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-11(c) or ss. 240.14a-12
XOMA Ltd.
(Name of Registrant as Specified In Its Charter)
-------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set for the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / 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:
<PAGE>
(XOMA LOGO)
XOMA LTD.
2910 Seventh Street
Berkeley, California 94710
(510) 644-1170
April 20, 1999
To Our Shareholders:
You are cordially invited to attend the annual meeting of shareholders of
XOMA Ltd. on May 25, 1999 at 9:00 a.m. local time, which will be held at The
Claremont Hotel, Ashby and Domingo Avenues, Berkeley, California 94623.
Details of business to be conducted at the annual meeting are provided in
the enclosed Notice of Annual Meeting of Shareholders and Proxy Statement. Also
enclosed for your information is a copy of our Annual Report to Shareholders for
1998. Some of our shareholders will be accessing these materials and voting via
the Internet and will not be receiving a paper proxy card by mail.
We hope that you will attend the annual meeting. In any event, please
promptly sign, date and return the enclosed proxy in the accompanying reply
envelope or vote telephonically or via the Internet.
Sincerely yours,
John L. Castello
Chairman of the Board,
President and Chief Executive
Officer
Enclosures
<PAGE>
XOMA LTD.
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT 9:00 A.M. ON MAY 25, 1999
---------------
To the Shareholders of XOMA Ltd.:
Notice is hereby given that the annual meeting of shareholders of XOMA Ltd.
(the "Company") will be held at The Claremont Hotel, Ashby and Domingo Avenues,
Berkeley, California 94623, on May 25, 1999, at 9:00 a.m. local time, for the
following purposes:
1. To elect directors;
2. To approve the issuance of Common Shares upon
conversion of the Company's remaining outstanding
Series C Preference Shares in compliance with Rule
4460 of the Nasdaq Stock Market;
3. To ratify the appointment by the Company's Board of
Directors of Ernst & Young LLP to act as the
Company's independent accountants for the 1999 fiscal
year; and
4. 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 7, 1999, 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 20, 1999
Berkeley, California
YOUR VOTE IS IMPORTANT
- -------------------------------------------------------------------------------
You are cordially invited to attend the meeting in person. Whether or not
you plan to attend the meeting, please promptly mark, sign and date the enclosed
proxy and mail it in the accompanying postage pre-paid envelope or vote
telephonically or via the Internet.
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<PAGE>
XOMA LTD.
------------
PROXY STATEMENT
------------
TO THE SHAREHOLDERS:
The enclosed proxy is solicited on behalf of the Board of Directors of XOMA
Ltd., a company organized under the laws of Bermuda ("XOMA" or the "Company"),
for use at the annual meeting of shareholders to be held at The Claremont Hotel,
Ashby and Domingo Avenues, Berkeley, California 94623, on May 25, 1999, at 9:00
a.m. local time, or any adjournment or postponement thereof, at which
shareholders of record on April 7, 1999 will be entitled to vote. On April 7,
1999, the Company had issued and outstanding 50,231,987 common shares, par value
US$.0005 per share ("Common Shares"). Holders of Common Shares are entitled to
one vote for each share held.
All registered shareholders can vote by paper proxy or by telephone.
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 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 vote electronically through
the Internet. Instruction forms will be provided to shareholders whose bank or
brokerage firm is participating in ADP's program. Signing and returning the
proxy card or submitting the proxy by telephone or via the Internet does not
affect the right to vote in person at the annual 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
meeting, (c) properly completing and executing a later-dated proxy and
delivering it to the Company at or before the annual meeting or (d)
retransmitting a subsequent telephonic proxy before the annual meeting. Presence
without voting at the annual 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 in revoking their previously voted shares. Abstentions and broker
non-votes are each included in the number of shares present and voting for
purposes of establishing a quorum. Each is tabulated separately. Ab-
<PAGE>
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stentions are counted in tabulations of the votes cast on proposals presented to
shareholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
The Company will bear the entire cost of solicitation, including
preparation, assembly, printing, and mailing of this proxy statement, the proxy
card, and any additional material furnished to shareholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding in their names shares that are beneficially owned by others
to forward to such beneficial owners. The solicitation of proxies may be
supplemented by one or more of telephone, telegram, or personal solicitation by
directors, officers, or employees of the Company for no additional compensation.
Except as described above, the Company does not intend to solicit proxies other
than by mail and via the Internet. Shareholders voting via the Internet should
understand that there may be costs associated with electronic access, such as
usage charges from Internet access providers and telephone companies, that must
be borne by the shareholder.
The Company intends to mail this proxy statement and make it available on
the Internet on or about April 20, 1999.
SHARE OWNERSHIP
The following table sets forth as of April 7, 1999, 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 named on the following compensation tables and
all directors and current executive officers as a group, together with the
approximate percentages of outstanding Common Shares owned by each of them.
