<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 1995
REGISTRATION NO. 33-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE LIPOSOME COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2370691
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
ONE RESEARCH WAY
PRINCETON FORRESTAL CENTER
PRINCETON, NEW JERSEY 08540
(609) 452-7060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CHARLES A. BAKER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
THE LIPOSOME COMPANY, INC.
ONE RESEARCH WAY
PRINCETON FORRESTAL CENTER
PRINCETON, NEW JERSEY 08540
(609) 452-7060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES OF ALL COMMUNICATIONS TO:
MARK R. BAKER, ESQ. MARK KESSEL, ESQ.
DEWEY BALLANTINE SHEARMAN & STERLING
1301 AVENUE OF THE AMERICAS 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10019-6092 NEW YORK, NEW YORK 10022
(212) 259-8000 (212) 848-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 3,450,000 $10.875 $37,518,750 $12,937.50
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 450,000 shares that may be purchased by the Underwriters solely
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 21, 1995
PROSPECTUS
3,000,000 SHARES
THE
LOGO LIPOSOME
COMPANY, INC. (R)
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being sold by
the Company. The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol LIPO. On March 20, 1995, the last reported sale price for the
Common Stock was $11.125 per share. See "Price Range of Common Stock and
Dividend Policy."
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
- --------------------------------------------------------------------------------
Total (3).................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses payable by the Company estimated at $372,500.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the Underwriters subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be made
available for delivery on or about , 1995, at the office of the agent of
Hambrecht & Quist Incorporated in New York, New York.
HAMBRECHT & QUIST UBS SECURITIES INC.
INCORPORATED
, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following Regional Offices: Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
Additional information regarding the Company and the shares offered hereby is
contained in the Registration Statement on Form S-3 and the exhibits thereto
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). For further information pertaining to the Company and the
shares, reference is made to the Registration Statement and the exhibits
thereto, which may be inspected without charge at, and copies thereof may be
obtained at prescribed rates from, the office of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Company's Common
Stock is quoted on the Nasdaq National Market, and such reports, proxy
statements and other information can also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994 filed by the Company with the Commission is hereby incorporated by
reference in this Prospectus. All documents filed by the Company with the
Commission pursuant to section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Prospectus and prior to the termination of the offering
of the shares offered hereby shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person, including any beneficial owner, to
whom this Prospectus is delivered, upon written or oral request of such person,
a copy of any and all of the documents that have been or may be incorporated by
reference herein (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Such requests
should be directed to Carol J. Gillespie, Vice President, General Counsel and
Secretary, at the Company's principal executive offices at One Research Way,
Princeton Forrestal Center, Princeton, New Jersey 08540 (telephone (609) 452-
7060).
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK AND DEPOSITARY SHARES OF THE COMPANY ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND DEPOSITARY SHARES OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
The Liposome Company, Inc. (the "Company") is a leading biotechnology company
engaged in the discovery, development and, recently, the commercialization of
proprietary lipid and liposome-based pharmaceuticals for the treatment,
prevention and diagnosis of inadequately treated, life-threatening illnesses.
The Company is currently launching its first product, amphotericin B lipid
complex (ABLC (R) or, in Europe, Abelcet (TM)), which has been approved for
marketing for certain indications in the United Kingdom and is the subject of
marketing application filings in eighteen other countries. The Company expects
to file a new drug application ("NDA") for ABLC (R) in the United States during
1995. In addition to ABLC (R)/Abelcet (TM), the Company's other lead products
are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed
in conjunction with Pfizer Inc. ("Pfizer") primarily as a first line treatment
of metastatic breast cancer, and is undergoing Phase III clinical testing in
the United States. The Company has completed a Phase II clinical trial for TLC
C-53, liposomal prostaglandin E/1/, for the treatment of acute respiratory
distress syndrome ("ARDS") and is preparing a protocol for a pivotal clinical
trial of TLC C-53 for ARDS. In January, 1995, the Company commenced a Phase II
clinical trial of TLC C-53 for the treatment of acute myocardial infarction
("AMI"), or heart attack.
ABLC (R)/ABELCET (TM), amphotericin B lipid complex, is for the treatment of
systemic fungal infections, primarily in immunocompromised patients such as
cancer chemotherapy patients, organ and bone marrow transplant recipients and
people with AIDS. In February, 1995, the Company received approval from the
Medicines Control Agency of the United Kingdom to market Abelcet (TM) as a
first line treatment of cryptococcal meningitis and systemic cryptococcosis in
patients with AIDS and for the treatment of severe systemic fungal infections
in patients who have not responded to conventional amphotericin B, or to other
systemic antifungal agents, or who have renal impairment or other
contraindications to conventional amphotericin B. Over 1,300 patients worldwide
had been treated with ABLC (R)/Abelcet(TM) through December, 1994. The Company
expects to file its first NDA, for ABLC (R), for the second line treatment of
aspergillosis (a severe systemic fungal infection) in the United States during
1995. There can be no assurance that any NDA filing by the Company will
ultimately be approved by the U.S. Food and Drug Administration ("FDA"). See
"Risk Factors--Early Stage of Commercialization" and "--Regulation."
TLC D-99, liposomal doxorubicin, is targeted for the treatment of a variety
of solid tumors, most importantly metastatic breast cancer. TLC D-99 is being
jointly developed by the Company and Pfizer pursuant to an agreement entered
into in 1990. The Company has completed three Phase II clinical trials testing
TLC D-99 as a first line treatment of metastatic breast cancer. Two Phase III
clinical trials commenced in December, 1994. In November, 1994, researchers
from the M.D. Anderson Cancer Center presented results of one of the Phase II
studies, where TLC D-99 was given in combination with cyclophosphamide and 5-
fluorouracil to metastatic breast cancer patients. The researchers reported
that, of the 41 patients in the trial, 29 were evaluable at that time. Of those
29 patients, there was an overall response rate of 69% (20 patients). Of these,
18 patients demonstrated a partial response (defined to include a reduction in
tumor size of 50% or more), and two patients demonstrated a complete response.
TLC C-53, liposomal prostaglandin E/1/ ("PGE/1/"), is for the treatment of
severe acute inflammatory and vaso-occlusive conditions, including ARDS and
AMI. Preclinical trials have shown favorable results with TLC C-53 in models of
AMI and in models of systemic inflammatory response syndrome ("SIRS"),
including endotoxemia and ARDS. The Company has completed a Phase II study of
TLC C-53 for the treatment of ARDS and plans to initiate a pivotal study
following discussions with the FDA. In January, 1995, the Company commenced a
Phase II clinical trial of TLC C-53 versus a placebo, each in conjunction with
t-PA, heparin and aspirin, for the treatment of heart attacks.
The Company and Schering AG, Berlin ("Schering AG") entered into a
collaborative research and development agreement with respect to TLC I-16, a
non-ionic contrast agent for use in connection with CT scanning of the liver.
TLC I-16 is currently in preclinical development. The Company also has a
continuing discovery research program which concentrates primarily on the
treatment of cancer and inflammatory conditions.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered............................. 3,000,000 shares
Common Stock to be outstanding after the
offering........................................ 26,982,849 shares (1)
Use of proceeds.................................. Commercialization of
ABLC(R)/Abelcet(TM), in-
cluding expansion of manu-
facturing, marketing and
distribution capabilities,
the refitting of the
Company's Indianapolis man-
ufacturing facility and on-
going clinical testing of
ABLC(R)/Abelcet(TM); the
development and clinical
testing of TLC C-53 and the
Company's other products;
research activities; and
other general corporate
purposes.
Nasdaq National Market symbol.................... LIPO
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share figures)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993 1992 1991 1990
STATEMENTS OF OPERATIONS DATA: -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues................. $ 10,440 $ 13,042 $10,889 $ 8,832 $ 7,071
Net loss....................... (33,653) (22,477) (9,675) (4,086) (5,005)
Preferred Stock dividends...... (5,348) (5,348) -- -- --
Net loss applicable to Common
Stock......................... $(39,001) $(27,825) $(9,675) $(4,086) $(5,005)
Net loss per share applicable
to Common Stock............... $ (1.64) $ (1.18) $ (.43) $ (.22) $ (.35)
Weighted average number of com-
mon shares outstanding........ 23,850 23,536 22,384 18,221 14,226
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------
ACTUAL AS ADJUSTED (2)
BALANCE SHEET DATA: --------- ---------------
<S> <C> <C>
Cash and marketable securities......... $ 72,157 $103,157
Working capital........................ 51,746 82,746
Total assets........................... 93,196 124,196
Total long-term liabilities............ 5,917 5,917
Accumulated deficit.................... (108,859) (108,859)
Total stockholders' equity............. 78,353 109,353
</TABLE>
- --------
(1) Based on the number of shares outstanding at December 31, 1994. Excludes
5,671,913 shares of Common Stock reserved as of December 31, 1994 for
issuance under the Company's stock option plans, of which 4,226,105 were
reserved for options currently outstanding. Also excludes 5,369,580 shares
of Common Stock reserved for issuance upon conversion of the Company's
Series A Cumulative Convertible Exchangeable Preferred Stock.
(2) Adjusted to give effect to the receipt of the net proceeds from the sale of
3,000,000 shares of Common Stock offered by the Company hereby, at an
assumed public offering price of $11.125 per share.
- --------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option and does not include shares
of Common Stock reserved for issuance under the Company's stock option plans or
issuable upon conversion of the Company's Series A Cumulative Convertible
Exchangeable Preferred Stock. See "Underwriting."
4
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby:
Early Stage of Commercialization. The Company has not generated any
significant revenues from the sale of its products. None of the Company's
products is yet approved for sale in the United States, and the sale of
Abelcet (TM) has just commenced in the United Kingdom. Each product must be
clinically tested, approved for use by appropriate government agencies and
manufactured in commercial quantities before marketing can begin. While the
Company has filed marketing applications in various foreign countries with
respect to Abelcet (TM), there can be no assurance that such applications will
be accepted or, if approved, that there will not be burdensome restrictions
which might lead the Company to refrain from selling Abelcet (TM) in some or
all of these jurisdictions. In one of the foreign countries in which a
marketing application for Abelcet (TM) has been filed, the Company has received
a preliminary indication that the application may not be approved or that
additional studies may be required as a condition of approval.
The Company's long-term viability and growth will depend on successful
commercialization of products resulting from its research activities. No
assurance can be given that any of the Company's products under development
will be successfully commercialized or that required regulatory approvals will
be obtained. In addition, if the Company's revenues fail to grow at a rate
sufficient to absorb the increased expenses associated with the
commercialization of its products, or if it is unable to add or assimilate
qualified personnel needed for such commercialization, its results could be
adversely affected. See "Business--Product Development," "--Manufacturing" and
"--Marketing Strategy."
History of Operating Losses and Accumulated Deficit. The Company has incurred
losses in each year since its inception and anticipates that operating losses
will continue for at least two years. The Company's accumulated deficit at
December 31, 1994 was approximately $108,859,000. The Company will need to
commit significant financial and other resources to clinical trials of its
self-funded products and to the preparation for commercial marketing of
ABLC (R) in the United States should approval be received from the FDA. See
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Need for Additional Financing and Uncertain Access to Capital Funding. The
Company's capital requirements depend upon numerous factors, including the
progress of the Company's product development programs; the time required to
obtain regulatory approvals; the resources that the Company devotes to the
development, manufacturing and marketing of self-funded products; and the
demand for its products if and when approved. It is possible that the Company
may require additional financing to complete the clinical testing and to
manufacture and to market its self-funded products. There can be no assurance
that such financing will be available or will be available on acceptable terms.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Limited Manufacturing Capabilities. The Company currently intends to
manufacture its self-funded products. TLC D-99, being developed by the Company
under a licensing and development agreement with Pfizer, may be manufactured by
the Company or Pfizer, at Pfizer's option. TLC I-16, which is being developed
under a collaborative research and development agreement with Schering AG, is
to be manufactured by the Company. In order to be successful, the Company's
products must be manufactured in commercial quantities, in compliance with
regulatory requirements, at an acceptable cost and with sufficient stability.
The Company believes that its current facilities and staff are adequate for the
manufacture of preclinical and clinical supplies of its products, and for the
production of Abelcet (TM) to satisfy initial commercial demand, but may not be
capable of producing quantities of product sufficient to satisfy demand when
ABLC (R)/Abelcet (TM) is
5
<PAGE>
fully commercialized. The Company owns a manufacturing facility in
Indianapolis, Indiana for the manufacture of its commercial products on a scale
the Company believes to be sufficient to meet worldwide demand and has begun
the refitting of this facility to manufacture ABLC (R)/Abelcet (TM). However,
substantial expenditures will be required to complete the refitting of the
facility and to install and validate the processing and other equipment
necessary for the manufacture of the Company's products in this facility and to
hire and train new employees to operate the facility. See "Business--
Manufacturing."
Limited Marketing Capabilities. Although the Company intends to market
certain of its products in the United States and certain other countries
through its own sales force if and when regulatory approval for those products
is obtained, it currently has limited marketing and sales staff, and
significant additional expenditures, management resources and time would be
required to develop such sales forces. There can be no assurance that the
Company will be able to establish such sales forces or be successful in gaining
market acceptance for its products. To the extent that the Company determines
not to, or is unable to, establish such sales forces, it will be dependent on
third parties for the marketing and distribution of its products. See
"Business--Marketing Strategy."
Technological Change; Competition. The biopharmaceutical industry is
characterized by extensive research and development efforts, and is subject to
rapid and significant technological change. The Company has numerous
competitors, including major pharmaceutical and chemical companies, specialized
biotechnology firms, other companies developing liposomes or other lipid-based
products, universities and other research institutions. New developments in
lipid and liposome research as well as new pharmaceutical products and other
drug-delivery systems are expected to continue at a rapid pace. Competitors may
succeed in developing technologies and products that are more effective than
any that are being developed by the Company or that would render the Company's
technology and products non-competitive. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company. In addition, many of the Company's
competitors have significantly greater experience than the Company in
preclinical testing and human clinical trials of new or improved pharmaceutical
products and in obtaining FDA and other regulatory approvals on products for
use in health care. The Company is aware of various products under development
or manufactured by competitors that are used for the prevention, diagnosis or
treatment of certain diseases the Company has targeted for product development,
some of which use therapeutic approaches that compete directly with certain of
the Company's product candidates. The Company's competitors may succeed in
obtaining FDA approval for products more rapidly than the Company, which could
adversely affect the Company's ability to develop and market its products. If
the Company commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and marketing
capabilities, areas in which the Company has limited or no experience. See
"Business--Competition."
