefits for one year.
The Company has entered into an employment agreement with Mr. Davis dated as of
April 1, 1994 that provides for his employment as Chief Financial Officer at an
initial salary of $200,000 per year. Under this agreement, Mr. Davis received a
one-time transition allowance in the amount of $35,000 and is entitled to
participate in any benefit plan for which executives of the Company are
eligible. In addition, the agreement provides for an initial grant of options
for 60,000 Common Shares under the Option Plan, which was made in 1994, as well
as participation in the MICP. Mr. Davis' employment agreement pro-
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vides no additional compensation in the event of a change of control but
provides a minimum severance amount equal to six months of base salary at the
time of termination.
The Company has entered into an employment agreement with Mr. Margolin, dated as
of February 23, 2005, that provides for his employment as Vice President,
General Counsel and Secretary at a salary of not less than $290,000 per year.
Under the agreement, Mr. Margolin will be entitled to participate in any benefit
plan for which key executives of the Company are eligible, including the MICP.
Upon termination of his employment by the Company for any reason other than
cause or upon his resignation from the Company for good reason, Mr. Margolin
will be entitled to his then current base salary and benefits for nine months.
The agreement will continue until February 22, 2006, and will be automatically
extended (without further action by the parties) for one year thereafter and
again on each subsequent anniversary thereof, unless terminated by mutual
written consent of the parties.
Compensation Committee Report on Executive Compensation
The Company's compensation program for officers (including the named executive
officers) is administered by the Compensation Committee of the Board of
Directors (the "Committee"), which is composed of two independent directors.
Following review and approval by the Committee, all issues pertaining to officer
compensation are submitted to the full Board of Directors for approval. The
primary objectives of the Company's compensation program are to enable the
Company to attract, motivate and retain outstanding individuals and align their
success with that of the Company's shareholders through the creation of
shareholder value and achievement of strategic corporate objectives.
The level of compensation paid to an officer is determined on the basis of the
individual's overall experience, responsibility, performance and compensation
level in his or her prior position (for newly hired officers), the individual's
overall performance and compensation level at the Company during the prior year
(for current employees), the compensation levels of similarly situated
individuals in the pharmaceutical and biotechnology industries (including, but
not limited to, the biotechnology companies included in the AMEX Biotechnology
Index) and other labor markets in which the Company competes for employees, the
performance of the Company's Common Shares during the prior fiscal year and such
other factors as may be appropriately considered by the Board of Directors, by
the Committee and by management in making its initial proposals to the
Committee.
Mr. Castello's compensation for 2004 was determined after considering the
general factors described above and the terms of his existing employment
contract. In 1992, the Committee approved, and recommended that the Board
approve, the terms of Mr. Castello's employment contract, as more fully
described under "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements," because it felt that the terms thereof were
necessary in order to attract a candidate of Mr. Castello's experience and
reputation in the pharmaceutical industry, which in turn was deemed necessary in
order to enable the Company to advance toward its long-range goal of becoming a
pharmaceutical company with commercially viable products. In 2004, the
Committee, the Board and the shareholders approved the CEO Incentive
Compensation Plan (the "CICP") in order to make Mr. Castello's compensation more
commensurate with that of his peers and because the Committee believed that it
was not appropriate to include Mr. Castello in the Management Incentive
Compensation Plan given his active role in administering that plan.
Only the chief executive officer of the Company ("CEO") is eligible to
participate in the CICP, and depending on his or her performance and that of the
Company, earn incentive compensation. The determination of the incentive
compensation awarded for each fiscal year is as follows: The target award
opportunity for the CEO is set at 50% of his or her base salary. As soon as
practicable after the end of each fiscal year (the "Plan Period"), the Committee
will recommend to the Board and the Board will determine
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whether and to what extent certain Company objectives ("Company Objectives")
have been met. Company Objectives may be based on financial goals, scientific or
commercial progress, profits, return on investments or any other criteria
established by the Board. For each Plan Period, unless 70% of the Company
Objectives have been met, no incentive compensation will be awarded.
The incentive compensation will be weighted based 70% on meeting Company
Objectives and 30% based on discretionary objectives. The award opportunity
range for the CEO expressed as a percentage of his or her base salary is as
follows: minimum award opportunity--25%; target award opportunity--50%; and
maximum award opportunity--75%.
The performance of the CEO will be rated as soon as practicable following the
conclusion of the Plan Period. Distribution of incentive compensation will be
established by the Board, and will generally be in February or March of the
succeeding year after the Plan Period. The incentive awards will be comprised
50% of cash and 50% of common shares (based on the average market value of the
common shares for the 10 trading days prior to the date of the award).