Unless otherwise indicated, each of the shareholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
Number of Percentage of
Common Shares Common Shares
Name of Beneficial Owner Beneficially Owned Beneficially Owned
------------------------ ------------------ ------------------
<S> <C> <C>
James G. Andress(1)................................... 16,500 *
William K. Bowes, Jr.(2).............................. 52,569 *
John L. Castello(3)................................... 733,000 1.4
Peter B. Davis(4)..................................... 147,932 *
Clarence L. Dellio(5)................................. 203,105 *
Arthur Kornberg, M.D.(6).............................. 32,500 *
Christopher J. Margolin(7)............................ 152,922 *
Steven C. Mendell(8).................................. 253,500 *
Patrick J. Scannon, M.D., Ph.D.(9).................... 487,918 1.0
W. Denman Van Ness(10)................................ 55,431 *
All executive officers
and directors as a
group (10 persons)(11).............................. 2,135,377 4.3
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</TABLE>
<PAGE>
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* Indicates less than 1%.
(1) Represents 16,500 shares issuable upon the exercise of options exercisable
as of 60 days after the record date.
(2) Includes 22,500 shares issuable upon the exercise of options exercisable as
of 60 days after the record date.
(3) Includes 667,000 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 7,000 shares owned by
Mr. Castello's sons. Mr. Castello disclaims beneficial ownership of such
shares. Does not include 7,026 shares which have vested pursuant to the
Company's Deferred Savings Plan.
(4) Includes 124,833 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 4,995 shares which
have vested pursuant to the Company's Deferred Savings Plan.
(5) Includes 170,305 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 7,657 shares which
have vested pursuant to the Company's Deferred Savings Plan.
(6) Includes 22,500 shares issuable upon the exercise of options exercisable as
of 60 days after the record date.
(7) Includes 143,833 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 7,193 shares which
have vested pursuant to the Company's Deferred Savings Plan.
(8) Includes 211,500 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 631 shares which have
vested pursuant to the Company's Deferred Savings Plan and are now held in
a rollover IRA account.
(9) Includes 400,000 shares issuable upon the exercise of options exercisable
as of 60 days after the record date. Does not include 7,657 shares which
have vested pursuant to the Company's Deferred Savings Plan.
(10) Includes 32,481 shares held by The Van Ness 1983 Revocable Trust, of which
Mr. Van Ness is a trustee. Also includes 450 shares held by various trusts
of which Mr. Van Ness may be deemed the beneficial owner. Mr. Van Ness
disclaims such beneficial ownership. Includes 22,500 shares issuable upon
<PAGE>
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the exercise of options exercisable as of 60 days after the record date.
(11) Includes 1,802,471 shares issuable upon exercise of options exercisable as
of 60 days after the record date. Does not include 35,159 shares which have
vested pursuant to the Company's Deferred Savings Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of the named executive
officers for the last three completed fiscal years of the Company:
<PAGE>
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year ($) ($)(1) ($)(2) (#) ($)(3)
<S> <C> <C> <C> <C> <C> <C>
John L. Castello 1998 $500,000 N/A $18,537 50,000 $30,722
(Chairman of the 1997 $500,000 N/A $878 60,000 $30,472
Board, President and 1996 $500,000 N/A $22,283 50,000 $30,472
Chief Executive Officer)
Patrick J. Scannon, M.D., 1998 $310,000 $62,199 $13,173 25,000 $17,158
Ph.D. 1997 $310,000 $46,714 $1,000 30,000 $17,421
(Chief Scientific and 1996 $300,000 $41,132 $0 50,000 $17,124
Medical Officer)
Clarence L. Dellio 1998 $240,500 $49,972 $9,346 25,000 $7,281
(Senior Vice President, 1997 $233,000 $38,133 $0 30,000 $7,056
Operations) 1996 $223,000 $27,377 $4,288 45,000 $7,031
Peter B. Davis 1998 $217,500 $42,596 $0 25,000 $7,016
(Vice President, 1997 $210,000 $37,364 $0 30,000 $6,788
Finance and Chief 1996 $200,000 $19,656 $0 35,000 $6,766
Financial Officer)
Christopher J. Margolin 1998 $217,500 $45,084 $8,462 25,000 $7,016
(Vice President, 1997 $210,000 $34,606 $8,077 30,000 $6,788
General Counsel and 1996 $200,000 $26,042 $7,692 35,000 $6,766
Secretary)
- ----------------------
</TABLE>
<PAGE>
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(1) Each amount in this column for 1998, 1997 and 1996 represents awards under
the Company's Management Incentive Compensation Plan in the following
amounts: Dr. Scannon - $15,306 and 1,917 shares of Common Stock in 1998
(relating to performance in 1997); $15,128 in 1998 and $15,128 and 1,537
shares of Common Stock in 1997 (relating to performance in 1996); $16,459
in 1998, $16,459 in 1997 and $16,459 and 2,465 shares of Common Stock in
1996 (relating to performance in 1995); $8,214 in 1996 (relating to
performance in 1993); Mr. Dellio - $11,522 and 1,443 shares of Common Stock
in 1998 (relating to performance in 1997); $11,189 in 1998 and $11,189 and
943 shares of Common Stock in 1997 (relating to performance in 1996); 1,500
shares of Common Stock in each of 1998 and 1997 and $10,683 and 1,500
shares of Common Stock in 1996 (relating to performance in 1995); $6,011 in
1996 (relating to performance in 1993); Mr. Davis - $10,763 and 1,216
shares of Common Stock in 1998 (relating to performance in 1997); 959
shares of Common Stock in 1998 and $11,435 and 959 shares of Common Stock
in 1997 (relating to performance in 1996); 1,211 shares of Common Stock in
each of 1998 and 1997 and $9,828 and 1,211 shares of Common Stock in 1996
(relating to performance in 1995); Mr. Margolin - $11,288 and 1,366 shares
of Common Stock in 1998 (relating to performance in 1997); $12,098 in 1998
and $12,098 and 956 shares of Common Stock in 1997 (relating to performance
in 1996); $10,411 in each of 1998 and 1997 and $10,411 and 1,254 shares of
Common Stock in 1996 (relating to performance in 1995); $5,220 in 1996
(relating to performance in 1993).