Regulation. Human therapeutic products, vaccines and in vivo diagnostic
products are subject to rigorous preclinical and clinical testing and approval
by the FDA and comparable agencies in other countries and, to a lesser extent,
by state regulatory authorities prior to marketing. The process of obtaining
such approvals, especially for human therapeutic products, is likely to take a
number of years and will involve the expenditure of substantial resources. If
the FDA requests additional data, these time periods can be materially
increased. Even after such additional data is submitted, there can be no
assurance of obtaining FDA approval. In addition, product approvals may be
withdrawn or limited for noncompliance with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company has
not sought or received regulatory approval in the United States for the
commercial sale of any of its principal products or for any manufacturing
processes or facilities. The Company and its licensees may encounter
significant delays or excessive costs in their respective efforts to secure
necessary approvals or
6
<PAGE>
licenses. Future federal, state, local or foreign legislative or administrative
acts could also prevent or delay regulatory approval of the Company's or its
licensees' products. There can be no assurance that the Company or its
collaborative partners will be able to obtain the necessary approvals for
manufacturing or marketing of the Company's products or that the clinical data
they obtain in clinical studies will be sufficient to establish the safety and
effectiveness of the products. Failure to obtain or maintain requisite
governmental approvals, or failure to obtain approvals of the clinical intended
uses requested, could delay or preclude the Company or its licensees from
further developing particular products or from marketing their products, or
limit the commercial use of the products and thereby have a material adverse
effect on the Company's liquidity and financial condition. The Company has
limited experience in conducting and managing clinical testing and in preparing
applications necessary to gain governmental approvals. The Company has not yet
submitted an NDA in the United States, and no assurance can be given with
respect to any NDA submitted to the FDA by the Company that such NDA will be
accepted for consideration, that it will be promptly reviewed, that the FDA
will find the data submitted adequate or that such NDA will ultimately be
approved.
Many products for the treatment of conditions such as systemic fungal
infections, ARDS, sepsis, heart attack and cancer which have been tested in
clinical trials have failed to meet the standards of the FDA. To the knowledge
of the Company, the FDA has not yet granted marketing approval for any human
pharmaceutical product based on lipid or liposome technologies of the types
employed by the Company. In addition, no therapeutic products based upon these
technologies are commercially available in the United States. Consequently, the
ability to secure regulatory approvals for the Company's products and the
ultimate commercial potential of these products cannot currently be assured.
See "Business--Governmental Regulation."
Patents and Proprietary Technology. The Company has a number of United States
and foreign patents and patent applications relating to various aspects of
lipid and liposome technologies. The patent position of biopharmaceutical
companies generally is highly uncertain and involves complex legal and factual
questions. The Company currently holds 54 United States patents and may be
issued additional patents in the future. There can be no assurance that any
patents will afford the Company commercially significant protection for its
proprietary technology or have commercial application, and litigation may be
necessary to determine the validity and scope of the Company's proprietary
rights. Moreover, the patent laws of foreign countries and the enforcement of
such laws may afford less protection than comparable U.S. laws. The Company may
not have adequate funds to defend or prosecute the patents in question.
Other public and private concerns, including universities, may have filed
applications for, or have been issued, patents with respect to technology
potentially useful or necessary to the Company. If any of the Company's
proprietary technology in these areas were to conflict with the rights of
others, the Company's ability to commercialize products using such technologies
could be materially and adversely affected. The scope and validity of such
patents, the extent to which the Company may wish or need to acquire licenses
under such patents, and the cost or availability of such licenses, are
currently unknown.
In addition, the Company relies on unpatented proprietary know-how, and there
can be no assurance that others will not obtain access to or independently
develop such know-how. Although employees, corporate sponsors, research
partners and consultants are not given access to proprietary know-how of the
Company until they have executed confidentiality agreements, these agreements
may not provide meaningful protection for the Company's proprietary know-how in
the event of any unauthorized use or disclosure of such know-how. See
"Business--Patents and Proprietary Technology."
7
<PAGE>
Product Liability. The testing, manufacturing and marketing of the Company's
products entail an inherent risk of adverse events that could expose the
Company to product liability claims. The Company has obtained insurance of
$10,000,000 against the risk of product liability claims. However, there is no
guarantee that this insurance will be adequate, that the amount of this
insurance can be increased, or that the policy can be renewed. Moreover, the
amount and scope of any coverage obtained may be inadequate to protect the
Company in the event of a successful product liability claim. See "Business--
Product Liability."
Dependence on Key Personnel and Consultants. The Company's ability to
successfully develop marketable products and to maintain a competitive position
will depend in large part on its ability to attract and retain highly qualified
scientific and management personnel and to develop and maintain relationships
with leading research institutions and consultants. Competition for such
personnel and relationships is intense, and there can be no assurance that the
Company will be able to continue to attract and retain such personnel. See
"Business--Human Resources" and "--Competition."
Dependence on Corporate Partners. The Company's revenues to date have been
primarily generated by payments under collaborative research and development
contracts and from interest on invested cash. The Company could be adversely
affected if either Pfizer or Schering AG exercised its right to terminate its
respective agreement. In such event, the Company might be required to seek
alternate financing in order to continue the development and testing of the
products that are the subject of such research and development agreements. If
the Company's working capital or alternate financing were inadequate to fund
further development or testing, then development of these products might be
delayed or cancelled. In the case of TLC I-16, should the agreement be
cancelled by Schering AG, the Company may not be able to obtain supplies of a
proprietary raw material owned by Schering AG and may be required to undertake
the development of TLC I-16 with an alternative raw material. Assuming the
Company and its corporate partners are able to develop successfully one or more
of the products currently under development under these agreements, the
Company's revenues from sales of these products will depend in large part upon
the efforts and abilities of its corporate partners, in some cases, to perform
clinical testing, to obtain regulatory approvals, to market and, in the case of
TLC D-99, to manufacture the Company's products. The amount and timing of
resources devoted to these activities will not be completely within the
Company's control. The Company's partners will have certain discretion in
deciding whether or not to commercialize the products, and may develop or
market products competitive with those of the Company. While the Company
believes its corporate partners have or will have an economic motivation to
succeed in performing their obligations under such agreements, there can be no
assurance that the corporate interests and motivations of these partners will
remain consistent with those of the Company. In March, 1995, Wyeth-Ayerst
Laboratories, a division of American Home Products Corporation ("Wyeth-
Ayerst"), to whom the Company had licensed the use of TLC A-60 as an adjuvant
for an influenza vaccine, advised the Company that it intends to return its
rights to TLC A-60 to the Company. If and when sales of products developed with
the Company's corporate partners commence, the Company's revenues with respect
to such products will be limited to royalties based on product sales and/or
revenues from manufacturing those products. See "Business--Product
Development."
Uncertainty of Health Care Reimbursement. The Company's ability to earn
sufficient returns on its products may depend in part on the extent to which
reimbursement for the costs of such products and related treatments will be
available from government health administration authorities, private health
coverage insurers and other organizations. If purchasers or users of the
Company's products are not entitled to adequate reimbursement for the cost of
using such products, they may forego or reduce such use. Significant
uncertainty exists as to the reimbursement status of
8
<PAGE>
newly approved health care products, and there can be no assurance that
adequate third party coverage will be available.
Dependence Upon Suppliers. The Company currently relies on a limited number
of suppliers to provide the materials used to manufacture its products, certain
of which materials are purchased only from one supplier. Although the Company
believes that it can obtain adequate commercial quantities of necessary
materials and that it could develop alternative sources of supply for most or
all of the materials used to manufacture its products, there can be no
assurance that the Company would be able to access such sources within a
reasonable period of time or at commercially reasonable rates. In particular,
the Company presently acquires amphotericin B, a principal ingredient in
ABLC(R)/Abelcet (TM), from one supplier on what the Company believes are
favorable terms. The loss of this supplier could have a material adverse effect
on the Company, either because of a delay or inability in obtaining an
alternate supplier or because of the impact of obtaining the product at a
significantly higher cost. Regulatory requirements applicable to pharmaceutical
products tend to make the substitution of suppliers more costly and time-
consuming. The unavailability of adequate commercial quantities, the inability
to develop alternative sources, a reduction or interruption in supply or a
significant increase in the price of materials could have a material adverse
effect on the Company's ability to manufacture and market its products.
International Sales. The Company believes that sales outside of the United
States will initially represent a significant portion of the Company's business
if marketing approvals are received from countries outside the United States
more quickly than approvals from the FDA. There are significant challenges and
risks to the Company associated with conducting business in some foreign
countries, including, but not limited to, disparate governmental regulation of
pharmaceutical products and uncertain intellectual property protections.
Although the Company has established an office in London, England, it does not
have extensive experience in international sales. The Company's international
business and financial performance could also be adversely affected by such
matters as fluctuations in currency exchange rates, currency controls, tariff
regulations, foreign duties and taxes, pricing controls and regulations and
difficulties in obtaining export licenses.
Volatility of Stock Price. There has been a history of significant volatility
in the market prices for shares of companies in a similar stage of development
to that of the Company, and the market price of the shares of the Company's
Common Stock has been volatile. Factors such as announcements of technological
innovations or new commercial products by the Company or its competitors,
governmental regulation, decisions made by corporate sponsors under
collaborative research and development agreements regarding product development
activities, developments relating to regulatory approvals, developments or
disputes relating to patent or proprietary rights, as well as period-to-period
fluctuations in revenues and financial results, may have a significant impact
on the market price of the Company's Common Stock. See "Price Range of Common
Stock and Dividend Policy."
Dilution. Purchasers of shares of Common Stock in this offering will
experience immediate and substantial dilution of net tangible book value per
share. Additional dilution will occur upon the exercise of outstanding stock
options.
THE COMPANY
The Company's principal executive offices are located at One Research Way,
Princeton Forrestal Center, Princeton, New Jersey 08540 and its telephone
number is (609) 452-7060. Unless the context otherwise requires, the "Company"
refers to The Liposome Company, Inc. and its wholly-owned subsidiaries.
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $11.125 per share are estimated to be $31,000,000 ($35,705,875 if the
Underwriters' over-allotment option is exercised in full).
The Company anticipates that the proceeds of this offering, in conjunction
with the Company's current working capital, will be used for (i) the
commercialization of ABLC (R)/Abelcet (TM), including the expansion of
manufacturing, marketing and distribution capabilities, the refitting of the
Company's manufacturing facility in Indianapolis, Indiana for the manufacture
of ABLC (R) and the on-going clinical testing of ABLC (R), (ii) the development
and clinical testing of TLC C-53 and the Company's other self-funded products,
(iii) research activities and (iv) other general corporate purposes. The
Company is unable to specify the amount that it will spend on such programs
because such amounts will vary depending on numerous factors, including the
progress of the Company's development efforts and regulatory approvals. Such
expenditures are likely to be extensive and may exceed the amount of proceeds
available from this offering. The Company has begun to refit its manufacturing
facility in Indianapolis and expects that this facility will become operational
in 1996. The initial plan of activity includes design work and construction of
improvements to the facility necessary for a modern manufacturing facility,
renovation and validation of critical building systems, purchase and
installation of product specific processing equipment for the manufacture of
ABLC (R), and training and hiring of employees. The Company anticipates that
this phase of construction and validation work and related start-up
expenditures will cost approximately $11,000,000 to $13,000,000. Additional
costs would have to be incurred for the product specific processing equipment
necessary for the production of the Company's other products if and when
decisions are made to proceed with such commercial manufacturing.
The Company has considered in the past, and is continuing to consider,
alternative sources of financing, including financing specific to a particular
development project or projects. If such financing involves one of the
Company's lead products, the Company will use the portion of the proceeds of
this offering that would otherwise have funded such product for other purposes
described above. Pending such uses, the net proceeds will be invested in
investment grade interest-bearing securities.
10
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol LIPO. The following table sets forth for the periods indicated
the high and low sale price for the Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1995
1st Quarter (through March 20, 1995).................... $13.375 $7.875
1994
4th Quarter............................................. 10.750 6.375
3rd Quarter............................................. 8.125 4.750
2nd Quarter............................................. 6.500 4.875
1st Quarter............................................. 7.750 5.875
1993
4th Quarter............................................. 8.875 5.625
3rd Quarter............................................. 7.625 5.125
2nd Quarter............................................. 9.500 6.500
1st Quarter............................................. 12.500 7.500
</TABLE>
On March 20, 1995, the closing sale price of the Company's Common Stock was
$11.125 per share.
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. As of January 31, 1995, there were approximately
1,480 stockholders of record of Common Stock.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1994, and as adjusted to give effect to the receipt by the Company of the
net proceeds from the sale of 3,000,000 shares of Common Stock offered hereby
at an assumed offering price of $11.125 per share:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------
AS
ACTUAL ADJUSTED (1)
--------- ------------
(in thousands)
<S> <C> <C>
Long-term obligations under capital leases............. $ 4,126 $ 4,126
Long-term obligations under note payable............... 1,791 1,791
Stockholders' equity:
Preferred Stock, par value $.01; 2,400,000 shares au-
thorized; Series A Cumulative Convertible Exchange-
able Preferred Stock, 276,000 shares issued; actual
and as adjusted (liquidation preference of
$69,000,000)......................................... 3 3
Common Stock, par value $.01; 60,000,000 shares autho-
rized; 23,982,849 and 26,982,849 shares issued; ac-
tual and as adjusted, respectively(2)................ 240 270
Additional paid-in capital............................. 192,003 222,973
Foreign currency translation adjustment................ (1) (1)
Net unrealized investment loss......................... (5,033) (5,033)
Accumulated deficit.................................... (108,859) (108,859)
--------- ---------
Total stockholders' equity.......................... 78,353 109,353
--------- ---------
Total capitalization.............................. $ 84,270 $ 115,270
========= =========
</TABLE>
- --------
(1) Assumes net proceeds to the Company of $31,000,000 from this offering, as
if this offering had closed on December 31, 1994.