For 2004, the Committee and the Board determined that Mr. Castello had met a
percentage of the Company Objectives in excess of the 70% minimum required by
the CICP in order to make an award thereunder.
The principal methods for long-term incentive compensation are the Option Plan
and Restricted Share Plan (the "Restricted Plan"), and compensation thereunder
principally takes the form of incentive and non-qualified option grants. These
grants are designed to promote the convergence of long-term interests between
the Company's key employees and its shareholders; specifically, the value of
options granted will increase or decrease with the value of the Company's Common
Shares. In this manner, key individuals are rewarded commensurately with
increases in shareholder value. These grants also typically include a 4-year
vesting period to encourage continued employment. The size of a particular
option grant is determined based on the individual's position with and
contribution to the Company. For grants during 2004, the number of options
granted were determined based on the numbers of options granted to such
individuals in the previous fiscal year, the aggregate number of options held by
each such individual, the number of options granted to similarly situated
individuals in the pharmaceutical and biotechnology industries, the price of the
Company's Common Shares relative to other companies in such industries and the
resulting relative value of such options; no specific measures of corporate
performance were considered.
Certain employees are also compensated through the MICP, in which management
employees (other than the Chief Executive Officer), as well as certain
additional discretionary participants chosen by the Chief Executive Officer, are
eligible to participate. Under the MICP, at the beginning of each fiscal year,
the Board of Directors (with advice from the Committee) establishes a target
incentive compensation pool, which is then adjusted at year-end to reflect the
Company's performance in achieving its corporate objectives.
After each fiscal year, the Board of Directors and the Committee make a
determination as to the performance of the Company and MICP participants in
meeting corporate objectives and individual objectives, which are determined
from time to time by the Board of Directors in its sole discretion and which
included for 2004: a target level of cash at year end; generation of current
income; progress toward collaborations, potential partnerships or financing
arrangements; and various objectives tied to development of the Company. Awards
to MICP participants vary depending upon the level of achievement of corporate
objectives, the size of the incentive compensation pool and the MICP
participants' base salaries and performance during the fiscal year as well as
their expected ongoing contribution to the Company. The
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Company must meet a minimum percentage of its corporate objectives (currently
70%) before any awards are made under the MICP.
Awards under the MICP granted on or prior to December 31, 2004 vest over a
three-year period with 50% of each award payable during the first quarter of the
following fiscal year, and 25% payable on each of the next two annual
distribution dates, so long as the participant remains an employee of the
Company. The 50% on each distribution date is payable half in cash and half in
Common Shares. Awards under the MICP granted after December 31, 2004, including
grants made in 2005 for performance in 2004, are made in one payment soon after
the end of the relevant fiscal year, rather than three payments over three
years, and are payable half in cash and half in Common Shares. All share
issuances under the MICP are made pursuant to the Restricted Plan.
For 2004, the Committee and the Board of Directors determined that management
had met a percentage of the corporate objectives summarized above in excess of
the 70% minimum required by the MICP in order to make awards thereunder. For
2004, 84 individuals were determined to be eligible to participate in the MICP,
including all of the executive officers named in the "Summary Compensation
Table" above other than Mr. Castello.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
generally limits the deductible amount of annual compensation paid to certain
individual executive officers (i.e., the chief executive officer and the four
other most highly compensated executive officers of the Company) to no more than
$1 million. However, qualifying performance-based compensation will be excluded
from the $1 million cap on deductibility, and the Committee believes, based on
information currently available, that the Company's options issued to its
executive officers qualify for this exclusion. Considering the current structure
of executive officer compensation and the availability of deferral
opportunities, the Committee believes that the Company will not be denied any
significant tax deduction for 2005. The Committee will continue to review tax
consequences as well as other relevant considerations in connection with
compensation decisions.
W. Denman Van Ness William
K. Bowes, Jr.
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PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return Among XOMA,
Nasdaq Composite Index and AMEX Biotechnology Index
[OBJECT OMITTED]
Nasdaq AMEX
XOMA Composite Biotechnology
As of December 31, Ltd. Index Index
------------------------- ------ ---------- --------------
1999 100.00 100.00 100.00
2000 325.00 60.71 162.05
2001 328.33 47.93 148.32
2002 141.00 32.82 86.40
2003 220.00 49.23 125.20
2004 86.33 53.46 139.04
The comparison assumes $100 invested on December 31, 1999 in the Company's
Common Shares, the Nasdaq Composite Index, and the AMEX Biotechnology Index.
Total return assumes reinvestment of dividends although the Company has never
paid cash dividends. Returns for the Company are not necessarily indicative of
future performance.