(2) Mr. Castello's amounts in this column for 1998, 1997 and 1996 include
financial services provided to Mr. Castello in the amount of $5,588, $567
and $3,052, respectively. Mr. Castello's, Mr. Dellio's, Mr. Margolin's and
Dr. Scannon's amounts in this column for 1998, Mr. Margolin's amount in
this column for 1997 and Mr. Castello's, Mr. Dellio's and Mr. Margolin's
amounts in this column for 1996 represent cash payments in lieu of earned
vacation.
(3) Each amount in this column for 1998, 1997 and 1996 includes 1,584, 881 and
908, respectively, shares of the Company's Common Stock contributed to the
accounts of Mr. Castello, Dr. Scannon, Mr. Dellio, Mr. Davis and Mr.
Margolin under the Company's Deferred Savings Plan, valued at fiscal
year-end formula prices of $3.16, $5.39, $5.23, respectively, per share.
Amounts for 1998, 1997 and 1996 also include group term life insurance
premiums in the following amounts: Mr. Castello--$7,722 for each of 1998,
1997 and 1996; Dr. Scannon--$3,168 for 1998, $3,203 for 1997 and $1,914 for
1996; Mr. Dellio--$2,281 for 1998; $2,306 for 1997 and $2,281 for 1996; Mr.
Davis--$2,016 for 1998, $2,038 for 1997 and $2,016 for 1996; and Mr.
Margolin--$2,016 for 1998, $2,038 for 1997 and $2,016 for 1996. Dr.
Scannon's amounts for 1998, 1997 and 1996 include $8,990, $9,468 and
$10,460 respectively, which represent the difference between (i) the amount
of interest Dr. Scannon would have been required to pay in interest for
each such year had the loan made to him by the Company pursuant to his
employment agreement been made at the then-prevailing market rate and (ii)
the amount of interest payable on the loan for each such year in accordance
<PAGE>
-7-
with its terms. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
The following table contains information concerning the grant of options
under the Company's option plans to the named executive officers as of the end
of the last completed fiscal year of the Company. No share appreciation rights
("SARs") were granted during the last fiscal year and none were held at the end
of the fiscal year.
<PAGE>
-8-
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of % of Total Potential Realized Value
Securities Options of Assumed Annual Rates of
Underlying Granted Exercise Share Price Appreciation
Options to Employees or For Option Term (1)
Granted In Fiscal Base Price Expiration 0% 5% 10%
Name (#) Year ($/Sh) Date ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
John L. Castello....... 50,000 9.0% $5.00 2/25/08 0 $157,224 $398,436
Patrick J. Scannon, M.D.,
Ph.D................... 25,000 4.5% $5.00 2/25/08 0 $ 78,612 $199,218
Clarence L. Dellio..... 25,000 4.5% $5.00 2/25/08 0 $ 78,612 $199,218
Peter B. Davis......... 25,000 4.5% $5.00 2/25/08 0 $ 78,612 $199,218
Christopher J. Margolin 25,000 4.5% $5.00 2/25/08 0 $ 78,612 $199,218
- ---------------------
</TABLE>
(1) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their ten-year option terms. These gains are based
on assumed rates of share price appreciation of 0%, 5% and 10% compounded
annually from the dates the respective options were granted. The 0%
appreciation column is included because the options were granted with
exercise prices equal to the market price of the underlying Common Shares
on the date of grant, and thus will have no value unless the Company's
share price increases above the exercise prices as a result of actions by
the executives that improve the Company's performance and/or other factors
affecting such price.
<PAGE>
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The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last completed
fiscal year of the Company and unexercised options held as of the end of the
fiscal year. No SARs were exercised during the last fiscal year and none were
held at the end of the fiscal year.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Shares
Acquired Number of Securities Value of Unexercised
On Value Underlying Unexercised In-the-Money Options at
Exercise Realized Options at FY-End (1) FY-End ($)(1)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John L. Castello....... -- -- 637,291 122,709 $368,829 $15,547
Patrick J. Scannon M.D.,
Ph.D................... -- -- 382,788 72,212 $215,649 $ 7,788
Clarence L. Dellio..... -- -- 156,112 68,526 $ 76,680 $ 6,006
Peter B. Davis......... -- -- 112,251 67,749 $ 52,292 $ 5,520
Christopher J. Margolin -- -- 132,034 62,966 $ 64,656 $ 5,656
- -------------------------
</TABLE>
(1) The amounts listed in the two columns are based on the closing price per
share of $3.1875 on December 31, 1998, as reported on the Nasdaq National
Market, less the applicable option exercise prices.
<PAGE>
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Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has entered into an employment agreement with Mr. Castello,
dated as of April 29, 1992, that provides for his employment as President and
Chief Executive Officer at a salary of $500,000 per year. Under this agreement,
Mr. Castello also receives all standard Company employee benefits and
supplemental life insurance for the amount that an annual premium of $18,000
provides. The agreement also provides for a grant of options for 500,000 shares
of Common Stock under the Company's 1981 Stock Option Plan, which was made in
1992.