(2) Excludes 5,671,913 shares of Common Stock reserved as of December 31, 1994
for issuance under the Company's stock option plans, of which 4,226,105
were reserved for options currently outstanding. Also excludes 5,369,580
shares of Common Stock reserved for issuance upon conversion of the
Company's Series A Cumulative Convertible Exchangeable Preferred Stock.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for and as of the
end of each of the years in the five-year period ended December 31, 1994 have
been derived from the consolidated financial statements of the Company that
have been audited by Coopers & Lybrand L.L.P., independent accountants. This
data should be read in conjunction with the consolidated financial statements,
related notes and other financial information appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- ------- -------
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA: (in thousands, except per share figures)
<S> <C> <C> <C> <C> <C>
Collaborative research and
development revenues............ $ 5,831 $ 4,877 $ 5,767 $ 5,938 $ 3,734
Licensing and other fees......... 50 541 312 319 2,668
Interest and investment income,
net............................. 4,559 7,624 4,810 2,575 669
-------- -------- ------- ------- -------
Total revenues.................. 10,440 13,042 10,889 8,832 7,071
-------- -------- ------- ------- -------
Research and development
expenses........................ 31,713 25,072 15,000 9,326 8,598
General and administrative
expenses........................ 12,072 10,193 5,488 3,586 3,164
Interest expense................. 308 254 76 6 14
Other expenses................... -- -- -- -- 300
-------- -------- ------- ------- -------
Total expenses.................. 44,093 35,519 20,564 12,918 12,076
-------- -------- ------- ------- -------
Net loss......................... (33,653) (22,477) (9,675) (4,086) (5,005)
Preferred Stock dividends........ (5,348) (5,348) -- -- --
-------- -------- ------- ------- -------
Net loss applicable to Common $(39,001) $(27,825) $(9,675) $(4,086) $(5,005)
Stock........................... ======== ======== ======= ======= =======
Net loss per share applicable to
Common Stock.................... $ (1.64) $ (1.18) $ (.43) $ (.22) $ (.35)
======== ======== ======= ======= =======
Weighted average number of common 23,850 23,536 22,384 18,221 14,226
shares outstanding.............. ======== ======== ======= ======= =======
<CAPTION>
DECEMBER 31,
---------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- ------- -------
CONSOLIDATED BALANCE SHEET DATA: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and marketable
securities(1)................... $ 72,157 $119,743 $76,399 $45,678 $ 7,668
Working capital.................. 51,746 102,139 71,910 43,604 5,306
Total assets..................... 93,196 139,632 92,756 50,803 11,007
Total long-term liabilities...... 5,917 7,696 2,986 607 658
Accumulated deficit.............. (108,859) (75,206) (52,729) (43,054) (38,968)
Total stockholders' equity(2).... $ 78,353 $122,347 $83,200 $46,861 $ 7,435
</TABLE>
- --------
(1) Includes restricted cash of $4,880 and $4,748 in 1994 and 1993,
respectively. See Note 1 of Notes to Consolidated Financial Statements.
(2) In 1993, the Company adopted the provisions of Financial Accounting
Standard 115 "Accounting for Certain Investments in Debt and Equity
Securities." The effect of this adoption was to increase Total stockholders'
equity by $650 in 1993 and reduce Total stockholders' equity by $5,033 in
1994.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a leading biotechnology company engaged in the discovery,
development and, recently, the commercialization of proprietary lipid and
liposome-based pharmaceuticals for the treatment, prevention and diagnosis of
inadequately treated, life-threatening illnesses. The Company is currently
launching its first product, amphotericin B lipid complex (ABLC(R) or, in
Europe, Abelcet(TM)), which has been approved for marketing for certain
indications in the United Kingdom and is the subject of marketing application
filings in eighteen other countries. The Company expects to file an NDA for
ABLC(R) in the United States during 1995. In addition to ABLC(R)/Abelcet(TM),
the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99,
liposomal doxorubicin, is being developed in conjunction with Pfizer primarily
as a first line treatment of metastatic breast cancer, and is undergoing Phase
III clinical testing in the United States. The Company has completed a Phase
II clinical trial for TLC C-53 for the treatment of ARDS and is preparing a
protocol for a pivotal clinical trial of TLC C-53, liposomal prostaglandin
E/1/, for ARDS. In January, 1995, the Company commenced a Phase II clinical
trial of TLC C-53 for the treatment of AMI, or heart attack. The Company and
Schering AG entered into a collaborative research and development agreement
with respect to TLC I-16, a non-ionic contrast agent for use in connection
with CT scanning of the liver. TLC I-16 is currently in preclinical
development. The Company also has a continuing discovery research program
which concentrates primarily on the treatment of cancer and inflammatory
conditions.
RESULTS OF OPERATIONS
Revenues
Total revenues for the year ended December 31, 1994 were $10,440,000, a
decrease of $2,602,000 or 20.0% as compared to the year ended December 31,
1993. Revenues in 1993 were $13,042,000, an increase of $2,153,000 or 19.8%
compared to the 1992 level. The primary components of revenues for the Company
are collaborative research and development activities, interest and investment
income, and licensing and other fees. These components can increase or
decrease significantly based on the number and amount of research
collaborations, including the achievement of developmental milestones, the
initiation of new licensing agreements and, in the case of interest and
investment income, the level of cash balances available for investment and the
rate of interest earned on such investments.
Collaborative research and development revenues were $5,831,000 for 1994,
which was $954,000 or 19.6% higher than 1993 revenues. Collaborative research
and development revenues were $4,877,000 for 1993, which was $890,000 or 15.4%
lower than 1992. The Company earned substantially all of its collaborative
research and development revenues from two corporate sponsors in 1994 and 1993
and three sponsors in 1992. In January, 1993, the Company reacquired the
worldwide rights to ABLC(R) from Bristol-Myers Squibb ("BMS"), a former
corporate sponsor. The Company assumed the responsibilities and funding for
clinical development, manufacturing and marketing of ABLC(R). The financial
impact of the reacquisition was the absence of research and development
reimbursements from BMS in 1993 and 1994. Through January, 1995, the Company
filed marketing applications for ABLC(R)/Abelcet(TM) in eighteen countries and
in June, 1994, began Phase III clinical trials in the United States for the
drug. During February, 1995, the Company received approval to market
Abelcet(TM) in the United Kingdom for certain indications. During 1992, the
Company completed work under a research agreement related to a certain
diagnostic product with Schering AG; additional work under an amended research
agreement with Schering AG began in the third quarter of 1993 and continued
through 1994.
Licensing and other fees were $50,000, $541,000 and $312,000 for 1994, 1993
and 1992, respectively. The change in this category from 1992 to 1994 was
directly related to an agreement
14
<PAGE>
with Wyeth-Ayerst for TLC A-60, a liposomal vaccine adjuvant which required
payments as follows: $250,000 in 1992, $500,000 in 1993 with no payment being
scheduled in 1994. Wyeth-Ayerst recently advised the Company that it is no
longer pursuing development of TLC A-60 and that it intends to return all
rights to the Company.
Interest and investment income for the years ended December 31, 1994, 1993,
and 1992 was $4,559,000, $7,624,000, and $4,810,000, respectively. Interest and
investment income in 1994 decreased by $3,065,000 or 40.2% from 1993. Interest
and investment income in 1993 was $2,814,000 or 58.5% greater than that in
1992. During the first quarter of each of 1993 and 1992 the Company raised
capital through the sale of equity securities. Net proceeds to the Company from
these sales were $65,735,000 and $44,603,000, respectively. No significant
amounts of capital were raised during 1994. Fluctuations in interest and
investment income are primarily due to the significant changes in the level of
cash balances the Company has available for investment as a result of these
financings. The Company expects that interest and investment income in 1995
will be substantially less than that reported in 1994 due to the anticipated
lower level of cash and securities in its portfolio.
Expenses
Total expenses for 1994 of $44,093,000 increased $8,574,000 or 24.1% compared
to 1993. Total expenses of $35,519,000 for 1993 increased $14,955,000 or 72.7%
compared to 1992. The increase in expenses for each year reflects the greater
funding required to support the clinical study programs of its lead proprietary
products as these products progress through late-stage trials, and the
expansion of the Company's research and development efforts.
Research and development expenses accounted for 71.0% of the expense increase
from 1992 to 1994, while general and administrative and interest expenses
accounted for the remainder. At year-end 1992, the Company's efforts were
focused on research and pharmaceutical development using a small organization
to support early stage clinical trial activities. During 1993, the Company
significantly expanded its capability to design and monitor clinical trials,
both in the U.S. and internationally and also added internal capabilities in
biostatistics and regulatory affairs. During 1994, the Company continued to
strengthen these activities and developed an internal manufacturing
organization capable of producing clinical and commercial material and began to
establish an international sales and marketing organization.
Research and development expenses of $31,713,000 for 1994 increased
$6,641,000 or 26.5% over 1993. The primary components of this increase were the
costs related to ABLC(R)/Abelcet (TM), TLC C-53 and TLC D-99, reflecting higher
expenditures associated with the Company's products progressing to late stages
of development; increased staffing levels to support the new manufacturing
facility located in Princeton, which began operations in early 1994; and the
expansion of the Company's medical, regulatory, and biostatistical departments
to develop and conduct increased clinical trial activity. As in prior years,
costs associated with the development of TLC D-99 were reimbursed by Pfizer
under the terms of a licensing agreement, signed in 1990. In February, 1994,
the Company announced that it had suspended further development of Maitec(R),
its liposomal gentamicin product, in order to focus its resources on its other
products.
Research and development expenses of $25,072,000 for 1993 increased
$10,072,000 or 67.1% over 1992. The significant part of the increase was
related to assuming the on-going development costs of ABLC(R) that were
previously incurred by BMS. All rights to ABLC(R) were reacquired from BMS in
January 1993. The 1993 increase also included the expansion of preclinical
studies for TLC C-53 and clinical study programs of Maitec(R), TLC C-53, and
TLC D-99. The Company also increased research and development staff including
medical, regulatory, biostatistical, manufacturing and scientific personnel to
support the preclinical and clinical study programs.
15
<PAGE>
General and administrative expenses in 1994 were $12,072,000, an increase of
$1,879,000 or 18.4% over 1993. The primary component of the increase was costs
associated with the start up of the international sales and marketing
operations in anticipation of launching the Company's first product,
amphotericin B lipid complex, using the trademark Abelcet(TM). By year-end
1994, the Company had filed applications to market Abelcet(TM) in seventeen
countries, and approval to market in the United Kingdom was received in
February, 1995.
General and administrative expenses in 1993 were $10,193,000, an increase of
$4,705,000 or 85.7% over 1992. The main reason for the increase was the cost
associated with litigation brought by the Company for patent infringement. The
court found in favor of the defendant, and the Company has decided not to
appeal. The balance of the increase was due to the expansion of various
administrative functions consistent with the growth of the Company.
The Company expects both its research and development expenses and its
general and administrative expenses to continue to increase as it pursues the
clinical development of its products, launches Abelcet(TM) in the United
Kingdom and prepares for future potential marketing approvals in other European
countries.
Interest expense for 1994 was $308,000 compared to $254,000 for 1993. The
increase of $54,000 in interest expense was primarily due to a sale-leaseback
agreement that funded machinery and construction costs within the Princeton
manufacturing facility. This capital lease arrangement was initiated in 1993
and completed in early 1994. The increase in 1993 versus 1992 of $178,000 was
due to the 1992 acquisition of a 55,000 square foot manufacturing facility in
Indianapolis, Indiana, which was partially funded by a mortgage-backed note
payable.
Preferred Stock Dividends
In January 1993, the Company completed the issuance of 2,760,000 Depositary
Shares representing 276,000 shares of Series A Cumulative Convertible
Exchangeable Preferred Stock with a cumulative dividend of 7.75%. The Company
has declared and paid dividends of $5,348,000 on such Preferred Stock annually
during 1993 and 1994. These dividends are included as part of the Company's net
loss applicable to Common Stock and net loss per share of Common Stock.
Net Loss, Net Loss Applicable to Common Stock and Net Loss Per Share of Common
Stock
The net loss of $33,653,000 for 1994 increased by $11,176,000 or 49.7%
compared to 1993. This increase in net loss was due to the increase in total
expenses of $8,574,000, in conjunction with a decrease in total revenues of
$2,602,000. The net loss applicable to Common Stock was $39,001,000 in 1994 and
$27,825,000 in 1993 as a result of the operational factors discussed above and
the declaration of $5,348,000 of Preferred Stock dividends in each year. The
net loss per common share increased by $.46 per share to $1.64 per share for
1994. The total loss per share of $1.64 comprises $.23 for Preferred Stock
dividends and the remainder, $1.41, for the current year net loss.
The net loss of $22,477,000 for 1993 increased by $12,802,000 or 132%
compared to 1992. This increase in net loss was due to the increase in total
expenses of $14,955,000, partially offset by an increase in total revenues of
$2,153,000. The net loss applicable to Common Stock was $27,825,000 in 1993
compared to $9,675,000 in 1992. The increase was due to the operational factors
discussed above and inclusion in 1993 of $5,348,000 in Preferred Stock
dividends. The 1993 net loss per common share increased by $.75 per share to
$1.18 per share. The increase is attributable to the $5,348,000 of Preferred
Stock dividends, or $.23 per share, and the balance is due to the increase in
net loss of $.52 per share.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had $72,157,000 in cash reserves as of December 31, 1994. The
cash reserves include cash and cash equivalents of $2,369,000, short-term
investments of $55,487,000, long-term investments of $9,421,000 and restricted
cash of $4,880,000. The cash reserves decreased $47,586,000 from 1993 due to
the use of funds for operations, capital acquisitions, Preferred Stock dividend
payments and a current market value adjustment to investments to comply with
the Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting
for Certain Investments in Debt and Equity Securities. The cumulative effect at
December 31, 1994 of SFAS No. 115 was a net unrealized loss of $5,033,000. In
connection with certain financing arrangements, the Company is required to
maintain minimum cash balances, of which the largest requirement is
$20,000,000. The Company invests its excess cash in a diversified portfolio of
high-grade marketable and United States Government-backed securities.
During 1994, cash used by operations increased to $32,407,000 as compared to
$18,948,000 in 1993. The 1994 change in cash used was primarily due to the
increase in net loss versus 1993 combined with the increase in other current
assets and the reduction in accounts payable. This was partially offset by
increases in depreciation and amortization, along with accrued expenses.
Funding required for operating activities during 1994 was derived from existing
cash balances and the sales of investments as well as from corporate sponsors,
interest income, and the exercise of stock options. Plant acquisitions
decreased in 1994 compared to 1993, reflecting the completion of the expansion
of the clinical research and manufacturing facilities begun in 1993. The
Company expects to make renovations costing between approximately $11,000,000
to $13,000,000 at the Indianapolis facility.
At December 31, 1994, the Company had approximately $101,412,000 of operating
loss carryforwards, $2,860,000 of research and development credit carryforwards
and $45,000 of investment tax credit carryforwards. These carryforwards expire
in the years 1996 through 2009. The timing and manner in which these losses are
used may be limited as a result of certain ownership changes that occurred
pursuant to Internal Revenue Service regulations under Section 382.
The Company expects to finance its operations from, among other things, the
proceeds received from payments under research and development agreements,
interest earned on investments, liquidation of certain investments, product
sales and proceeds from this offering. Funds may also be provided to the
Company by leasing arrangements for capital expenditures and from the licensing
of its products. The Company expects to fund Preferred Stock dividends from
existing cash reserves. The Company believes that its available cash and
marketable securities, revenues from research and development contracts and
interest income will be sufficient to meet its expected operating and capital
cash flow requirements for the intermediate term.