-11-
ITEM 1--ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the next annual
general meeting of shareholders and until their successors are elected, or until
their death, resignation or removal. The nominees for the Board of Directors are
set forth below. Unless otherwise instructed, the proxy holders will vote all
proxies received by them in the accompanying form for the nominees for directors
listed below. In the event any nominee should become unavailable for election
due to an unexpected occurrence, the proxies will be voted for any such
substitute nominee as may be designated by the present Board of Directors to
fill the vacancy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them for the nominees listed below. Each person nominated for election has
agreed to serve if elected, and management has no reason to believe that any of
the nominees listed below will be unable to serve. The eight candidates
receiving the highest number of affirmative votes of the Common Shares entitled
to vote at the annual general meeting will be elected as directors of the
Company.
NOMINEES TO BOARD OF DIRECTORS
Name Title Age
--------------------------------- --------------------------------------------------------------- ----
John L. Castello Chairman of the Board, President and Chief Executive Officer 68
Patrick J. Scannon, M.D., Ph.D. Senior Vice President, Chief Scientific and Medical Officer and 57
Director
James G. Andress Director 66
William K. Bowes, Jr. Director 78
Peter B. Hutt Director 70
Arthur Kornberg, M.D. Director 87
W. Denman Van Ness Director 62
Patrick J. Zenner Director 58
Mr. Castello became Chairman of the Board, President and Chief Executive Officer
in March of 1993. From April of 1992 to March of 1993, Mr. Castello was
President, Chief Executive Officer and a director. Mr. Castello was President
and Chief Operating Officer of the Ares Serono Group from 1988 to 1991 and prior
to that was President of the Serono Diagnostics Division from 1986 to 1988. Ares
Serono is known in the United States for fertility drugs, and it is also the
manufacturer of a bioengineered human growth hormone which is marketed primarily
outside of the United States. Mr. Castello previously held senior management
positions at Amersham International PLC and Abbott Laboratories. Mr. Castello is
also a director of Cholestech Corporation, which is engaged in the business of
developing products for the diagnostic measurement of cholesterol and other
blood components.
Dr. Scannon is one of the founders of the Company and has served as a director
since its formation. Dr. Scannon became Chief Scientific and Medical Officer in
March of 1993. He served as President of the Company from its formation until
April of 1992 and as Vice Chairman, Scientific and Medical Affairs from April of
1992 to March of 1993. From 1998 until 2001, Dr. Scannon served as a director of
NanoLogics, Inc., a software company. From 1979 until 1981, Dr. Scannon was a
clinical research scientist at the Letterman Army Institute of Research in San
Francisco. A Board-certified internist, Dr. Scannon holds a Ph.D. in organic
chemistry from the University of California, Berkeley, and an M.D. from the
Medical College of Georgia.
Mr. Andress has been a director since November of 1995 and is a former Chairman
of the Pharmaceuticals Group, Beecham Group, plc and Chairman, Healthcare
Products and Services of SmithKline Beecham, plc and the former President and
Chief Operating Officer of Sterling Drug, Inc. From 1996 to 2000, he served as
Chairman and CEO of Warner Chilcott, plc, a specialty pharmaceuticals company.
-12-
From 1989 to 1995, he served as CEO and director of Information Resources, Inc.,
a decision support software and consumer packaged goods research company. He
currently serves as a director of Sepracor, Inc., a specialty pharmaceuticals
company, Dade-Behring Corp., a medical diagnostic company and Allstate Insurance
Company.
Mr. Bowes has been a director since February of 1986 and has been a General
Partner of U.S. Venture Partners since 1981 and currently holds the position of
Founding Partner. Mr. Bowes is also a director of one private company.
Mr. Hutt, former Chief Counsel for the Food and Drug Administration (FDA), is
standing for election as a director for the first time. In accordance with its
standard procedures, the nominating & governance committee determined to
nominate Mr. Hutt after interviewing him on the recommendation of Mr. Castello.
Mr. Hutt was formally recommended for nomination by the nominating & governance
committee at its meeting on February 22, 2005. Mr. Hutt is currently Senior
Counsel to the Washington, D.C. law firm of Covington & Burling, specializing in
food and drug law and trade association law. Since 1994, he has taught a course
on food and drug law at Harvard Law School and taught the same course at
Stanford Law School in 1998. He is also a co-author of Food and Drug Law: Cases
and Materials. Mr. Hutt serves on a wide variety of academic and advisory
boards, including the Institute of Medicine (IOM) of the National Academy of
Sciences (NAS) and the Panel on the Administrative Restructuring of the National
Institutes of Health (NIH). Additionally, he serves as Legal Counsel to the
Society of Risk Analysis as well as the American College of Toxicology.