Mr. Castello'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, 1999, that provides for his employment as Chief Scientific
and Medical Officer at a salary of $320,000 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. The agreement also provides for a one-year loan to Dr. Scannon in the
amount of $209,565.40, bearing interest at 6% per annum and secured by a pledge
of certain of the Company's Common Shares. The loan was originally made to Dr.
Scannon in 1993, has been extended for six additional years, and $177,141 in
principal and interest payments have been received by the Company to date. The
loan will become payable on demand in the event of any early termination of Dr.
Scannon's employment. Upon termination of his employment for any reason other
than cause, or upon resignation, Dr. Scannon must be paid his then current base
salary and benefits for one year.
The Company has entered into an employment agreement with Mr. Davis dated
as of April 1, 1994 that provides for his employment as Chief Financial Officer
at a salary of $200,000 per year. Under this agreement, Mr. Davis received a
one-time transition allowance in the amount of $35,000 and is entitled to
participate in any benefit plan for which executives of the Company are
eligible. In addition, the agreement provides for a grant of options for 60,000
shares of Common Stock under the Company's 1981 Stock Option Plan, which was
<PAGE>
-11-
made in 1994, as well as participation in the Management Incentive Compensation
Plan. Mr. Davis' employment agreement provides no additional compensation in the
event of a change of control but provides a minimum severance amount equal to
six months of base salary at the time of termination.
Compensation Committee Report on Executive Compensation
The Company's compensation program for officers (including the named
executive officers) is administered by the Compensation Committee of the Board
of Directors (the "Committee"), which is composed of two non-employee directors.
Following review and approval by the Committee, all issues pertaining to officer
compensation are submitted to the full Board of Directors for approval. The
primary objectives of the Company's compensation program are to enable the
Company to attract, motivate and retain outstanding individuals and align their
success with that of the Company's shareholders through the creation of
shareholder value and achievement of strategic corporate objectives.
The level of compensation paid to an officer is determined on the basis of
the individual's overall experience, responsibility, performance and
compensation level in his or her prior position (for newly hired officers), the
individual's overall performance and compensation level at the Company during
the prior year (for current employees), the compensation levels of similarly
situated individuals in the pharmaceutical and biotechnology industries
(including, but not limited to, the biotechnology companies included in the Dow
Jones Medical and 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 1997 was determined after considering the
general factors described above and the terms of his existing employment
contract. In 1992, the Committee approved, and recommended that the Board
approve, the terms of Mr. Castello's employment contract, as more fully
described under "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements," because it felt that the terms thereof were
necessary in order to attract a candidate of Mr. Castello's experience and
reputation in the pharmaceutical industry, which in turn was deemed necessary in
order to enable the Company to advance toward its long-range goal of becoming a
pharmaceutical company with commercially viable products. Mr. Castello has not
received a salary increase since his employment contract was executed in 1992.
The principal methods for long-term incentive compensation are the
Company's 1981 Share Option Plan (the "1981 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,
<PAGE>
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key individuals are rewarded commensurately with increases in shareholder value.
These grants also typically include a 5-year vesting period to encourage
continued employment. The size of a particular option grant is determined based
on the individual's position with and contribution to the Company. For grants
during 1998, 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 Management Incentive
Compensation Plan established effective July 1, 1993 (as amended, the "Incentive
Plan"), in which management employees (other than the Chief Executive Officer),
as well as certain additional discretionary participants chosen by the Chief
Executive Officer, are eligible to participate. Under the Incentive Plan, at the
beginning of each fiscal year, the Board of Directors (with advice from the
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 Incentive Plan
participants in meeting corporate objectives and individual objectives, which
are determined from time to time by the Board of Directors in its sole
discretion and which included for 1998: a target level of cash at year end;
improvement in operating cash flow; generation of current income; progress
toward strategic alliances, potential partnerships or financing arrangements;
and various objectives tied to development of the Company's product lines.
Awards to Incentive Plan participants vary depending upon the level of
achievement of corporate objectives, the size of the incentive compensation pool
and the Incentive Plan participants' base salaries and performance during the
fiscal year as well as their expected ongoing contribution to the Company. The
Company must meet a minimum percentage of its corporate objectives (currently
70%) before any awards are made under the Incentive Plan.
Awards under the Incentive Plan vest over a three-year period with 50% of
each award payable on a date to be determined, expected to be in February or
March of the following fiscal year, and 25% payable on each of the next two
annual distribution dates, so long as the Incentive Plan participant continues
to participate in the Incentive Plan. The portion payable on the first
distribution date is payable 50% in cash and 50% in Common Shares (based on a
10-day average market price). Incentive Plan participants must choose prior to
the end of the first year of the three-year period whether the balance is to be
paid in cash or Common Shares. All share issuances under the Incentive Plan are
made pursuant to the Restricted Plan.
For 1998, the Committee and the Board of Directors determined that
management had met a percentage of the corporate objectives summarized above in
excess of the 70% minimum required by the Plan in
<PAGE>
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order to make awards thereunder. In 1998, 35 individuals were eligible to
participate in the Incentive Plan, including all of the executive officers named
in the "Summary Compensation Table" above other than Mr. Castello.
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 1999. The Committee will continue to review tax
consequences as well as other relevant considerations in connection with
compensation decisions.