17
<PAGE>
BUSINESS
OVERVIEW
The Liposome Company, Inc. is a leading biotechnology company engaged in the
discovery, development and, recently, the commercialization of proprietary
lipid and liposome-based pharmaceuticals for the treatment, prevention and
diagnosis of inadequately treated, life-threatening illnesses. The Company is
currently launching its first product, amphotericin B lipid complex (ABLC(R)
or, in Europe, Abelcet(TM)), which has been approved for marketing for certain
indications in the United Kingdom and is the subject of marketing application
filings in eighteen other countries. The Company expects to file an NDA for
ABLC(R) in the United States during 1995. In addition to ABLC(R)/Abelcet(TM),
the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99,
liposomal doxorubicin, is being developed in conjunction with Pfizer primarily
as a first line treatment of metastatic breast cancer, and is undergoing Phase
III clinical testing in the United States. The Company has completed a Phase
II clinical trial for TLC C-53, liposomal PGE/1/, for the treatment of ARDS
and is preparing a protocol for a pivotal clinical trial of TLC C-53 for ARDS.
In January, 1995, the Company commenced a Phase II clinical trial of TLC C-53
for the treatment of AMI, or heart attack.
ABLC(R)/ABELCET(TM), amphotericin B lipid complex, is for the treatment of
systemic fungal infections, primarily in immunocompromised patients such as
cancer chemotherapy patients, organ and bone marrow transplant recipients and
people with AIDS. In February, 1995, the Company received approval from the
Medicines Control Agency of the United Kingdom to market Abelcet(TM) as a
first line treatment of cryptococcal meningitis and systemic cryptococcosis in
patients with AIDS and for the treatment of severe systemic fungal infections
in patients who have not responded to conventional amphotericin B, or to other
systemic antifungal agents, or who have renal impairment or other
contraindications to conventional amphotericin B. Over 1,300 patients
worldwide had been treated with ABLC(R)/Abelcet (TM) through December, 1994.
The Company expects to file its first NDA, for ABLC(R), for the second line
treatment of aspergillosis (a severe systemic fungal infection) in the United
States during 1995. There can be no assurance that any NDA filing by the
Company will ultimately be approved by the FDA. See "Risk Factors--Early Stage
of Commercialization" and "-- Regulation."
TLC D-99, liposomal doxorubicin, is targeted for the treatment of a variety
of solid tumors, most importantly metastatic breast cancer. TLC D-99 is being
jointly developed by the Company and Pfizer pursuant to an agreement entered
into in 1990. The Company has completed three Phase II clinical trials testing
TLC D-99 as a first line treatment of metastatic breast cancer. Two Phase III
clinical trials commenced in December, 1994. In November, 1994, researchers
from the M.D. Anderson Cancer Center presented results of one of the Phase II
studies, where TLC D-99 was given in combination with cyclophosphamide and 5-
fluorouracil to metastatic breast cancer patients. The researchers reported
that, of the 41 patients in the trial, 29 were evaluable at that time. Of
those 29 patients, there was an overall response rate of 69% (20 patients). Of
these, 18 patients demonstrated a partial response (defined to include a
reduction in tumor size of 50% or more), and two patients demonstrated a
complete response.
TLC C-53, liposomal PGE/1/, is for the treatment of severe acute
inflammatory and vaso-occlusive conditions, including ARDS and AMI.
Preclinical trials have shown favorable results with TLC C-53 in models of AMI
and in models of SIRS, including endotoxemia and ARDS. The Company has
completed a Phase II study of TLC C-53 for the treatment of ARDS and plans to
initiate a pivotal study following discussions with the FDA. In January, 1995,
the Company commenced a Phase II clinical trial of TLC C-53 versus a placebo,
each in conjunction with t-PA, heparin and aspirin, for the treatment of heart
attacks.
The Company and Schering AG entered into a collaborative research and
development agreement with respect to TLC I-16, a non-ionic contrast agent for
use in connection with CT scanning of the liver. TLC I-16 is currently in
preclinical development. The Company also has a continuing discovery research
program which concentrates primarily on the treatment of cancer and
inflammatory conditions.
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PRODUCT DEVELOPMENT
The following table summarizes the principal product development activities
of the Company:
<TABLE>
<CAPTION>
WORLDWIDE
MARKETING
PRODUCT USE STATUS(1) RIGHTS
------- --- --------- ---------
<S> <C> <C> <C>
ANTI-INFECTIVE
ABLC(R)/Abelcet(TM) Systemic Fungal United Kingdom-- The Liposome Co.
Infections Marketing approval
received(2)
18 other countries--
Marketing
applications filed
U.S.-- Expect to file
NDA during 1995
CANCER
TLC D-99 Metastatic Breast Phase III ongoing; Pfizer(3)
Cancer High dose Phase II
ongoing
Kaposi's Sarcoma Phase II ongoing Pfizer(3)
TLC I-16 CT Imaging Agent for Preclinical Schering AG
Liver Metastases development
INFLAMMATION
TLC C-53 ARDS Phase II completed; The Liposome Co.
Pivotal clinical
trial being planned
Sepsis/SIRS Phase I completed; The Liposome Co.
Phase II to be
initiated in 1995
TLC C-54 Inflammatory Preclinical The Liposome Co.
Conditions including development
Rheumatoid Arthritis
and Systemic Lupus
Erythematosus
CARDIOPULMONARY
TLC C-53 AMI Phase II ongoing The Liposome Co.
</TABLE>
- --------
(1) Preclinical development denotes work to refine product performance
characteristics and studies relating to product composition, stability,
scale-up, toxicity and efficacy to create a prototype formulation in
preparation for the filing of an IND application with the FDA for authority
to commence testing in humans (clinical studies).
Phase I-III clinical trials denote safety and efficacy tests in human
patients in accordance with FDA guidelines as follows:
Phase I: Dosage and tolerance studies.
Phase II: Detailed evaluations of safety and efficacy.
Phase III: Larger scale evaluation of safety and efficacy potentially
requiring larger patient numbers, depending on the clinical indication for
which marketing approval is sought.
See "Governmental Regulation."
(2) Marketing approval in the United Kingdom has been received for Abelcet(TM)
as a first line treatment of cryptococcal meningitis and systemic
cryptococcosis in patients with AIDS, for the treatment of severe systemic
fungal infections in patients who have not responded to conventional
amphotericin B or other systemic antifungal agents, and for patients who
have renal impairment or other contraindications to conventional
amphotericin B.
(3) The Company has marketing rights in Japan.
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TECHNOLOGY
The Company's products are based on its proprietary technology which employs
liposomes or lipid complexes as either a vehicle to deliver an active
therapeutic ingredient or as an active component of a drug. Liposomes are
microscopic man-made spheres composed of lipids that can be engineered to
entrap drugs or other biologically active molecules. In many cases, liposomal
pharmaceuticals can provide better efficacy and less toxicity than might
otherwise result from alternative therapies. In addition, the Company believes
that it is developing the first product, TLC C-53, in which liposomes comprise
active components of a pharmaceutical. It is anticipated that the Company's
products will be administered through intravenous injection.
PRODUCTS IN CLINICAL TRIALS
The Company has three products in various stages of human clinical trials for
multiple indications: ABLC(R)/Abelcet(TM), TLC D-99 and TLC C-53.
ABLC(R) (Abelcet(TM) in Europe)--Amphotericin B Lipid Complex
Systemic fungal infections are a major threat to those patients whose immune
systems are compromised, such as cancer chemotherapy patients, organ and bone
marrow transplant recipients and people with AIDS. The Company is developing
ABLC(R) as a treatment for these fungal infections. Over 1,300 patients
worldwide were treated with ABLC(R) in comparative and open-label clinical
trials as well as in emergency use protocols through December, 1994.
Amphotericin B is a broad spectrum polyene antifungal agent, which has been
marketed for many years as a treatment for many systemic fungal infections,
including candidiasis, cryptococcosis, aspergillosis and other yeast or mold
infections. However, the utility of amphotericin B has been limited by its
propensity to cause serious side effects, particularly to the kidney. The
Company is developing ABLC(R), which consists of amphotericin B in a lipid
complex and is designed to reduce the risk of toxicities associated with
amphotericin B while maintaining at least equivalent efficacy.
In June, 1994, the Company commenced two Phase III clinical trials for
ABLC(R) in the U.S. The first trial is testing ABLC(R) as a treatment for
patients with aspergillosis who are either refractory to or intolerant of
conventional amphotericin B or who have renal impairment that precludes
treatment with amphotericin B. The second is a randomized trial comparing
ABLC(R) to conventional amphotericin B in the empiric treatment of presumed
fungal infections in neutropenic patients.
In October, 1994, investigators from the National Cancer Institute ("NCI"),
the M.D. Anderson Cancer Center, the Children's National Medical Center and the
H. Lee Moffitt Cancer Center, in a poster presentation at the 34th Interscience
Conference on Antimicrobial Agents and Chemotherapy, showed encouraging results
in patients with systemic fungal infections receiving ABLC(R) who previously
did not respond to, or who were intolerant of, existing antifungal therapy. In
addition, patients who had suffered nephrotoxicity resulting from prior
treatment with amphotericin B or who had preexisting renal impairment showed a
statistically significant improvement in kidney function when placed on
ABLC(R). The researchers concluded that ABLC(R) provided effective therapy in
patients with invasive mycoses unresponsive to or intolerant of previous
antifungal therapy, that ABLC(R) was well tolerated and that ABLC(R) was not
associated with dose-limiting nephrotoxicity.
Since December, 1993, the Company has filed applications to market
ABLC(R)/Abelcet(TM) in nineteen countries. In February, 1995, the Company
received approval to market amphotericin B lipid complex under the trademark
Abelcet(TM) from the Medicines Control Agency of the United
20
<PAGE>
Kingdom. The indications for which Abelcet(TM) was approved were as a first
line treatment of cryptococcal meningitis and systemic cryptococcosis in
patients with AIDS and for the treatment of severe systemic fungal infections
in patients who have not responded to conventional amphotericin B or to other
systemic antifungal agents or who have renal impairment or other
contraindications to conventional amphotericin B. The Company believes it may
receive marketing approvals in additional countries during 1995 and in later
years. In one of the foreign countries in which a marketing application for
Abelcet (TM) has been filed, the Company has received a preliminary indication
that the application may not be approved or that additional studies may be
required as a condition of approval.
The Company expects to file an NDA for ABLC (R) for the second line treatment
of aspergillosis in the United States during 1995. The Company has not yet
submitted an NDA in the United States, and no assurance can be given that with
respect to the Company's NDA for ABLC(R) that it will be accepted for
consideration, that it will be promptly reviewed, that the FDA will find the
data submitted adequate or that it will ultimately be approved.
The Company owns worldwide rights to manufacture and market ABLC(R). In 1985,
the Company entered into a licensing and development agreement for ABLC(R) with
the E.R. Squibb & Sons Company, now BMS. As of January 1, 1993, the Company
reacquired these rights from BMS and assumed all financial responsibility for
the development of ABLC(R). The Company has agreed to pay BMS a royalty on
worldwide sales of ABLC(R)/Abelcet(TM). The Company has also entered into a
supply agreement with BMS for amphotericin B raw material, but is free to
access alternate suppliers of such raw material, subject to regulatory
constraints.
TLC D-99
The Company and Pfizer are jointly developing TLC D-99, a liposomal
doxorubicin, for the treatment of a variety of solid tumors. The primary
emphasis of the program has been to develop the drug as a first line treatment
of metastatic breast cancer. Over 400 patients were enrolled in TLC D-99
clinical trials through December, 1994.
One of the most widely-used chemotherapeutic drugs is doxorubicin, which is
used in the treatment of many solid tumors, leukemias and lymphomas.
Doxorubicin, in addition to the acute toxicities typical of chemotherapeutic
drugs, can cause irreversible cardiac damage which is often the cumulative
dose-limiting factor for anthracycline chemotherapeutic agents like
doxorubicin. Virtually all anticancer drugs in typical doses can cause side
effects such as emesis (vomiting), alopecia (hair loss), mucositis
(inflammation of the mucous membranes) and myelosuppression (depletion of blood
cells). The individual maximum dosage given to a patient is limited by these
and other toxic side effects. One of the serious toxicities associated with
doxorubicin is the necrosis (open sores and tissue damage) that will occur when
free doxorubicin is accidentally injected into subcutaneous tissue rather than
the vein (an extravasation event). During Phase I trials with TLC D-99, three
episodes of extravasation took place, and no necrosis was observed.
Preclinical studies indicate that, as compared to free doxorubicin, TLC D-99
has greatly reduced toxicity, including cardiotoxicity and mucositis. In a
preclinical model, TLC D-99 was shown to deliver, at comparable doses, two to
three times as much drug to the site of the tumor as compared to free
doxorubicin. In addition, preclinical studies in standard tumor models
comparing the use of TLC D-99 and free doxorubicin to treat leukemia and
several solid tumors show a better tumor response and an increase in the
survival period of the test animals receiving TLC D-99 as compared to free
doxorubicin.
The Company conducted Phase I human clinical testing of 38 patients at
Roswell Park Memorial Institute, in Buffalo, New York. In this trial, TLC D-99
was less acutely toxic to the patients than would be expected with free
doxorubicin at comparable doses.
21
<PAGE>
In December, 1992 and May, 1993, the Company completed patient accruals for
two Phase II trials in patients with metastatic breast cancer; one was
conducted at four hospitals associated with McGill University Hospital in
Montreal, Canada and one was conducted at multiple sites in the United States.
Data from these trials is being compiled and evaluated. In November, 1994,
researchers from the M.D. Anderson Cancer Center presented results of a third
Phase II study of TLC D-99 given in combination with cyclophosphamide, an anti-
neoplastic agent, and 5-fluorouracil to metastatic breast cancer patients. The
researchers reported that, of the 41 patients in the trial, 29 were evaluable
at that time. Of those 29 patients, there was an overall response rate of 69%
(20 patients). Of these, 18 patients demonstrated a partial response (defined
to include a reduction in tumor size of 50% or more), and two patients
demonstrated a complete response. The researchers also concluded that the
encapsulation of doxorubicin appears to permit higher cumulative doses than
would be expected with conventional doxorubicin because of the diminished
cardiotoxicity.
In December, 1994, two Phase III trials were commenced by Pfizer to test TLC
D-99 as a first line treatment for patients with metastatic breast cancer. One
trial compares TLC D-99 with conventional doxorubicin while the other compares
a combination of TLC D-99 and cyclophosphamide, with doxorubicin and
cyclophosphamide. The objective of each study is to show that TLC D-99, alone
or in combination with cyclophosphamide, is as effective as conventional
doxorubicin alone or in combination with cyclophosphamide, but that TLC D-99 is
significantly safer, particularly with regard to cardiotoxicity. Each trial is
expected to be conducted at twenty or more sites.