Formerly, he has served on the IOM Executive Committee, Advisory Committee to
the Director of the NIH, the NAS Committee on Research Training in the
Biomedical and Behavioral Sciences, and the National Committee to Review Current
Procedures for Approval of New Drugs for Cancer and AIDS established by the
President's Cancer Panel of the National Cancer Institute at the request of
President George Bush. Mr. Hutt received his undergraduate degree from Yale
University, and law degrees from Harvard University and New York University.
Dr. Kornberg has been a director since April of 1991. He is a distinguished
author and researcher who was chairman and founder of the Department of
Biochemistry at the Stanford University School of Medicine. Dr. Kornberg
received the Nobel Prize in 1959 for his discovery of the enzymatic synthesis of
DNA. His present research is on the genetics, biochemistry, physiology and
clinical relevance of inorganic polyphosphate. He is the author of "DNA
Replication," one of the basic textbooks of biochemistry. Dr. Kornberg was a
founder and is a member of the Boards of Scientific Advisors of DNAX, now a
wholly owned subsidiary of Schering-Plough Corporation, and Regeneron
Pharmaceuticals, Inc., a biotechnology company focused on neurobiology, and is a
member of the Board of Scientific Advisors of Maxygen, Inc., a biotechnology
company focused on molecular evolution technology.
Mr. Van Ness has been a director since October of 1981. He is Chairman of Hidden
Hill Advisors, a venture capital consulting firm. From April of 1996 through
October of 1999, he was a Managing Director of CIBC Capital Partners, an
international merchant banking organization. From 1986 through March 31, 1996,
Mr. Van Ness was a General Partner of Olympic Venture Partners II and Rainier
Venture Partners, venture capital funds, and from 1977 until 1985, he was a
General Partner of the venture capital group at Hambrecht & Quist, the manager
of several venture capital funds.
Mr. Zenner has been a director since May of 2002. Mr. Zenner is a 31-year
veteran of the pharmaceutical industry and spent his entire career at
Hoffmann-La Roche. During his first 12 years, he held positions of increasing
responsibility in sales, marketing, health care economics, public policy and
governmental affairs. In 1982, he became Vice-President and General Manager of
Roche Laboratories, and subsequently Director and Head of Global Pharma
Marketing, Project Development and Regulation in Basel, Switzerland. In 1988, he
became Senior Vice President, Pharmaceuticals Division and a member of the Board
of
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Directors. From 1993 until his retirement in 2001, he served as President and
CEO of Hoffman-La Roche, Inc., North America. Mr. Zenner currently serves on the
Boards of Arqule, Inc., Curagen Corporation, Dendrite International, Inc., Exact
Sciences Corporation, First Horizon Pharmaceutical Company, Geron Corporation,
Praecis Pharmaceuticals, Inc., and West Pharmaceutical Services. He has also
served as a member of the Board and the Executive Committee of both the
Pharmaceutical Research and Manufacturers Association (PhRMA) and the
Biotechnology Industry Organization (BIO).
In February of 2005, Mr. Mendell notified the Board that, as a result of other
business and travel commitments, he would not be standing for re-election as a
director at this annual general meeting.
Executive Officers
Mr. Castello and Dr. Scannon are executive officers of the Company. The
remaining executive officers are listed below.
Peter B. Davis is Vice President, Finance and Chief Financial Officer of the
Company. Before joining the Company in 1994, he was Vice President Financial
Operations for the Ares-Serono Group. Previously, he was Chief Financial Officer
of Akzo America Inc., where he was instrumental in structuring and negotiating
acquisitions and joint ventures. He has also held executive financial positions
with Stauffer Chemical Company and PepsiCo, Inc.
Christopher J. Margolin is Vice President, General Counsel and Secretary of the
Company. Prior to joining the Company in 1991, Mr. Margolin was a corporate
attorney holding several different executive legal positions for Raychem
Corporation, an international high technology company, for 11 years. From 1975
to 1980, he was a division counsel for TRW Inc. and from 1972 to 1975, he was an
associate at the law firm of McCutchen, Black, Verleger and Shea in Los Angeles.
BOARD MATTERS
Board Meetings and Compensation
During the fiscal year ended December 31, 2004, the Board of Directors held six
meetings. Each Board member attended at least 75% of the aggregate number of
meetings of the Board and the committees of the Board on which he served that
were held during the last fiscal year. Each of Dr. Kornberg and Messrs. Andress,
Bowes, Van Ness and Zenner is "independent" as defined in the listing standards
of The Nasdaq Stock Market. Directors are encouraged to attend the Company's
annual general meetings of shareholders where practicable. All of the directors
attended last year's annual general meeting of shareholders.