William K. Bowes, Jr.
W. Denman Van Ness
<PAGE>
-14-
Performance Graph
Comparison of Five Year Cumulative Total Return Among XOMA, Nasdaq
Composite Index and DJ Medical Biotech Index
<TABLE>
<CAPTION>
As of XOMA Nasdaq Dow Jones Medical
December 31, Corporation Composite Index and Biotechnology
------------ ----------- --------------- -----------------
<S> <C> <C> <C> <C>
1993 100 100 100
1994 52 97 113
1995 67 135 193
1996 98 166 204
1997 106 202 263
1998 61 282 358
</TABLE>
The comparison assumes $100 invested on December 31, 1993 in the Company's
Common Stock, the Nasdaq Composite Index, and the Dow Jones Medical and
Biotechnology Index (weighted). Total return assumes reinvestment of dividends
although the Company has never paid cash dividends. Returns for the Company are
not necessarily indicative of future performance.
<PAGE>
-15-
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the next annual
meeting of shareholders and until their successors are elected and have
qualified, or until their death, resignation or removal. The nominees for the
Board of Directors are set forth below. Unless otherwise instructed, the proxy
holders will vote all proxies received by them in the accompanying form for the
nominees for directors listed below. In the event any nominee should become
unavailable for election due to an unexpected occurrence, the proxies will be
voted for any such substitute nominee as may be designated by the present Board
of Directors to fill the vacancy. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them for the nominees listed below. Each person nominated
for election has agreed to serve if elected, and management has no reason to
believe that any of the nominees listed below will be unable to serve. The seven
candidates receiving the highest number of affirmative votes of the shares
entitled to vote at the annual meeting will be elected as directors of the
Company.
NOMINEES TO BOARD OF DIRECTORS
Name Title Age
---- ----- ---
John L. Castello Chairman of the Board, 62
President and
Chief Executive Officer
Patrick J. Scannon, M.D., Ph.D. Chief Scientific and Medical 51
Officer and Director
James G. Andress Director 60
Williams K. Bowes, Jr. Director 72
Arthur Kornberg, M.D. Director 81
Steven C. Mendell Director 57
W. Denman Van Ness Director 56
Mr. Castello became Chairman of the Board, President and Chief Executive
Officer in March 1993. From April 1992 to March 1993, Mr. Castello was
President, Chief Executive Officer and a director. Mr. Castello was President
and Chief Operating Officer of the Ares Serono Group from 1988 to 1991 and prior
to that was President of the Serono Diagnostics Division from 1986 to 1988. Ares
Serono is known in the United States for fertility drugs, and it is 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 and Metra Biotech, Inc. Cholestech is
engaged in the business of developing products for the diagnostic measurement of
cholesterol and other blood components. Metra is engaged in the business of
developing bone resorption diagnostic products.
Dr. Scannon is one of the founders of the Company and has served as a
director since its formation. Dr. Scannon became Chief Scientific and Medical
Officer in March 1993. He served as President of the Company from its formation
until April 1992 and as Vice Chair-
<PAGE>
-16-
man, Scientific and Medical Affairs from April 1992 to March 1993. In 1998, Dr.
Scannon also became 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. Dr. Scannon is also a
member of XOMA's Scientific Advisory Board.
Mr. Andress has been a director since November 1995 and is a former
Chairman of the Pharmaceuticals Group, Beecham Group, plc and Chairman,
Healthcare Products and Services of SmithKline Beecham, plc and the former
President and Chief Operating Officer of Sterling Drug, Inc. Since November 1,
1996, he has served as Chairman and CEO of Warner Chilcott, plc, a specialty
pharmaceuticals company. From 1989 to 1995, he served as President and director
of Information Resources, Inc., a decision support software and consumer
packaged goods research company and currently serves as a director. Mr. Andress
is also a director of The Liposome Company, Inc., a biotechnology company. He
also serves as a director of Sepracor, Inc., a separations technology company,
O.P.T.I.O.N. Care, Inc., a home health care company, Allstate Insurance Company
and one private company.
Mr. Bowes has been a director since February 1986 and has been a General
Partner of U.S. Venture Partners since 1981. Mr. Bowes is also a director of
Amgen Inc., Applied Micro-Circuits Corporation, Lynx Therapeutics, Inc. and one
private company.
Dr. Kornberg has been a director since April 1991 and is a member of XOMA's
Scientific Advisory Board. He is a distinguished author and researcher who was
chairman and founder of the Department of Biochemistry at the Stanford
University 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.
Mr. Mendell has been a director of the Company since 1984. From April 1992
to March 1993, he was Chairman of the Board. Mr. Mendell was also Chief
Executive Officer of the Company from 1986 until April 1992. He is currently
Chairman and President of Selective Genetics, Inc. (formerly Prizm
Pharmaceuticals, Inc.), a private company engaged in the development of gene
therapy products for tissue regeneration and repairs. Mr. Mendell is currently a
director of Ciblex Corporation and from November 1997 to December 1998,he served
as President and Chief Executive Officer of that company. Ciblex is a private
company engaged in the development of small molecules to block the release of
disease-causing proteins. Mr. Mendell is also a director of StressGen
Biotechnologies Corp., a biopharmaceutical company engaged in the development of
pharmaceutical products for treatment of cancer and the prevention of infectious
disease, and Wells Publishing Corporation.