The Company and Pfizer are also conducting trials using very high doses of
TLC D-99 in combination with granulocyte colony--stimulating factor ("G-CSF").
As part of this program, the Company and the NCI have been conducting a Phase I
trial at Dana-Farber Cancer Institute, in Boston, Massachusetts to test the
safety and efficacy of increasing doses of TLC D-99 in combination with G-CSF.
Preliminary results of this study were presented at the Seventh World
Conference on Lung Cancer in June, 1994. Although the trial was primarily
designed to test the safety of TLC D-99 in high doses, partial clinical
responses (tumor reduction exceeding 50 percent) were recorded in three of
twelve patients with non-small cell lung cancer, two of two patients with
mesothelioma and three of four patients with small cell lung cancer. Non-small
cell lung cancer and mesothelioma historically have a very low response rate to
chemotherapy.
In 1994, the Company commenced a Phase II clinical trial to test high doses
of TLC D-99 as a treatment for metastatic breast cancer. The trial objective is
to demonstrate superior efficacy and acceptable safety of very high doses of
TLC D-99 as compared to what could be expected with conventional doxorubicin.
Patients are currently being accrued in this trial. If results of this trial
are positive, the Company expects to conduct a Phase III clinical trial of high
doses of TLC D-99 to treat metastatic breast cancer. Additionally, a Phase II
clinical trial to test TLC D-99 as a treatment for Kaposi's Sarcoma is ongoing.
In November, 1990, the Company entered into a development and license
agreement for TLC D-99 with Pfizer. Pfizer is funding the development and
clinical trials of the product. The Company received a payment upon signing the
agreement with Pfizer and is entitled to be reimbursed quarterly in advance of
expenditures, based on an agreed-upon annual budget, for virtually all of its
costs to be incurred in connection with product development and clinical
testing, to receive payments upon reaching certain milestones, and to receive
royalty payments with respect to product sales. The agreement has no fixed term
and is terminable at any time upon notice by Pfizer, in which event Pfizer
would be responsible for reimbursement of the Company's expenses for up to a
six-month period following termination and all rights to the product would
return to the Company. The Company has all rights to market TLC D-99 in Japan.
22
<PAGE>
TLC C-53
The Company is developing TLC C-53, liposomal PGE/1/, for the treatment of a
variety of severe acute inflammatory conditions and vaso-occlusive diseases.
TLC C-53 is the first product known to the Company in which liposomes comprise
active components of a pharmaceutical.
Anti-inflammatory Applications. Many disease conditions are believed to be
the result of a complex cascade of events leading to the uncontrolled
activation of certain cells in the body: neutrophils, platelets and
endothelial cells. These cells, once activated, adhere to each other and to
certain other cells, thus perpetuating, and in some instances leading to, a
pathological enhancement of the inflammatory response.
When the body receives an insult, such as infection, massive trauma or heart
attack, cells can release into the blood a variety of chemical agents or
mediators including interleukin-1 ("IL-1"), tumor necrosis factor ("TNF"), and
others. When any of these mediators encounters certain types of cells in the
body such as neutrophils (cells that circulate in the bloodstream) or
endothelial cells (cells that form the lining of the blood vessels), these
cells may become activated. When neutrophils and endothelial cells are
activated they can then adhere to each other as part of the normal
inflammatory response. In some patients, the normal process of activation
continues unchecked and an inflammatory condition known as SIRS, including
ARDS and sepsis, may result.
SIRS is an often fatal condition that includes subsets of conditions such as
ARDS and sepsis. It stems from a variety of severe insults including trauma,
burns, aspiration and hyperoxia. Clinically, patients exhibit abnormalities in
body temperature, heart and respiratory rate and white blood cell count. The
condition is often associated with development of failure of several body
organs. In ARDS the organ which fails is the lung. Clinically, white opacities
are seen in the lung fields on radiological examination, reflecting the
congestion of the lung air spaces with fluid that has leaked through
capillaries that had been damaged by mediators of inflammation released by the
activated neutrophils. Forty to sixty percent of the approximately 150,000
patients in the United States annually afflicted with ARDS die because the
lungs become so full of fluid that oxygen can no longer be transported with
efficiency into the blood. There is currently no satisfactory therapy for
ARDS.
Sepsis is the systemic response to infection. In sepsis, a somewhat similar
if not identical process of abnormal activation of neutrophils and other cells
which circulate in the bloodstream occurs. This process is responsible for the
failure of a number of body organs including the lungs, the kidneys, the liver
and the brain, often resulting in death.
TLC C-53 appears to function as a unique "universal off-switch" that not
only prevents neutrophils from being activated by IL-1, TNF, and other
factors, but also may deactivate these cells even after they have been
activated. By inhibiting neutrophils in this way, TLC C-53 is believed to
prevent abnormal cellular adhesion which in turn prevents the release of the
mediators of inflammation, such as oxygen free radicals and lysosomal enzymes.
In 1990, the Company commenced preclinical development of TLC C-53,
including efficacy tests with TLC C-53 in preclinical models of ARDS and AMI.
In two animal models of ARDS tested at The Webb-Waring Lung Institute, one of
the leading ARDS research centers in the United States, it was shown that TLC
C-53 could significantly prevent the leakage of fluid into the lung. In 1992,
the Company filed an IND with the FDA and started Phase I safety trials in
healthy volunteers in the United States and in Europe.
During 1994, the Company conducted a Phase II trial of TLC C-53 as a
treatment for ARDS. Results of the 25 patient randomized, placebo controlled
trial were presented at the Society of Critical Care Medicine's 24th
Educational and Scientific Symposium in February, 1995. The
investigators concluded that in patients with ARDS, TLC C-53 was associated
with statistically
23
<PAGE>
significant improvement in oxygenation (the ability of the lungs to transmit
oxygen into the bloodstream) at three days, increased lung compliance (an
indirect measure of lung function), and decreased dependency of patients on
mechanical ventilation. The investigators also concluded that TLC C-53 was well
tolerated.
Cardiovascular Applications. The factors discussed above that activate
neutrophils and endothelial cells also activate platelets, a type of blood cell
that, among other functions, plays a key role in blood clotting. Platelets are
also activated when they contact the cells that line the arteries, which can
often occur during coronary angioplasty. Once activated, platelets adhere to
each other (called aggregation) as well as to endothelial cells and the
extracellular matrix. In some patients, myocardial wall damage may occur after
the coronary arteries have been opened by the infusion of t-PA. This so-called
"reperfusion injury" is believed to be initiated by activation of neutrophils.
TLC C-53, in addition to inhibiting neutrophils, is believed to inhibit
platelet aggregation. This combination of drug effect may hold promise for more
patients with AMI to achieve complete patency (reopening of the coronary
arteries) following treatment with t-PA and may also allow a faster clot to
lysis time. It also holds the potential for reducing reperfusion injury and
subsequent cardiac damage.
In November, 1994, the Journal of the American College of Cardiology
published results from preclinical studies of TLC C-53 conducted by Dr. Richard
Smalling, Professor and Co-Director of the University of Texas Medical School's
Division of Cardiology. In a canine model of heart attack, Dr. Smalling showed
that treatment with TLC C-53 just prior to administration of the clot-
dissolving agents streptokinase and heparin, resulted in faster reopening of
the blocked blood vessels that caused the attack. Additionally, the arteries
opened more fully, blood flow to heart tissue was improved, and there was less
damage to the heart when TLC C-53 was given, compared with placebo.
At year-end 1994, the Company started a Phase II randomized, placebo
controlled trial to evaluate TLC C-53 as an adjunct to t-PA in the treatment of
heart attacks. In the trial, patients will receive either TLC C-53 or a placebo
in addition to t-PA, heparin and aspirin. The first patient was enrolled in
January, 1995 at the Hermann Hospital and the Texas Medical Center in Houston,
Texas.
OTHER PRODUCTS UNDER DEVELOPMENT
The Company is also developing other liposome based products that are in
earlier stages of development. These include:
TLC I-16
The Company has conducted basic research on an innovative technology for
making liposomes called interdigitation fusion. The first product produced by
this new process is a liposome-encapsulated non-ionic iodine-based contrast
agent, TLC I-16. The Company is developing TLC I-16 with Schering AG. TLC I-16
contains a high concentration of the contrast agent, allowing it to be
effectively used for CT scanning of the liver and may provide a more sensitive
technique for the detection of tumor metastases. Preclinical studies conducted
at Brigham and Women's Hospital in Boston have shown that the Company's product
can permit greatly enhanced CT images of the liver and spleen over longer
periods of time.
In December, 1990, the Company entered into an agreement with Schering AG
(the "Schering Agreement") for the development, testing, manufacturing, and
marketing of TLC I-16. The Schering Agreement, as amended, provides for the co-
development of TLC I-16 by the Company and Schering AG. It also provides that,
upon commercialization, the Company is to manufacture and Schering AG is to
market and sell TLC I-16 worldwide. Schering AG will also provide certain
development funding, make payments upon the achievement of certain milestones
and pay royalties on worldwide product sales.
24
<PAGE>
TLC C-54
The Company is developing TLC C-54, a liposomal PGE/1/ distinct and
different from TLC C-53, for use in the treatment of auto-immune diseases such
as rheumatoid arthritis and systemic lupus erythematosus. TLC C-54 is
currently undergoing preclinical testing.
TLC A-60
TLC A-60 is a unique, patented liposomal vaccine adjuvant designed to boost
the protective effect of vaccines against various diseases. In January, 1992,
Wyeth-Ayerst and the Company signed an agreement under which Wyeth-Ayerst
began the development of a liposomal influenza vaccine with TLC A-60. During
1994, Wyeth-Ayerst conducted Phase I and Phase II clinical trials of the
vaccine. In March, 1995, Wyeth-Ayerst advised the Company that it intends to
return its rights to TLC A-60 to the Company. The Company has not yet reviewed
the results from Wyeth-Ayerst's Phase II trials, but, based on its current
understanding, will consider seeking another corporate sponsor to develop TLC
A-60 as an adjuvant for an influenza vaccine. No assurance can be given that
such a corporate sponsor relationship will be entered into.
RESEARCH PROGRAMS
The Company is conducting research in the areas of cancer and inflammation
and has an in vitro and in vivo screening facility, including cell lines and a
mouse xenograft capability to support its cancer research. Its inflammation
research is directed towards the discovery and development of new and improved
anti-inflammatory agents. The Company is also conducting research on liposomal
prostaglandins for other indications.
MANUFACTURING
The Company has constructed and validated a multiproduct manufacturing
facility at its Princeton site. This facility has been designed to have the
capacity to manufacture supplies for the ABLC (R), TLC D-99, and TLC C-53
clinical trial programs and for future products using similar manufacturing
processes. The Company also expects to use this facility to manufacture
initial commercial supplies of ABLC (R). This facility has been approved by
the Medicines Control Agency of the United Kingdom for the manufacture of
Abelcet (TM) for sale in that country. This approval is also acceptable to
regulatory authorities in other European Union ("EU") countries. However,
approval by the FDA of the manufacture of products in the Princeton facility
will be required prior to commercial sales in the United States.
In July, 1992, the Company purchased a manufacturing facility in
Indianapolis, Indiana, for the commercial production of certain of the
Company's products and has begun the renovation of this facility. The
refitting of this facility and the purchase, installation and validation of
substantial additional processing equipment at an aggregate cost of
approximately $11,000,000 to $13,000,000 will be necessary before any
production can commence. Approval by the FDA in the United States, or
regulators in other countries in which sales are to be made, of the
manufacture of products in the Indianapolis facility will be required prior to
commercial sales.
The Company also has a validated, sterile liposome manufacturing pilot plant
at its headquarters. The Company believes that its current facilities and
staff are adequate for the manufacture of preclinical and clinical supplies of
its products, and for the production of quantities of Abelcet (TM) to satisfy
initial commercial demand, but may not be capable of producing quantities of
product sufficient to satisfy demand when ABLC (R) is fully commercialized.
The Company has several patented or proprietary processes for the
manufacture, handling, loading and drying of liposomes.
25
<PAGE>
MARKETING STRATEGY
The Company has established an office in London, England with a small sales
force which the Company believes is appropriate for the marketing and sale of
Abelcet(TM) in the United Kingdom. The Company may collaborate with third
parties in the marketing, sales and distribution of its products in some or all
of the European markets. The Company intends to develop its own sales and
marketing capabilities in the United States to market ABLC (R) and certain
other of the Company's products if and when approved by the FDA.
HUMAN RESOURCES
At December 31, 1994, the Company had 217 full-time employees, 30 of whom
hold Ph.D. degrees and four of whom hold M.D. degrees or foreign equivalent. Of
these employees, 159 are engaged in research, development, clinical development
and manufacturing activities and 58 in marketing and administration.
The Company considers its relations with its employees to be excellent. None
of its employees is covered by a collective bargaining agreement. The Company
attempts to offer competitive compensation and fringe benefits programs.
PRODUCT LIABILITY
The testing, manufacturing and marketing of the Company's proposed products
will entail risk of product liability claims. Such risks exist with respect to
products being tested in human clinical trials, as well as products that may be
tested, manufactured or marketed. The Company has obtained insurance of
$10,000,000 against the risk of product liability. However, there can be no
assurance that such coverage will be adequate to cover claims, that the Company
will be able to maintain or increase its current insurance coverage or that
adequate insurance will be available on acceptable terms. Although the Company
has obtained, and will continue to seek to obtain, indemnification agreements
from pharmaceutical companies that may commercialize products based on the
Company's technologies, there can be no assurance that current or future
corporate sponsors, if any, would be willing fully to indemnify the Company, or
would be sufficiently insured.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect aggressively its proprietary technology,
and the Company considers the protection of such rights to be important to its
business. In addition to seeking United States patent protection for many of
its inventions, the Company files patent applications in Canada, Japan, Western
European countries and additional foreign countries on a selective basis in
order to protect the inventions deemed to be important to the development of
its foreign business. As of December 31, 1994, the Company had 54 United States
patents as well as 372 foreign counterpart patents, and currently has 62 United
States patent applications and 734 foreign counterpart patent applications
(including designated countries filed under patent treaties) pending. Patents
issued and applied for cover inventions including new types of liposomes and
their preparation, processes for the therapeutic application of liposomes,
lipid purification, lipid based delivery systems and product compositions. The
Company has acquired and licensed proprietary technology from universities,
research organizations and other companies in return for payments and
continuing royalty obligations. The Company has obtained patents in the United
States for inventions which may be employed with respect to ABLC (R), TLC D-99
and TLC C-53 and has patent applications pending in Europe and Japan for such
inventions. The Company has been awarded patents and has patent applications
pending for inventions which may be employed with respect to these and other
products in various selected countries, as well.