Each non-employee director receives a quarterly retainer of $2,000, $1,500 for
each meeting of the Board of Directors attended in person, $750 for each meeting
of the Board of Directors attended telephonically, $500 for each committee
meeting attended in person and $250 for each other telephonic meeting.
Additionally, each non-employee director is granted options to purchase 20,000
Common Shares pursuant to the 1992 Directors Share Option Plan (the "Directors
Plan") upon initial election to the Board of Directors and is annually granted
10,000 Common Shares pursuant to the Directors Plan upon reelection to the Board
of Directors, each at an exercise price per share equal to the closing market
price of the Common Shares on the date of grant, which for 2004 was $3.84.
Directors who are employees of the Company are neither paid any fees or other
remuneration nor awarded options or Common Shares of the Company for services as
members of the Board of Directors or its committees.
-14-
The Board of Directors has standing compensation, nominating & governance and
audit committees.
Compensation Committee
The compensation committee is responsible for recommending and reviewing the
compensation, including options and perquisites, of the Company's officers and
other employees. This committee, currently consisting of Messrs. Van Ness and
Bowes, held two meetings during 2004. The Board of Directors has adopted a
written charter for the compensation committee, a copy of which is available on
the Company's website at www.xoma.com. See "Compensation Committee Report on
Executive Compensation."
Nominating & Governance Committee
The nominating & governance committee assists the Board of Directors by
identifying individuals qualified to become Board members, recommends to the
Board the director nominees for the next annual general meeting of shareholders,
recommends to the Board the director nominees for each committee and develops,
recommends to the Board and oversees the governance principles applicable to the
Company. This committee, currently consisting of Messrs. Bowes, Mendell and Van
Ness, held two meetings during 2004. Each member of the nominating & governance
committee is "independent" as defined in the listing standards of The Nasdaq
Stock Market. The Board of Directors has adopted a written charter for the
nominating & governance committee, a copy of which is available on the Company's
website at www. xoma.com.
The nominating & governance committee's charter provides that the committee
will, on behalf of the Board, review letters from shareholders regarding the
Company's annual general meeting and governance process. Beyond this, the
committee has no formal policy regarding consideration of director candidates
recommended by shareholders, in large part because the Company has never
received from any of its shareholders a recommendation of a director nominee
with reasonably adequate qualifications. The need for a more formal policy was
considered and determined to be not necessary by the committee. The committee
will consider candidates recommended by shareholders, and a shareholder wishing
to submit a recommendation should send a letter to the Secretary of the Company
at 2910 Seventh Street Berkeley, California 94710. The mailing envelope must
contain a clear notation indicating that the enclosed letter is a "Director
Nominee Recommendation." The letter must identify the author as a shareholder
and provide a complete listing of the candidate's qualifications to serve on the
Board, the candidate's current principal occupation, most recent five-year
employment history and current directorships and a statement that the proposed
nominee has consented to the nomination, as well as contact information for both
the candidate and the author of the letter. Shareholders may also nominate
candidates who are not first recommended to the nominating & governance
committee by following procedures set forth in our bye-laws.
To be considered by the nominating & governance committee, a director nominee
must have experience as a board member or senior officer of a company in the
healthcare or other industries, have a strong financial background, be a leading
participant in another field relative to the Company's business or have achieved
national prominence in a relevant field as a faculty member, professional or
government official. In addition to these minimum requirements, the committee
seeks director candidates based on a number of qualifications, including their
independence, knowledge, judgment, leadership skills, education, experience,
financial literacy, standing in the community and ability to foster a diversity
of backgrounds and views and complement the Board's existing strengths.
The Board of Directors and the nominating & governance committee begin the
process of identifying and evaluating director nominees by seeking
recommendations from a wide variety of contacts, including current executive
officers and directors and industry, academic and community leaders. The Board
or the committee may retain a search firm to identify and screen candidates,
conduct reference checks, prepare
-15-
biographies for review by the committee and the Board and assist in setting up
interviews. The committee and one or more of the Company's other directors
interview candidates, and the committee selects nominees that best suit the
Company's needs.
Audit Committee
The audit committee is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing the Company's
accounting practices and systems of internal accounting controls. This
committee, currently consisting of Mr. Mendell, Mr. Andress and Mr. Zenner, held
eight meetings during 2004. Each member of the audit committee is "independent"
as defined in the listing standards of The Nasdaq Stock Market. The Board of
Directors has determined that each of Messrs. Mendell, Andress and Zenner is an
"audit committee financial expert" as defined by the rules of the Securities and
Exchange Commission. The Board of Directors has adopted a written charter for
the audit committee, a copy of which is available on the Company's website at
www.xoma.com.