<PAGE>
-17-
Mr. Van Ness has been a director since October 1981. He is 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.
BOARD MATTERS
Board Meetings and Committees
During the fiscal year ended December 31, 1998, the Board of Directors held
eight meetings. Each Board member attended at least 75% of the aggregate number
of meetings of the Board and the committees of the Board on which he served that
were held during the last fiscal year.
The Board of Directors has standing audit, compensation and nominating
committees. The nominating committee performs the functions of director
evaluation and selection. The committee currently consists of Messrs. Bowes,
Castello and Van Ness. The committee will not accept unsolicited director
nominations by shareholders. The committee held no meetings during 1998.
The audit committee is primarily responsible for approving the services
performed by the Company's independent accountants and reviewing the Company's
accounting practices and system of internal accounting controls. This committee,
currently consisting of Mr. Mendell and Mr. Andress, held two meetings during
1998.
The compensation committee is responsible for recommending and reviewing
the compensation, including options and perquisites, of the Company's officers
and other employees. This committee, currently consisting of Messrs. Bowes and
Van Ness, held one meeting during 1998.
Board Compensation and Related Matters
Each non-employee director receives a quarterly retainer of $1,000, $1,000
for each meeting of the Board of Directors attended and $500 for each committee
meeting attended in person on a date other than on the date of a meeting of the
Board of Directors. Additionally, each non-employee director is granted options
to purchase 15,000 Common Shares pursuant to the 1992 Directors Stock Option
Plan (the "Directors Plan") upon initial election to the Board of Directors and
is annually granted 7,500 Common Shares pursuant to the Directors Plan upon
reelection to the Board of Directors, each at an exercise price per share equal
to the closing market price of the Common Shares on the date of grant, which for
1998 was $4.875.
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.
<PAGE>
-18-
PROPOSAL 2 - APPROVAL OF THE ISSUANCE OF COMMON SHARES IN
COMPLIANCE WITH NASDAQ RULE 4460
Background
In August 1997 and June 1998, the Company (then a Delaware corporation)
completed two private placements with the same group of investors, issuing a
combined total of 2,500 shares of Convertible Preferred Stock, Series G ("Series
G Preferred") and another series of convertible preferred stock (now designated
"Series C Preference Shares") for total proceeds of approximately $24.2 million
net of cash issuance costs. Conversions of both series into Common Shares were
(and are) based on the market price of the Common Shares at the time of
conversion. There was no initial discount on the conversion price, but a
discount of 2% was added for each month the relevant series was held, up to a
maximum discount of 14%, in the case of the Series G Preferred, and 12% (which
is also the current discount), in the case of the Series C Preference Shares.
Minimum conversion prices of $7.80 (for the Series G Preferred) and $5.35 (for
the Series C Preference Shares) were in effect for the first 60 days after the
issuance of each series.
Of the two series, only 360 of the Series C Preference Shares (representing
$3.6 million) remained outstanding as of March 31, 1999, all of the Series G
Preferred and 890 of the Series C Preference Shares having been converted in
accordance with their terms.
The Board of Directors authorized the sale of the Series G Preferred and
the Series C Preference Shares in order to raise proceeds which were applied
principally towards product development. The terms of the two series are
discussed in Note 4 to the Company's Consolidated Financial Statements, which
are included in the Annual Report to Shareholders for 1998 enclosed with this
proxy statement. Copies of the relevant documents for the issuance of the two
series were filed as exhibits to the Company's Reports on Form 8-K filed August
18, 1997 and June 29, 1998, respectively. Shareholders desiring a more complete
understanding of these securities are urged to refer to such footnote and
exhibits.
Nasdaq Rule 4460
Rule 4460 of the Nasdaq Stock Market, Inc. sets forth certain corporate
governance standards for issuers, such as the Company, whose securities are
listed on the Nasdaq National Market. Rule 4460 requires, among other things,
that the Company obtain shareholder approval for the sale or issuance of a
number of Common Shares (or securities convertible into or exchangeable for
Common Shares, such as the Series G Preferred and the Series C Preference
Shares) equal to or in excess of 20% of the number of Common Shares outstanding
prior to such issuance if such issuance is for a purchase price which is less
than the greater of the book or market value of the Common Shares. Due to the
similarities between the Series G Preferred and the Series C Preference Shares,
the Company believes they would be treated as securities of the same class or
series for purposes of Rule 4460.
<PAGE>
-19-
On the date the Series G Preferred was issued (the "Series G Closing
Date"), there were 39,687,433 Common Shares outstanding, and one share less than
20% of such number of shares is 7,937,486. The Series G Preferred, plus accrued
dividends, have been converted into a total of 4,019,581 Common Shares, leaving
3,917,905 shares available for issuance upon conversion of the Series C
Preference Shares in compliance with Rule 4460 at the time of issuance of the
Series C Preference Shares. On the date the Series C Preference Shares were
issued (the "Series C Closing Date"), the Series C Preference Shares were
convertible into 2,336,448 Common Shares. Given the initial minimum conversion
price of the Series C Preference Shares, the Company was not required to obtain
shareholder approval for the issuance of the Series C Preference Shares. Because
the conversion price is a floating price, however, the conversion right of the
investors was structured so that at any time a conversion would comply with the
Rule 4460.