26
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On June 23, 1992, the Company filed suit against Vestar, Inc. ("Vestar"), in
the United States District Court for the District of Delaware, alleging that
Vestar violated United States Patent number 4,229,360 (the "360 Patent")
covering the dehydration of liposomes, which the Company acquired from the
Battelle Institute. The Company asserted that Vestar's product AmBisome
infringed claims of the 360 Patent. Vestar counterclaimed, alleging that the
360 Patent was invalid and that there was no infringement. In December, 1994,
judgment was entered in favor of Vestar, and the Company has determined not to
pursue an appeal from that judgment. The Company does not rely on the 360
Patent as the primary means of protection for any of its products currently in
development.
On May 17, 1993, Vestar filed suit against the Company in the United States
District Court for the District of Delaware, seeking a declaratory judgment
that one of the Company's patents (U.S. Patent No. 4,880,635, the "635 Patent")
was invalid, unenforceable and not infringed by Vestar's AmBisome product. The
Company filed a request for reexamination of the 635 Patent in July, 1993, and
requested a stay of Vestar's suit pending completion of the reexamination
process. The court granted a stay, which remains in force, as the reexamination
proceeds. The Company does not intend to rely on the 635 Patent as the primary
means of protection for any of its products currently in development.
Other public and private institutions, including universities, may have filed
applications for, or have been issued, patents with respect to technology
potentially useful or necessary to the Company. The scope and validity of such
patents, the extent to which the Company may wish or need to acquire licenses
under such patents, and the cost or availability of such licenses, are
currently unknown.
The Company also intends to rely on unpatented trade secrets and proprietary
know-how and continuing technological innovation to maintain and develop its
commercial position. The Company has entered into confidentiality agreements
with its employees, consultants and advisors, and corporate sponsors.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the production and marketing of the
Company's products and in its ongoing research and development activities. In
order to test clinically, to produce and to market products for human
therapeutic use, mandatory procedures and safety standards established by the
FDA and comparable agencies in foreign countries must be followed.
The standard process required by the FDA before a pharmaceutical agent may be
marketed in the United States includes (i) preclinical tests, (ii) submission
to the FDA of an application for an IND which must become effective before
human clinical trials may commence, (iii) adequate and well-controlled human
clinical trials to establish the safety and efficacy of the drug in its
intended application, (iv) submission to the FDA of an NDA with respect to
drugs or a Product License Application ("PLA") with respect to biologics, which
applications are not automatically accepted by the FDA for consideration, and
(v) FDA approval of the NDA or PLA prior to any commercial sale or shipment of
the drug or biologic. In addition to obtaining FDA approval for each product,
each domestic drug manufacturing establishment must be registered or licensed
by the FDA. Domestic manufacturing establishments are subject to inspections by
the FDA and by other Federal, state and local agencies and must comply with
Good Manufacturing Practice as appropriate for production.
27
<PAGE>
The Company has as yet not submitted an NDA in the United States, and no
assurance can be given that with respect to the Company's NDA for ABLC (R) that
it will be accepted for consideration, that it will be promptly reviewed, that
the FDA will find the data submitted adequate or that it will ultimately be
approved.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug to humans,
the drug is tested for dosage and tolerance. Phase II involves detailed
evaluation of safety and efficacy. Phase III trials consist of larger scale
evaluation of safety and efficacy and may require larger patient numbers,
depending on the clinical indication for which marketing approval is sought.
The process of completing clinical testing and obtaining FDA approval for a
new product is likely to take a number of years and require the expenditure of
substantial resources. The FDA may grant an unconditional approval of a drug
for a particular indication or may grant approval conditioned on further
postmarketing testing. Even after initial FDA approval has been obtained,
further studies may be required to provide additional data on safety or to gain
approval for the use of a product as a treatment for clinical indications other
than those for which the product was initially approved. Also, the FDA may
require postmarketing testing and surveillance programs to monitor the drug's
efficacy and side effects. Results of these postmarketing programs may prevent
or limit the further marketing of the products.
Sales of pharmaceutical products outside of the United States are subject to
regulatory requirements that vary widely from country to country. In the EU,
the general trend has been toward coordination of common standards for clinical
testing of new drugs, leading to changes in various requirements imposed by
each EU country. Generally, the level of regulation in the EU and other foreign
jurisdictions is somewhat less comprehensive and burdensome than regulation in
the United States, but there are differences and, in some respects, foreign
regulations may be more burdensome than FDA requirements. The time required to
obtain regulatory approval from the comparable regulatory agencies in each
foreign country may be longer or shorter than that required for FDA approval.
In addition, the Company is and may be subject to regulation under state and
federal law regarding occupational safety, laboratory practices, the use and
handling of radioisotopes, environmental protection and hazardous substance
control and to other present and possible future local, state, federal and
foreign regulation.
COMPETITION
Competition in the pharmaceutical field generally, and in the liposome and
lipid industries in particular, is intense and is based on such factors as
product performance, safety, patient compliance, ease of use, price, physician
acceptance, marketing, distribution and adaptability to various modes of
administration. Technological competition may be based on the development of
alternative products and approaches aimed at the treatment, diagnoses or
prevention of the same diseases as the Company's products.
Competition from other companies will be based on scientific and
technological factors, the availability of patent protection, the ability to
commercialize technological developments, the ability to obtain government
approval for testing, manufacturing and marketing and the economic factors
resulting from the use of those products, including their price. There are many
companies,
28
<PAGE>
both public and private, including well-known pharmaceutical and chemical
companies, many of which have greater capital resources than the Company, which
are seeking to develop lipid and liposome based products as well as products
based on other drug-delivery technologies for therapeutic, diagnostic and
vaccine applications.
The Company is aware that other companies are developing lipid based or
liposomal amphotericin B products. One such company has been selling a
liposomal amphotericin B in certain European countries, including the United
Kingdom, for approximately four years. Another has received approval during
1994 to market its product, and its licensee is currently marketing such
product, in the United Kingdom and in the Republic of Ireland. No approvals
have been granted to market any such liposomal amphotericin B products in the
United States.
Another company is developing a liposomal doxorubicin product for the
treatment of Kaposi's Sarcoma and certain types of cancer. An advisory
committee of the FDA has voted to recommend that the FDA grant accelerated
approval, with certain qualifications, for this product for treatment of
Kaposi's sarcoma where other agents have failed. No approvals have yet been
granted for this product in the United States.
Other groups active in the field include colleges, universities, and public
and private research institutions which are becoming more active in seeking
patent protection. These institutions have also become increasingly competitive
in recruiting personnel from a limited number of scientists and technicians.
FACILITIES
The Company leases space in all of one and a portion of two other facilities
in Princeton, New Jersey and owns a manufacturing facility in Indiana.
The Company currently leases a building of approximately 50,000 square feet
that houses its scientific laboratories, manufacturing facilities and certain
offices in the Princeton Forrestal Center located near Princeton, New Jersey.
During 1994, the Company renegotiated the lease to provide for a longer initial
term, together with certain renewal options, a reduced initial lease rate, and
a change in structure to a triple net lease in exchange for the Company
granting to the lessor a Letter of Credit for $1,000,000. The new lease, with
an initial term of twelve years, commenced January 1, 1995, and the Company has
options to renew for up to an additional ten years. Lease payments for the year
ended December 31, 1994 totaled approximately $828,000. Future lease payments
are subject to certain contractual escalations. The Company also leases
approximately 23,500 square feet of office space also located in the Princeton
Forrestal Center. This lease commenced March 1, 1993, with an initial lease
term of ten years. The Company may terminate this lease at the end of the fifth
year. Lease payments for this lease for the year ended December 31, 1994
totaled approximately $486,000. In January, 1995, the Company entered into a
three year lease for approximately 13,200 square feet of office/warehouse space
near its corporate offices. The Company also rents office space in London,
England.
In July, 1992, the Company purchased a pharmaceutical manufacturing facility
of approximately 55,000 square feet located on 26 acres of land located in
Indianapolis, Indiana. The Company has begun to refurbish and equip certain
portions of the facility. See "Manufacturing" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
29
<PAGE>
SCIENTIFIC ADVISORY BOARDS
The Company has two scientific advisory boards consisting of prominent
scientists who are experts in the fields of cancer, inflammation or cell
adhesion and who the Company believes may make a contribution to the
development of the Company's business in those areas. The scientific advisory
boards review and monitor the Company's research and technical progress, advise
the Company of advances in their fields, assist in identifying specific product
opportunities and aid in recruiting personnel and procuring research contracts.
Members of the scientific advisory boards meet individually and as a group with
management of the Company periodically.
CANCER SCIENTIFIC ADVISORY BOARD
<TABLE>
<CAPTION>
NAME POSITION/AFFILIATION
---- --------------------
<C> <S>
Gerald Weissmann, M.D. (Chairman). Professor of Medicine, Division of
Rheumatology of the Department of Medicine,
New York University Medical Center
Joseph R. Bertino, M.D. .......... American Cancer Society Professor of
Medicine and Pharmacology and Head, Program
of Molecular Pharmacology and Therapeutics;
Memorial Sloan-Kettering Cancer Center
Emil Frei, III, M.D. ............. Physician-in-Chief, Emeritus and Harvard
Medical School, Richard and Susan Smith
Professor of Medicine, Dana Farber Cancer
Institute
Enrico Mihich, M.D. .............. Director, Grace Cancer Drug Center and
Associate Director for Sponsored Programs,
Roswell Park Cancer Institute
Alan C. Sartorelli, Ph.D. ........ Alfred Gilman Professor of Pharmacology and
Epidemiology, Yale University School of
Medicine
John N. Weinstein, M.D. .......... Senior Research Investigator, LMP, DCT,
DTP, National Cancer Institute
</TABLE>
CELL ADHESION SCIENTIFIC ADVISORY BOARD
<TABLE>
<CAPTION>
NAME POSITION/AFFILIATION
---- --------------------
<C> <S>
Gerald Weissmann, M.D. (Chairman). Professor of Medicine, Division of
Rheumatology of the Department of Medicine,
New York University Medical Center
Ralph L. Nachman, M.D. ........... Chairman, Department of Medicine, The E.
Hugh Luckey Distinguished Professor in
Medicine, Cornell University Medical
College; Physician in Chief, The New York
Hospital
John E. Repine, M.D. ............. President and Director; Webb-Waring
Institute for Biomedical Research,
University of Colorado
Bengt Samuelsson, M.D., Ph.D. .... President and Professor of Physiological
Chemistry, Karolinska Institute; Nobel
Laureat; Chairman, Nobel Foundation
James T. Willerson, M.D. ......... Professor and Chairman, Department of In-
ternal Medicine; University of Texas Medi-
cal School at Houston
</TABLE>
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors and executive officers of the
Company furnished by them is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Charles A. Baker(1).............. 62 Chairman of the Board, President, Chief
Executive Officer and Director
Edward G. Silverman.............. 41 Executive Vice President and Chief
Operating Officer
James A. Boyle, M.D., Ph.D. ..... 58 Senior Vice President, Medical and
Regulatory Affairs
Brooks Boveroux.................. 51 Vice President, Finance, Chief
Financial Officer and Treasurer
Ralph del Campo................... 44 Vice President, Manufacturing
Operations
Carol J. Gillespie............... 49 Vice President, General Counsel and
Secretary
David S. Gordon, M.D. ........... 53 Vice President, U.S. Clinical Research
Andrew S. Janoff, Ph.D. ......... 46 Vice President, Research
George G. Renton................. 42 Vice President, Human Resources
Spiro G. Rombotis................ 36 Vice President, International
Operations
Donald D. Yarson................. 41 Vice President, Sales and Marketing
James G. Andress(2).............. 55 Director
Morton Collins, Ph.D.(l)(2)...... 58 Director
Stuart F. Feiner(l)(3)........... 46 Director
Robert F. Hendrickson(3)......... 61 Director
Bengt Samuelsson, M.D., Ph.D. ... 60 Director
Joseph T. Stewart, Jr. .......... 65 Director
Gerald Weissmann, M.D.(2)........ 64 Director
Horst Witzel, Dr. -Ing(3)........ 67 Director
</TABLE>
- --------
(1) Executive Committee member
(2) Audit Committee member
(3) Compensation Committee member
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified. Officers are appointed
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed. There are no family relationships among executive
officers or directors of the Company.
CHARLES A. BAKER was named Chairman of the Board, President and Chief
Executive Officer of the Company in December, 1989. Just prior to joining the
Company he was a business development and licensing advisor to several small
biotechnology companies. Mr. Baker served in several capacities in senior
management at Squibb Corporation (now Bristol-Myers Squibb Company), including
the positions of Group Vice President, Squibb Corporation and President, Squibb
International. He also held various senior executive positions at Abbott
Laboratories and Pfizer Inc. Mr. Baker received an undergraduate degree from
Swarthmore College and a J.D. degree from Columbia University. Mr. Baker also
serves as a director of Regeneron Pharmaceuticals, Inc., a neuroscience
Company.
EDWARD G. SILVERMAN was named Executive Vice President and Chief Operating
Officer in November, 1993. Since joining the Company in September, 1989, he has
held various positions in the Company, including Senior Vice President,
Strategic Operations, Vice President, Strategic Planning and Business
Development and Executive Director, Marketing and Sales. Prior to joining the
31
<PAGE>
Company, Mr. Silverman was Product Director, Gastrointestinal Products at Smith
Kline & French Laboratories. From 1976 to 1987, he held a variety of sales,
marketing and strategic planning positions at G. D. Searle & Co., Ciba-Geigy
and Adria Laboratories. Mr. Silverman holds a B.A. degree in biology from the
University of Pennsylvania (1974).
JAMES A. (TONY) BOYLE, M.D., Ph.D., joined the Company as Senior Vice
President, Medical and Regulatory Affairs in August, 1994. Prior to joining the
Company, Dr. Boyle was employed by G.D. Searle and Co. from 1986 to 1994 where
he held several positions including Vice President, Medical Relations and Vice
President, Corporate Medical and Scientific Affairs. Previously, he held senior
clinical research positions at Serono Laboratories, Warner Lambert and Pfizer.
Dr. Boyle received his M.D. degree (U.K. equivalent) from Glasgow University in
1960 and his Ph.D. degree (U.K. equivalent) in Medicine in 1967. He is Board
Certified (U.K. equivalent) in Internal Medicine and Endocrinology.
BROOKS BOVEROUX joined the Company as Vice President, Finance, Chief
Financial Officer and Treasurer in September, 1993. Prior to joining the
Company, Mr. Boveroux was Chief Financial Officer at ImClone Systems, Inc.