In accordance with rules established by the Securities and Exchange Commission,
the audit committee has prepared the following report for inclusion in this
proxy statement:
As part of its ongoing activities, the audit committee has:
o met with management periodically to consider the adequacy of the Company's
internal controls and the objectivity of its financial reporting, and
discussed these matters with the Company's independent auditors and with
appropriate Company financial personnel;
o regularly met privately with the independent auditors, who have
unrestricted access to the committee;
o recommended the appointment of the independent auditors and reviewed
periodically their performance and independence from management;
o reviewed the Company's financing plans and reported recommendations to the
full Board of Directors for approval and to authorize action;
o reviewed and discussed with management the Company's audited consolidated
financial statements for the fiscal year ended December 31, 2004;
o discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communications with
Audit Committees, as amended; and
o received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and discussed with the
independent auditors their independence.
Based on the review and discussions referred to above, the audit committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004.
Steven C. Mendell
James G. Andress
Patrick J. Zenner
-16-
ITEM 2--APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of its audit committee, recommends
the appointment of Ernst & Young LLP ("Ernst & Young") to serve as the Company's
independent auditors for 2005. Ernst & Young has been acting as the Company's
independent auditors since fiscal year 1998.
Audit Fees. The aggregate fees billed for each of the 2003 and 2004 fiscal years
for professional services rendered by Ernst & Young for the audit of the
Company's annual financial statements, review of financial statements included
in the Company's Form 10-Q, services that are normally provided by Ernst & Young
in connection with statutory and regulatory filings or engagements and, in the
case of 2004, for attestation services related to Sarbanes-Oxley compliance for
those fiscal years were $392,000 and $863,000, respectively.
Audit-Related Fees. The aggregate fees billed in each of the 2003 and 2004
fiscal years for audit related services by Ernst & Young were $35,000 and
$15,000, respectively. The services comprising the fees disclosed under this
category were related to Ernst & Young's audit of the Company's deferred savings
plan and accounting consultations regarding and review of internal controls not
required by statute or regulation.
Tax Fees. The aggregate fees billed in each of the 2003 and 2004 fiscal years
for professional services rendered by Ernst & Young for tax compliance, tax
advice and tax planning were $39,000 and $13,000, respectively. The services
comprising the fees disclosed under this category were preparation of the 2003
foreign tax returns and tax consultations in 2003 and 2004.
All Other Fees. There were no fees billed in each of the 2003 and 2004 fiscal
years for products and services provided by Ernst & Young other than the
services reported in the three immediately preceding paragraphs.
The audit committee considered whether the provision of the services covered in
the four immediately preceding paragraphs of this section is compatible with
maintaining Ernst & Young's independence.
The audit committee's policy is to pre-approve all audit and permissible
non-audit services provided by the Company's independent accountants.
Pre-approval is generally provided for up to one year, is detailed as to the
particular service or category of services and is generally subject to a
specific budget. The committee may also pre-approve particular services on a
case-by-case basis. In assessing requests for services by the independent
accountants, the committee considers whether such services are consistent with
the auditor's independence, whether the independent accountants are likely to
provide the most effective and efficient service based on their familiarity with
the Company, and whether the service could enhance the Company's ability to
manage or control risk or improve audit quality. The committee has delegated
pre-approval authority to its chairman, who must report any decisions to the
committee at its next scheduled meeting.
The recommendation to appoint Ernst & Young and the authorization of the Board
of Directors to agree to Ernst & Young's fee are being submitted to the
shareholders at the annual general meeting. If such appointment is not made, the
Board of Directors will consider other auditors for appointment. The Board of
Directors recommends a vote "FOR" the appointment of Ernst & Young as the
Company's independent auditors for the 2005 fiscal year and the authorization of
the Board of Directors to agree to Ernst & Young's fee.
A representative of Ernst & Young is expected to be present at the meeting with
an opportunity, if desired, to make a statement and to respond to your
questions.
-17-
ITEM 3--RECEIPT OF AUDITED FINANCIAL STATEMENTS
In accordance with Bermuda company law and practice, the Company's audited
financial statements for fiscal year 2004 will be laid before the annual general
meeting. No shareholder action is required in connection therewith.
ITEM 4--INCREASE IN THE NUMBER OF AUTHORIZED COMMON
SHARES AND SHARE CAPITAL
Background
Currently, the Company is authorized to issue 135,000,000 Common Shares in the
aggregate. On February 23, 2005, the Board of Directors unanimously approved a
proposal to increase the Company's authorized share capital by the creation of
an additional 75,000,000 Common Shares.