Accordingly, the rights of the Series C Preference Shares provide that if
on any conversion date the conversion of all the outstanding Series C Preference
Shares, together with all Common Shares previously issued upon conversion of
Series C Preference Shares and the Series G Preferred Stock and in respect of
payment of dividends thereon, would require the issuance of a number of Common
Shares in excess of 20% of the number of such shares outstanding on the Series G
Closing Date, the Company is required, at its option, either to redeem all of
such holder's inconvertible Series C Preference Shares at a redemption price per
share based on the five day trailing average market price at the time of
conversion or at the time of redemption, whichever is greater, or, after
obtaining shareholder approval, to convert such Series C Preference Shares into
Common Shares; however, if the Company elects to seek shareholder approval, the
holders of a majority of the outstanding Series C Preference Shares may request,
in lieu of such approval, that the Company redeem the Series C Preference
Shares.
Conversions
On the Series G Closing Date, the effective conversion price of the Series
G Preferred was $7.80 per Common Share (or $5.59 after giving effect to the 14%
discount and without regard to the initial minimum price referred to above). Due
to adverse general market conditions resulting in substantial declines in the
market price of the Common Shares, a total of 3,853,987 Common Shares were
issued upon conversion of Series G Preferred (excluding accrued dividends), for
an average conversion price of $3.24 per share. On the Series C Closing Date,
the effective conversion price of the Series C Preference Shares was $5.35 per
Common Share (or $3.92 after giving effect to the 12% discount and without
regard to the initial minimum price referred to above). As of March 31, 1999,
due to adverse general market conditions resulting in substantial declines in
the market price of the Common Shares, 3,632,985 Common Shares have been issued
upon conversion of Series C Preference Shares (excluding accrued dividends), for
an average conversion price of $2.45 per share. As of March 31, 1999, only $3.6
million stated value of Series C Preference Shares remained outstanding, but
only 213,872 Common Shares remained available for issuance upon conversion of
Series C Preference Shares in compliance with Rule 4460.
<PAGE>
-20-
Redemption
If an investor requests that the Company redeem Series C Preference Shares
as described above and the Company fails for any reason to pay the redemption
price within seven days after the conversion date, the Company will pay interest
on such amount at an annual rate of 15%. Because the redemption price depends on
the date on which the Company pays the redemption amount in full and such date
is not known, the Company cannot determine at this time the amount it may have
to pay to redeem any inconvertible Series C Preference Shares. Under the
redemption price calculation, however, the Company bears the risk of any
decrease in the market price of the Common Shares between the conversion date
and the redemption date. Were it to use any of its available liquidity to redeem
the inconvertible Series C Preference Shares, the Company would diminish its
cash position, depriving itself of necessary resources for product development.
If the Company had redeemed the remaining inconvertible Series C Preference
Shares on March 31, 1999, the Company would have paid the remaining investors
approximately $3.6 million.
Reasons for the Proposal
The Board of Directors of the Company believes that the right of the
investors to require the Company to redeem the inconvertible Series C Preference
Shares has the potential to severely diminish the Company's existing working
capital. Alternatively, if the Company does not obtain shareholder approval
necessary to issue the shares in excess of the limits of Rule 4460, and the
Company nevertheless issues such shares, the Company would be delisted from the
Nasdaq National Market. The Board of Directors believes that the potential
adverse consequences of a failure of the shareholders to approve this proposal
far outweigh the possible dilutive effect of approval of the proposal.
Therefore, in order to protect the Company's working capital and preserve the
liquidity of the investment of its shareholders in the Common Shares, the Board
of Directors has determined that approving under Rule 4460 the issuance to the
investors of 20% or more of the outstanding Common Shares at less than the
greater of market or book value is advisable and in the best interest of the
Company and its shareholders.
Vote Required
The affirmative vote of the holders of a majority of the votes cast by the
shareholders at the annual meeting, in person or by proxy, is required for the
approval of the issuance of the shares pursuant to Rule 4460.
The Board of Directors unanimously recommends a vote "FOR" adoption of this
proposal.
PROPOSAL 3 - RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, on the recommendation of its audit committee, has
selected Ernst & Young LLP ("Ernst & Young") LLP to serve as the Company's
independent accountants for 1999. Ernst &
<PAGE>
-21-
Young has been acting as the Company's independent accountants since fiscal year
1998.
From fiscal 1983 through fiscal 1997, Arthur Andersen LLP ("Arthur
Andersen") acted as the Company's independent accountants. Arthur Andersen was
dismissed on March 19, 1998. The decision to change accountants was approved by
the audit committee of the Board of Directors. The reports of Arthur Andersen on
the financial statements of the Company for the two most recent fiscal years
preceding such dismissal did not contain any adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During the Company's two most recent fiscal years
preceding such dismissal, there were no disagreements with Arthur Andersen on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Arthur Andersen, would have caused it to make a reference
to the subject matter of the disagreements in connection with its reports; nor
has Arthur Andersen ever presented a written report, or otherwise communicated
in writing to the Company or the Board of Directors or the audit committee
thereof the existence of any "disagreement" or "reportable event" within the
meaning of Item 304 of Regulation S-K. The Company has authorized Arthur
Andersen to respond fully to the inquiries of Ernst & Young. The letter from
Arthur Andersen addressed to the Securities and Exchange Commission (the "SEC"),
as required by Item 304(a)(3) of Regulation S-K, to the effect that it agrees
with the Company's disclosure regarding its dismissal, has been filed as an
exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended.