(1992-1993) and Bio-Technology General Corp. (1990-1992). From 1986 to 1990, he
was the Chief Financial Officer of Biogen, Inc. In addition, he has held a
variety of management positions at Allied-Signal Inc., PepsiCo, Inc. and
Citibank, N.A. Mr. Boveroux holds an A.B. degree from Hamilton College (1965)
and an M.B.A. from the Wharton Graduate Division of the University of
Pennsylvania (1967).
RALPH DEL CAMPO joined the Company in March 1994 as Vice President,
Manufacturing Operations. Between 1993 and 1994, he was Senior Vice President,
Operations of Melville Biologics, a subsidiary of The New York Blood Center.
His prior experience includes positions at Schering Plough Corporation and,
from 1977 to 1993, Bristol-Myers Squibb where he had several positions of
increasing responsibility including Senior Director, Pharmaceutical Operations
and Vice President, Facilities Administration. Mr. del Campo received a B.S.
degree in Chemical Engineering from Newark College and an MBA in Pharmaceutical
Marketing from Farleigh Dickinson University.
CAROL J. GILLESPIE joined the Company as Vice President, General Counsel and
Secretary in February, 1995. From 1983 until joining the Company, she held
several positions at Syntex Corporation, most recently as its Vice President,
Secretary and Associate General Counsel. Prior to joining Syntex, she was
associated with MSI Data Corporation, a data processing company, ITT
Corporation and Gibson, Dunn & Crutcher, a Los Angeles law firm. Ms. Gillespie
received an A.B. degree in Political Science from the University of California,
Berkeley (1967), a Master of International Affairs from Columbia University
School of International Affairs (1969) and a J.D. degree from the University of
California School of Law, Berkeley (1972).
DAVID S. GORDON, M.D., joined the Company as Vice President, U.S. Clinical
Research in March, 1993. From November, 1990 until joining the Company, Dr.
Gordon was director of Biotech Clinical Research-Hematology/Oncology at R.W.
Johnson Pharmaceutical Research Institute. He held a variety of professorships
at Emory University School of Medicine, including Professor of Medicine
Hematology/Oncology. Dr. Gordon also was employed at the Centers for Disease
Control, last serving as Director of the Immunology Division. Dr. Gordon
received his BSE in Chemical Engineering from Princeton University in 1963 and
his M.D. from the University of Colorado School of Medicine in 1967. He also
was a Fellow in Medical Oncology at Stanford University. Dr. Gordon is board
certified in internal medicine and oncology.
ANDREW S. JANOFF, Ph.D., joined the Company in 1981 and has been Vice
President, Research since January, 1993. Prior to joining the Company, Dr.
Janoff held joint appointments as Research Fellow in Pharmacology at Harvard
Medical School and Research Fellow in Anesthesia at the
32
<PAGE>
Massachusetts General Hospital. Dr. Janoff holds a B.S. degree in biology from
The American University, Washington, D.C. (1971) and M.S. and Ph.D. degrees in
biophysics from Michigan State University (1977 and 1980, respectively).
GEORGE G. RENTON joined the Company in August, 1994 as Vice President, Human
Resources. From 1985 until joining the Company, he was employed by the American
Cyanamid Company in several positions, including Director, Personnel, Research
and Development of the Lederle Laboratories Division. Earlier, he held several
positions at New York University Medical Center. Mr. Renton was awarded a B.S.
degree in Education from the State University of New York at Cortland (1975)
and an M.S. degree in Industrial/Labor Relations from Cornell University and
Baruch College (1985).
SPIRO G. ROMBOTIS joined the Company as Vice President, International
Operations in May, 1993. Since 1988, Mr. Rombotis held a variety of business
and marketing positions at Bristol-Myers Squibb Company, most recently as Vice
President of Operations, Pharmaceuticals, Central & Eastern Europe. From 1985
to 1988, he served as Marketing Manager, Europe at Centocor, Inc. Mr. Rombotis
received a B.A. from Williams College in 1981 and an M.B.A. from Northwestern
University in 1985.
DONALD D. YARSON joined the Company as Vice President, Marketing and Sales in
March, 1995. From 1993 until 1995, he was President of TriGenix, Inc., a
contract sales, marketing and reimbursement organization. He was Director of
Marketing for Genzyme Corporation from 1991 to 1993, and before that he was
with Genentech Inc. for over four years, serving most recently as Senior
Product Manager for Protropin (human growth hormone). He has also held sales
and marketing positions with Ciba Geigy. Mr. Yarson received a B.S. degree from
Sacred Heart University in 1975.
JAMES G. ANDRESS has been a director since September, 1990. Mr. Andress is a
former Chairman of the Pharmaceuticals Group, Beecham Group, plc and the former
President and Chief Operating Officer of Sterling Drug, Inc. He currently
serves as President, Chief Executive Officer and director of Information
Resources, Inc., a decision support software and consumer packaged goods
research company. Mr. Andress is a director of Genelabs Technologies, Inc.,
Genetics Institute, Inc. and NeoRx, Inc., which are all biotechnology
companies. He also serves as a director of Sepracor, Inc., a separations
technology company, O.P.T.I.O.N. Care, Inc., a home health care company,
America OnLine, Inc., a computer database service company, Allstate Insurance
Company, and Walsh International, Inc., a prescription tracking service
company.
MORTON COLLINS, Ph.D., has been a director since November, 1982. Dr. Collins
has been a General Partner of DSV Partners III, a venture capital limited
partnership, since 1981 and a General Partner of DSV Management, Ltd., since
1982. Since 1985, DSV Management, Ltd. has been a General Partner of DSV
Partners IV, a venture capital limited partnership. Dr. Collins served as
Chairman of the Board and Chief Executive Officer of the Company from June to
December, 1989. He is also a director of Tandem Computers Inc., a computer
company, ThermoTrex Corporation, a laser and optics electronics company, and
Kopin Corporation, a manufacturing company.
STUART F. FEINER has been a director since February, 1984. Mr. Feiner has
been Executive Vice President, General Counsel and Secretary of Inco Limited,
an international mining and metals company, since August, 1993 and served as
Vice President, General Counsel and Secretary from April, 1992 to August, 1993.
Mr. Feiner was President of Inco Venture Capital Management, the venture
capital unit of Inco Limited, from January, 1984 to April, 1992. Mr. Feiner is
also a director of ImmunoGen, Inc., a biotechnology company.
33
<PAGE>
ROBERT F. HENDRICKSON has been a director of the Company since March, 1992.
Mr. Hendrickson was Senior Vice President, Manufacturing and Technology for
Merck & Co., Inc., a pharmaceutical company, from 1985 to 1990. Since 1990, Mr.
Hendrickson has been a manufacturing consultant with a number of biotechnology
and pharmaceutical companies among his clients. He is currently Chairman of the
Board of Envirogen Inc., an environmental biotechnology company, and was a
director of Synergen, Inc., a biotechnology company, through December, 1994.
BENGT SAMUELSSON, M.D., has been a director of the Company since January,
1994. Dr. Samuelsson is President of the Karolinska Institutet in Stockholm,
Sweden, where he is also Professor of Physiological Chemistry, a position which
he has held since 1972. He was one of three recipients who shared the 1982
Nobel Prize in medicine for their work on prostaglandins, specifically the
discovery of prostanoids and leukotrienes. In addition to the Nobel Prize, he
has received a number of other prestigious awards. He has been a member of the
Company's Cell Adhesion Scientific Advisory Board since May, 1991. Dr.
Samuelsson is Chairman of the Nobel Foundation, a member of the Supervisory
Board of Schering AG, Berlin, Germany, a pharmaceutical company, and a member
of the Board of Directors of Pharmacia AB, a pharmaceutical company.
JOSEPH T. STEWART, Jr., has been a director of the Company since January,
1995. Mr. Stewart is currently an Executive Consultant to the Vice Chairman of
Johnson & Johnson. Until 1989, he was associated for twenty-two years with
Squibb Corporation, where he held several positions of increasing
responsibility, including most recently Senior Vice President, Corporate
Affairs and previously Vice President, Finance and Planning. He also served as
a member of the Board of Directors of Squibb Corporation. He is currently a
director of General American Investors Company, Inc., and a trustee of the
Foundation of the University of Medicine and Dentistry of New Jersey and the
New School for Social Research.
GERALD WEISSMANN, M.D., has been a director of the Company since 1981. Dr.
Weissmann has been a Professor of Medicine at, the Division of Rheumatology of
the Department of Medicine at New York University Medical Center since 1973.
Dr. Weissmann is Chairman of the Company's Cell Adhesion Scientific Advisory
Board and the Company's Cancer Scientific Advisory Board He is also on the
Board of Trustees of the Marine Biological Laboratory, Woods Hole,
Massachusetts, a not-for-profit research organization.
DR. HORST WITZEL has been a director of the Company since July, 1990. Dr.
Witzel is the former Chairman of the Board of Executive Directors of Schering
AG, Berlin, Germany. He is a director of Cephalon, Inc., a neuroscience
company, and Aastrom Biosciences, Inc., a cellular therapy medical products
company.
34
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of January 31, 1995 or the most
recent practicable date by (i) each director, the Chief Executive Officer and
the four other most highly compensated individuals who served as officers of
the Company as of December 31, 1994 (such officers, together with the Chief
Executive Officer, are referred to as the "Named Executive Officers"), of the
Company, (ii) each stockholder known by the Company to own more than five
percent of the outstanding Common Stock, and (iii) all directors and executive
officers, including the Named Executive Officers, as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
securities listed below, based on information furnished by such owners, have
sole investment and voting power with respect to the shares of Common Stock
shown as being beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
- ---------------- ---------------- ----------------
<S> <C> <C>
Ardsley Advisory Partners(1)................ 3,100,500 12.9
450 Park Avenue
New York, NY 10022
Amerindo Investment Advisors................ 1,531,500 6.4
388 Market Street
San Francisco, CA 94111
DSV Management, Ltd.(2)(3).................. 65,000 *
221 Nassau Street
Princeton, NJ 08542
Charles A. Baker(3)(4)...................... 659,612 2.7
James G. Andress(3)......................... 35,000 *
Morton Collins, Ph.D.(2)(3)................. 65,000 *
Stuart F. Feiner(3)......................... 15,000 *
Robert F. Hendrickson(3).................... 24,000 *
Bengt Samuelsson, M.D(3). .................. 12,000 *
Joseph T. Stewart, Jr....................... -- *
Gerald Weissmann, M.D.(3)(5)................ 85,790 *
Horst Witzel, Dr.-Ing(3).................... 55,000 *
Brooks Boveroux(3)(4)....................... 28,695 *
David S. Gordon, M.D.(3)(4) ................ 40,509 *
Guenter E. Ksionski, M.D.(3)(4) ............ 20,264 *
Edward G. Silverman(3)(4)................... 96,415 *
All directors and executive officers as a
group
(19 persons) (2)(3)(4)(5).................. 1,211,118 4.8
</TABLE>
- --------
* Less than one percent.
(1) Ardsley Advisory Partners holds the Company's Common Stock in
discretionary accounts and investment partnerships which are managed by it
and its affiliates.
(2) Dr. Morton Collins, a Director of the Company, is also a General Partner
of DSV Management, Ltd. ("DSV") and may be deemed to be the beneficial
owner of the shares held by DSV by virtue of his power to vote the shares
held by it. Dr. Collins disclaims the beneficial ownership of the 50,000
shares and the 15,000 exercisable stock options held by DSV, although such
shares are shown on the above table as being beneficially owned by him.
(3) Includes shares of Common Stock issuable upon the exercise of outstanding
options granted under the Company's stock option plans which become
exercisable within 60 days after January 31, 1995, as follows: Mr. Baker,
657,000; Mr. Andress, 35,000; Dr. Collins, 15,000 (see note 2 above); Mr.
Feiner, 15,000; Mr. Hendrickson, 24,000; Dr. Samuelsson, 12,000; Dr.
Weissman, 30,000; Dr. Witzel, 55,000; Mr. Boveroux, 27,983; Dr. Gordon,
37,962; Dr. Ksionski, 19,292; Mr. Silverman, 83,168; and all directors and
executive officers as a group, 1,108,810.
(4) Includes shares held by Chemical Bank as trustee of the Company's 401(k)
plan in the following amounts: Mr. Baker, 1,612; Mr. Boveroux, 712, Dr.
Gordon, 1,047; Dr. Ksionski, 972; Mr. Silverman, 1,247; and all directors
and executive officers as a group, 9,484.
(5) Dr. Gerald Weissman, a Director of the Company, disclaims beneficial
ownership of 5,790 shares held in trust for the estate of his father-in-
law, for which Dr. Weissman's wife serves as trustee.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 60,000,000 shares of Common Stock, $.01
par value per share, and 2,400,000 shares of Serial Preferred Stock, $.01 par
value per share. As of January 31, 1995, there were 24,018,309 shares of Common
Stock outstanding held of record by approximately 1,480 stockholders. As of
January 31, 1995, there were 2,760,000 Depositary Shares ("Depositary Shares")
outstanding, each of which represents one-tenth of a share of Series A
Cumulative Convertible Exchangeable Preferred Stock (the "Series A Preferred
Stock").
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on any matters voted upon by stockholders.
Subject to preferences that may be applicable to any outstanding preferred
stock, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefore. See "Price Range of Common Stock and Dividend Policy." Upon the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to receive all assets remaining after payment of liabilities and
the liquidation preferences of any outstanding preferred stock. The shares of
Common Stock have no conversion, preemptive or other rights to subscribe for
additional shares and are not subject to redemption or sinking fund provisions.
Outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company hereunder when issued will be, fully paid and nonassessable.
PREFERRED STOCK AND DEPOSITARY SHARES
The Certificate of Incorporation of the Company provides that the Board of
Directors of the Company has the authority, without further action of
stockholders, to issue up to 2,400,000 shares of its Serial Preferred Stock in
one or more series, and to fix the designations, rights, preferences, and
restrictions and the number of shares constituting any series. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of holders of any Serial Preferred Stock that may be issued in
the future. The issuance of shares of Serial Preferred Stock could have the
effect of delaying, deferring additional or preventing a change in control of
the Company. The Company has no current plans to issue any shares of Serial
Preferred Stock.