On April 1, 2005, the Company had issued and outstanding 86,251,670 Common
Shares. As of that date, the Company had reserved approximately 44,689,183
shares for issuance upon exercise of outstanding convertible notes, options,
warrants and preference shares and in connection with existing share-based
compensation and benefit plans. Consequently, the Company has approximately
4,059,147 shares available for other issuances.
Effects of Adoption of the Proposal
The adoption of this proposal would increase the authorized share capital of the
Company from US$117,500, consisting of 135,000,000 Common Shares and 1,000,000
Preference Shares, to US$155,000, consisting of 210,000,000 Common Shares (with
identical rights and ranking to the existing Common Shares) and 1,000,000
Preference Shares. The additional Common Shares for which authorization is
sought would be part of the existing class of Common Shares, and, to the extent
issued, would have the same rights and privileges as the Common Shares currently
outstanding. No holder of the Common Shares is entitled to any preemptive right
to subscribe for or purchase any shares or other securities of the Company. The
issuance of a substantial amount of Common Shares or the granting of an option
to purchase a substantial amount of Common Shares could have a potential
anti-takeover effect with respect to the Company which may make it more
difficult to effect a change in control of the Company (for example, by
decreasing the percentage of share ownership of those persons seeking to obtain
control), although the Board of Directors is not presenting the proposal for
that reason and does not anticipate using the newly authorized shares for such a
purpose. Under applicable law, the Board of Directors is required to make any
determination to issue such shares based on its judgment at the time of such
issuance as to the best interest of the Company.
Approval of the proposal would not affect the number of authorized preference
shares or the number of shares issuable under any of the Company's existing
share-based compensation or benefit plans.
Recommendation
The Company has approximately 4,059,147 Common Shares available for future
option grants, issuances of warrants, preferences shares, financings and other
issuances. The Board of Directors of the Company considers it necessary and in
the best interests of the Company to have a sufficient number of Common Shares
available for issuance in order to provide the Company with business and
financing flexibility. The Board also believes in the importance of share-based
compensation and benefits plans to align employee and shareholder interests and
to continue to attract and retain the services of outstanding employees. Common
Shares may be issued by the Company in connection with future strategic business
col-
-18-
laborations or equity financings, upon conversion or exchange of outstanding
securities. The Company is also obligated to reserve shares for issuance to
certain existing investors. Except as referred to herein, there are currently no
agreements or understandings regarding the issuance of any of the additional
Common Shares that would become available if the Company's authorized share
capital is increased as proposed. For these reasons, the Board unanimously
recommends a vote "FOR" approval. Approval of the increase requires the
affirmative vote of the holders of a majority of the votes cast at the annual
general meeting on the proposal.
EQUITY COMPENSATION PLAN INFORMATION
We show below information as of December 31, 2004 on equity compensation plans
under which our common shares are authorized for issuance.
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average exercise equity compensation
be issued upon exercise price of outstanding plans (excluding
of outstanding options, options, warrants and securities reflected in
warrants and rights rights column (a))
Plan category (a) (b) (c)
-------------------------- ------------------------ ------------------------ ---------------------------
Equity compensation plans
approved by security 5,774,555 $5.482 31,656,276
holders
Equity compensation plans not
approved by security holders
15,000 $4.699 70,485
--------- ------ ----------
Total 5,789,555 $5.480 31,726,761
========= ====== ==========
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
changes in ownership with the SEC and The Nasdaq Stock Market. Such executive
officers and directors are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based on a review of the
copies of the forms furnished to the Company and written representations from
the Company's executive officers and directors, other than Messrs. Bowes and Van
Ness who each filed late with respect to one transaction reportable on Form 4,
all persons subject to the reporting requirements of Section 16(a) filed the
required reports with respect to 2004 on a timely basis.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at this
annual general meeting other than those set forth in this proxy statement and in
the notice accompanying this proxy statement. If other matters should properly
come before the meeting, it is intended that the proxy holders will vote on such
matters in accordance with their best judgment.
-19-
It is important that your Common Shares be represented at the meeting,
regardless of the number of Common Shares which you hold. You are, therefore,
urged to promptly execute and return the accompanying proxy in the postage
prepaid envelope which has been enclosed for your convenience or appoint a proxy
by telephone or through the Internet.