The ratification of the appointment of Ernst & Young is being submitted to
the shareholders at the annual meeting. If such appointment is not ratified, the
Board of Directors will consider the appointment of other accountants. The Board
of Directors recommends a vote "FOR" the ratification of the appointment of
Ernst & Young as the Company's independent accountants for the 1999 fiscal year.
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.
CERTAIN TRANSACTIONS
Pursuant to his employment agreement, in 1993 the Company made a loan to
Dr. Scannon, its Chief Scientific and Medical Officer and a Director, in the
initial amount of $290,000. See "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements." As of April 1, 1999, $209,565.40
of principal and interest on the loan remained outstanding and $177,141 in
principal and interest payments have been received by the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who own more than 10% of a
registered class of the Company's equity secu-
<PAGE>
-22-
rities to file initial reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC") and the Nasdaq National Market.
Such executive officers, directors and shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based on a review of the copies of the forms furnished to the Company and
written representations from the Company's executive officers and directors, all
persons subject to the reporting requirements of Section 16(a) filed the
required reports with respect to 1998 on a timely basis.
OTHER MATTERS
The Board of Directors does not know of any matters to be
presented at this annual meeting other than those set forth in this proxy
statement and in the notice accompanying this proxy statement. If other matters
should properly come before the meeting, it is intended that the proxy holders
will vote on such matters in accordance with their best judgment.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to promptly
execute and return the accompanying proxy in the postage prepaid envelope which
has been enclosed for your convenience.
<PAGE>
-23-
SHAREHOLDER PROPOSALS
A shareholder who intends to present a proposal at the 2000 meeting of
shareholders must submit such proposal by November 30, 1999, to the Company for
inclusion in the Company's 2000 proxy statement and proxy card relating to such
meeting. The proposal must be mailed to the Company's principal office, at 2910
Seventh Street, Berkeley, California, 94710, Attention: Secretary.
By Order of the Board of Directors,
Christopher J. Margolin
Secretary
April 20, 1999
Berkeley, California
<PAGE>
[FORM OF PROXY CARD/INSTRUCTIONS]
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 PATRICK J. SCANNON,
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 meeting of shareholders of XOMA Ltd. to be held
at The Claremont Hotel, Ashby and Domingo Avenues, Berkeley, California 94623 on
May 25, 1999, 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:
<TABLE>
<CAPTION>
1. Election of Directors
<S> <C> <C> <C>
01 James G. Andress 02 William K. Bowes, Jr. 03 John L. Castello
04 Arthur Kornberg, M.D. 05 Steven C. Mendell 06 Patrick J. Scannon, M.D., Ph.D.
07 W. Denman Van Ness
|_| FOR all nominees |_| WITHHOLD AUTHORITY to
(except as marked to the contrary below) vote for all nominees
</TABLE>
(The Board of Directors recommends a vote FOR.)
This proxy will be voted in the election of directors in the manner
described in the proxy statement for the 1999 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.)
- -------------------------------------------------------------------------------
2. Proposal to approve the issuance of Common Shares upon conversion of the
Company's remaining outstanding Series C Preference Shares in compliance
with Rule 4460 of the Nasdaq Stock Market.
(The Board of Directors recommends a vote FOR.)
FOR |_| AGAINST |_| ABSTAIN |_|
- ------------------------------------------------------------------------------
3. Proposal to ratify the appointment of Ernst & Young LLP to act as the
Company's independent accountants for the 1999 fiscal year.
(The Board of Directors recommends a vote FOR.)
FOR |_| AGAINST |_| ABSTAIN |_|
- ------------------------------------------------------------------------------
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and at any adjournment or
postponement thereof.
(Continued, and to be marked, dated and signed, on other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call TOLL FREE 1-800-840-1208 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.
<PAGE>
(Continued from other side)
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 through 3.
- -------------------------------------------------------------------------------
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
- -------------------------------------------------------------------------------
Dated: _______________________, 1999
----------------------------------------------
Signature of Shareholder
----------------------------------------------
Signature if held jointly
Please sign exactly as name appears above.
When shares are held by joint tenants,
both should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full corporate
name by President or other authorized person.
PLEASEMARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY TELEPHONE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and return your proxy card.
You will be asked to enter a Control Number which is located in the box in the
lower right hand corner of this form.
- -------------------------------------------------------------------------------
OPTION 1: To vote as the Board of Directors recommends on ALL proposals:
Press 1
- -------------------------------------------------------------------------------
Your vote will be confirmed and cast as you directed. END OF CALL.
- -------------------------------------------------------------------------------
OPTION 2: If you choose to vote on each proposal separately, press 0. You will
hear these instructions:
- -------------------------------------------------------------------------------
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees,
press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to
the instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
Proposal 3: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The instructions are the same for all remaining proposals.
Your vote will be confirmed as cast as you directed. END OF CALL.
- -------------------------------------------------------------------------------
If you vote by telephone, there is no need for you to mail back your proxy.
THANK YOU FOR VOTING.
- -------------------------------------------------------------------------------
----------------------------------
Call TOLL FREE on a touch tone telephone
1-800-840-1208 24 hours/day
There is NO CHARGE to you for this call
----------------------------------
CONTROL NUMBER