SHAREHOLDER PROPOSALS AND OTHER COMMUNICATIONS
A shareholder who intends to present a proposal at the 2006 meeting of
shareholders must submit such proposal by November 30, 2005, to the Company for
inclusion in the Company's 2005 proxy statement and proxy card relating to such
meeting. The proposal must be mailed to the Company's principal office, at 2910
Seventh Street, Berkeley, California 94710, Attention: Secretary. Under Bermuda
law, shareholders holding not less than 5% of the total voting rights or 100 or
more registered shareholders together may require the Company to give notice to
shareholders of a proposal to be submitted at an annual general meeting.
Generally, notice of such a proposal must be received at our registered office
in Bermuda not less than six weeks before the date of the meeting and must
otherwise comply with the requirements of Bermuda law.
-20-
For all other shareholder communications with the Board of Directors or a
particular director, a shareholder may send a letter to the Company's principal
office, at 2910 Seventh Street, Berkeley, California 94710, Attention:
Secretary. The mailing envelope must contain a clear notation indicating that
the enclosed letter is a "Shareholder-Board Communication" or
"Shareholder-Director Communication." The letter must identify the author as a
shareholder and clearly state whether the intended recipients are all members of
the Board of Directors or just certain specified individual directors.
By Order of the Board of Directors,
Christopher J. Margolin
Secretary
April 12, 2005
Berkeley, California
XOMA LTD.
2910 SEVENTH STREET
BERKELEY, CA 94710
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN L. CASTELLO and CHRISTOPHER J. MARGOLIN,
and each of them, with full power of substitution, as the proxy or proxies of
the undersigned to vote all Common Shares of XOMA Ltd. which the undersigned is
entitled to vote at the annual general meeting of shareholders of XOMA Ltd. to
be held at The Claremont Hotel, Ashby and Domingo Avenues, Berkeley, California
on May 19, 2005, at 9:00 a.m. local time, and at any adjournment or postponement
thereof, with all powers that the undersigned would have if personally present
thereat:
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR Proposals 1, 2 and 4.
(Continued, and to be marked, dated and signed, on other side)
Address Change/Comments (Mark the corresponding box on the reverse side)
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(DELTA) FOLD AND DETACH HERE (DELTA)
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call TOLL FREE 1-866-540-5760 on a touch tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
2. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
Please Mark Here for Address |_|
Change or Comments
SEE REVERSE SIDE
FOR all
nominees WITHHOLD
(except as AUTHORITY
arked to the to vote for a l (The Board of Directors
m contrary) nominees recommends a vote FOR.)
1. Election of Directors |_| |_| 2. Proposal to appoint FOR AGAINST ABSTAIN
Ernst & Young LLP |_| |_| |_|
to act as the
Company's
independent
auditors for the
2005 fiscal year
and authorize the
Board to agree to
such auditors' fee.
01 James G. Andress 02 William K. Bowes, Jr.
03 John L. Castello 04 Peter B. Hutt
05 Arthur Kornberg, 06 Patrick J. Scannon, M.D., Ph.D.
M.D.
07 W. Denman Van Ness 08 Patrick J. Zenner
3. No vote is required
to receive the
Company's audited
financial statements
for the 2004
fiscal year.
(The Board of Directors recommends a vote FOR.) 4. Proposal to approve FOR AGAINST ABSTAIN
the increase of the |_| |_| |_|
Company's
authorized share
capital by the
creation of an
additional
75,000,000 Common
Shares, as
described in the
Proxy Statement.
This proxy will be voted in the election of directors in the manner described in
the proxy statement for the 2005 annual meeting of shareholders. (INSTRUCTION:
To withhold authority to vote for one or more individual nominees, write such
name or names in the space
provided below.)
5. In their discretion, the proxies are authorized to vote upon such other
business as may 5 properly come before the meeting and at any adjournment
or postponement thereof.
Dated: _________________________________, 2005
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Signature of Shareholder
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Signature if held jointly
1
Please sign exactly as name appears above. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or
other authorized person.
***IF YOU WISH TO VOTE BY TELEPHONE, PLEASE PLEASE MARK, SIGN, DATE
READ THE INSTRUCTIONS BELOW AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED
ENVELOPE.
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(DELTA) FOLD AND DETACH HERE (DELTA)
Vote by Telephone or Mail
24 Hours a Day, 7 Days a Week
Telephone voting is available through 11:59 PM Eastern Time
the business day prior to annual meeting day.
Your Telephone vote authorizes the named proxies to vote
your shares in the same manner as if you marked,
signed and returned your proxy card.
Telephone Mail
1-866-540-5760 OR Mark, sign and date your proxy card and
Use any touch-tone telephone to vote your return it in the enclosed postage-paid
proxy. Have your proxy card in hand when you envelope.
call.
If you vote your proxy by telephone,
you do NOT need to mail back your proxy card.