Each Depositary Share is convertible at the option of the holder at any time
into shares of Common Stock at an initial conversion price of $12.85 per share
of Common Stock, which is equivalent to a conversion rate of 1.9455 shares of
Common Stock for each Depositary Share, subject to adjustment in certain
events. Dividends on the Series A Preferred Stock are cumulative from the date
of original issue at an annual rate of 7 3/4% per share (equivalent to $1.9375
per annum per Depositary Share) and its liquidation preference is $25.00 per
Depositary Share, plus accrued and unpaid dividends. The Series A Preferred
Stock may not be redeemed prior to January 15, 1996. On or after such date, the
Series A Preferred Stock may be redeemed initially at an amount equivalent to
$26.40 per Depositary Share and thereafter at prices declining to an amount
equivalent to $25.00 per Depositary Share on and after January 15, 2003, plus,
in each case, all accrued and unpaid dividends. The Series A Preferred Stock is
exchangeable in whole, but not in part, at the option of the Company on any
dividend payment date beginning on January 15, 1996, for the Company's Series A
Convertible Subordinated Debentures due 2003 (the "Debentures") at the rate of
$250.00 principal amount of Debentures for each share of Series A Preferred
Stock, provided that all accrued and unpaid dividends, if any, on the Series A
Preferred Stock have been paid. Upon certain corporate changes or ownership
changes of the Company, holders of the Series A Preferred Stock will have
special rights to convert their shares, subject to cash redemption at the
option of the Company. Except as required by law or with respect to the
creation or amendment of senior classes of preferred stock, the holders of
Series A Preferred Stock are not entitled to any
36
<PAGE>
voting rights unless the equivalent of six quarterly dividend payments thereon
are in arrears, in which case the number of directors of the Company will be
increased by two and the holders of Series A Preferred Stock, voting separately
as a class with the holders of shares of any other series of parity preferred
stock upon which like voting rights have been conferred and are exercisable,
will be entitled to elect two directors until the dividend arrearage has been
paid.
TRANSFER AGENT AND REGISTRAR
Midlantic Bank acts as transfer agent and registrar for the Common Stock.
37
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Hambrecht
& Quist Incorporated and UBS Securities Inc. (the "Underwriters") have agreed
to purchase from the Company the following respective number of shares of
Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Hambrecht & Quist Incorporated.................................... 1,500,000
UBS Securities Inc. .............................................. 1,500,000
---------
Total........................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The nature
of the Underwriters' obligation is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the offering price set forth on the cover of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow and such dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the public offering
of the shares of Common Stock, the offering price and other selling terms may
be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the above table bears to the total number of shares of Common Stock offered
hereby. The Company will be obligated, pursuant to the option, to sell such
shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain officers of the Company, who own approximately 68% of the shares of
Common Stock held by the executive officers and directors of the Company, have
agreed that they will not, without Hambrecht & Quist's prior written consent,
offer, sell, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them for a period of 90 days
following the commencement of the offering. The Company has agreed that it will
not, without Hambrecht & Quist's prior written consent, offer, sell or
otherwise dispose of any shares of Common Stock,
38
<PAGE>
options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock for a period of 90
days following the commencement of the offering, except that the Company may
issue shares, options or warrants to (i) consultants and grantors of licensing
rights and (ii) directors, officers and employees in accordance with the
Company's customary practices.
In general, the rules of the Commission will prohibit the underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, the Underwriters, selling group members (if any)
or their respective affiliates may engage in passive market making in the
Company's Common Stock and the Depositary Shares representing Series A
Preferred Stock during the cooling off period.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Dewey Ballantine, 1301 Avenue of the Americas, New York, New
York 10019 and for the Underwriters by Shearman & Sterling, 599 Lexington
Avenue, New York, New York 10022.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1993 and the
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994, included in this
prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
Statements in this Prospectus under the captions "Risk Factors--Patents and
Proprietary Technology" and "Business--Patents and Proprietary Technology"
insofar as such statements constitute a summary of the law or documents
referred to therein have been reviewed by Dechert Price & Rhoads, special
patent counsel to the Company, and are included herein in reliance upon their
opinion as experts in such matters that such statements accurately summarize
the matters described therein. Allen Bloom, a partner of Dechert Price &
Rhoads, owns or has vested options to purchase 134,783 shares of Common Stock.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent accountants......................................... F-2
Consolidated balance sheets at December 31, 1994 and 1993................. F-3
Consolidated statements of operations for each of the three years in the
period ended December 31, 1994........................................... F-4
Consolidated statements of stockholders' equity for each of the three
years in the period ended December 31, 1994.............................. F-5
Consolidated statements of cash flows for each of the three years in the
period ended December 31, 1994........................................... F-6
Notes to consolidated financial statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
We have audited the consolidated balance sheets of The Liposome Company, Inc.
and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Liposome
Company, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for certain investments in debt and
equity securities.
Coopers & Lybrand L.L.P.
Princeton, New Jersey
February 2, 1995
F-2
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,369 $ 4,670
Short-term investments.................................... 55,487 105,531
Accounts receivable....................................... 1,618 635
Inventories............................................... 748 214
Prepaid expenses.......................................... 419 657
Other current assets...................................... 31 21
-------- --------
Total current assets..................................... 60,672 111,728
Long-term investments...................................... 9,421 4,794
Plant and equipment, net................................... 17,686 17,767
Restricted cash............................................ 4,880 4,748
Intangibles, net........................................... 537 595
-------- --------
Total assets............................................. $ 93,196 $139,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,112 $ 3,197
Accrued expenses and other current liabilities............ 4,698 3,131
Current obligations under capital leases.................. 1,476 1,444
Current obligations under note payable.................... 303 303
Preferred Stock dividends payable......................... 1,337 1,337
Unearned contract income and other fees................... -- 177
-------- --------
Total current liabilities................................ 8,926 9,589
Long-term obligations under capital leases................. 4,126 5,602
Long-term obligations under note payable................... 1,791 2,094
-------- --------
Total liabilities........................................ 14,843 17,285
-------- --------
Stockholders' equity:
Capital stock:
Preferred Stock, par value $.01; 2,400,000 authorized;
276,000 shares of Series A Cumulative Convertible
Exchangeable Preferred Stock outstanding (liquidation
preference of $69,000,000).............................. 3 3
Common Stock, par value $.01; 60,000,000 shares
authorized; 23,982,849 and 23,705,434 shares issued and
outstanding............................................. 240 237
Additional paid-in capital................................. 192,003 196,655
Net unrealized investment (loss)/gain...................... (5,033) 650
Foreign currency translation adjustment.................... (1) 8
Accumulated deficit........................................ (108,859) (75,206)
-------- --------
Total stockholders' equity........................... 78,353 122,347
-------- --------
Total liabilities and stockholders' equity........... $ 93,196 $139,632
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Collaborative research and development revenues... $ 5,831 $ 4,877 $ 5,767
Licensing and other fees.......................... 50 541 312
Interest and investment income, net............... 4,559 7,624 4,810
-------- -------- -------
Total revenues.................................. 10,440 13,042 10,889
-------- -------- -------
Research and development expenses................. 31,713 25,072 15,000
General and administrative expenses............... 12,072 10,193 5,488
Interest expenses................................. 308 254 76
-------- -------- -------
Total expenses.................................. 44,093 35,519 20,564
-------- -------- -------
Net loss........................................ (33,653) (22,477) (9,675)
Preferred Stock dividends......................... (5,348) (5,348) --
-------- -------- -------
Net loss applicable to Common Stock............... $(39,001) $(27,825) $(9,675)
======== ======== =======
Net loss per share applicable to Common Stock..... $ (1.64) $ (1.18) $ (.43)
======== ======== =======
Weighted average number of common shares
outstanding...................................... 23,850 23,536 22,384
======== ======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE FIGURES)
<TABLE>
<CAPTION>
SHARES
-------------------- ADDITIONAL
PREFERRED COMMON PAR PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK VALUE CAPITAL OTHER DEFICIT EQUITY
--------- ---------- ----- ---------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 3l,
1991................... -- 19,666,023 $197 $ 89,729 $ (11) $ (43,054) $ 46,861
Issuance of stock:
For cash............... -- 3,450,000 35 44,568 -- -- 44,603
To 401K plan........... -- 6,075 -- 72 -- -- 72
For product rights..... -- 46,582 -- 600 -- -- 600
Exercise of stock
options................ -- 309,730 3 718 18 -- 739
Net loss for 1992....... -- -- -- -- -- (9,675) (9,675)
------- ---------- ---- -------- ------- --------- --------
Balance, December 3l,
1992................... -- 23,478,410 $235 $135,687 $ 7 $ (52,729) $ 83,200
======= ========== ==== ======== ======= ========= ========
Issuance of stock:
For cash............... 276,000 -- 3 65,732 -- -- 65,735
To 401K plan........... -- 24,390 -- 182 -- -- 182
Exercise of stock
options................ -- 202,634 2 402 -- -- 404
Dividends on Preferred
Stock.................. -- -- -- (5,348) -- -- (5,348)
Net unrealized
investment gain........ -- -- -- -- 650 -- 650
Foreign currency
translation adjustment. -- -- -- -- 1 -- 1
Net loss for 1993....... -- -- -- -- -- (22,477) (22,477)
------- ---------- ---- -------- ------- --------- --------
Balance, December 31,
1993................... 276,000 23,705,434 $240 $196,655 $ 658 $ (75,206) $122,347
======= ========== ==== ======== ======= ========= ========
Issuance of stock:
To 401K plan........... -- 31,254 -- 196 -- -- 196
Exercise of stock
options................ -- 246,161 3 500 -- -- 503
Dividends on Preferred
Stock.................. -- -- (5,348) -- -- (5,348)
Net unrealized
investment (loss)...... -- -- -- -- (5,683) -- (5,683)
Foreign currency
translation adjustment. -- -- -- -- (9) -- (9)
Net loss for 1994....... -- -- -- -- -- (33,653) (33,653)
------- ---------- ---- -------- ------- --------- --------
Balance, December 31,
1994................... 276,000 23,982,849 $243 $192,003 $(5,034) $(108,859) $ 78,353
======= ========== ==== ======== ======= ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(33,653) $ (22,477) $ (9,675)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization................. 3,145 1,622 798
Issuance of stock for product rights.......... -- -- 600
Other......................................... 196 222 166
Changes in assets and liabilities:
Accounts receivable.......................... (983) (542) 20
Inventory.................................... (534) (170) 9
Prepaid expenses............................. 238 455 (796)
Other current assets......................... (11) 341 (1,096)
Accounts payable............................. (2,195) 880 1,452
Accrued expenses and other current
liabilities................................. 1,567 1,423 613
Unearned contract income and other fees...... (177) (702) (631)
-------- --------- --------
Net cash used by operating activities.......... (32,407) (18,948) (8,540)
-------- --------- --------
Cash flows from investing activities:
Purchases of short and long-term investments... (38,284) (205,982) (97,361)
Sales of short and long-term investments....... 78,019 170,057 69,029
Restricted cash................................ (132) (4,748) --
Purchases of property, plant and equipment..... (2,896) (7,651) (9,817)
Payments on employee receivable notes.......... -- 10 20
-------- --------- --------
Net cash provided/(used) by investing
activities................................... 36,707 (48,314) (38,129)
-------- --------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock............ -- 65,735 44,603
Exercises of stock options..................... 503 404 721
Stockholder receivables........................ -- -- 18
Receipt of proceeds from note payable.......... -- -- 2,800
Principal payments under note payable.......... (303) (302) (101)
Receipt of proceeds from capital lease
obligations................................... -- 7,496 --
Principal payments under capital lease
obligations................................... (1,444) (450) (18)
Preferred Stock dividend payments.............. (5,348) (4,011) --
-------- --------- --------
Net cash (used)/provided by financing
activities................................... (6,592) 68,872 48,023
-------- --------- --------
Effects of exchange rate changes on cash........ (9) 1 --
-------- --------- --------
Net (decrease)/increase in cash and cash
equivalents.................................... (2,301) 1,611 1,354
Cash and cash equivalents at beginning of year.. 4,670 3,059 1,705
-------- --------- --------
Cash and cash equivalents at end of year........ $ 2,369 $ 4,670 $ 3,059
======== ========= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
The Liposome Company, Inc. (the "Company") is a leading biotechnology
company engaged in the discovery, development and, recently, the
commercialization of proprietary lipid and liposome-based pharmaceuticals for
the treatment, prevention and diagnosis of inadequately treated, life-
threatening illnesses. The Company is currently launching its first product,
amphotericin B lipid complex (ABLC(R) or, in Europe, Abelcet(TM)), which has
been approved for marketing for certain indications in the United Kingdom and
is the subject of marketing application filings in eighteen other countries.
The Company expects to file an NDA for ABLC(R) in the United States during
1995. In addition to ABLC(R)/Abelcet(TM), the Company's other lead products
are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed
in conjunction with a corporate sponsor primarily as a first line treatment of
metastatic breast cancer. TLC C-53, liposomal prostaglandin E/1/, is being
developed for the treatment of acute respiratory distress syndrome and acute
myocardial infarction. The Company is also developing a contrast agent for CT
scanning and has a continuing discovery research program which concentrates
primarily on the treatment of cancer and inflammatory conditions.
CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions and balances
are eliminated in consolidation.
REVENUE RECOGNITION AND UNEARNED CONTRACT INCOME:
Payments for collaborative research and development are generally received
in advance and are recognized as revenue, ratably, as the research and
development is performed. Licensing fees, royalty and hurdle payments are
recognized in the period earned.
The Company has entered into various collaborative research and development
contracts. The Company earned substantially all of its research and
development revenues from two corporate sponsors in 1994 and 1993, and three
in 1992. Corporate sponsors who contributed 10% or more of the Company's total
revenues, pursuant to collaborative agreements and licensing and other fees as
reported in the statements of operations, in any year were as follows:
<TABLE>
<CAPTION>
CORPORATE SPONSORS 1994 1993 1992
------------------ --------- --------- ----------
<S> <C> <C> <C>
A.......................................... $ -- $ -- $ 600,000
B.......................................... 4,694,000 4,497,000 4,579,000
C.......................................... 1,116,000 333,000 500,000
</TABLE>
RESEARCH AND DEVELOPMENT EXPENSES:
The research and development expenses of the Company, which are expensed as
incurred, include those efforts related to collaborative research and
development agreements, development of the Company's proprietary products and
general research. The expenses include, but are not limited to, medical,
biostatistical, regulatory, manufacturing and scientific support costs.
DEPRECIATION AND AMORTIZATION:
Building and building improvements, furniture and fixtures, automobiles, and
machinery and equipment are depreciated by the straight-line method over their
estimated useful lives ranging from three to twenty years. Leasehold
improvements and machinery and equipment under capital leases are amortized by
the straight-line method over the lesser of their estimated useful lives or
the terms of the related leases. Purchased patents are amortized by the
straight-line method over their life as determined by the country of issuance.
The Company reviews the realizability of the patents on a quarterly basis.
F-7
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH EQUIVALENTS:
The Company considers all highly liquid investments with maturities of three
months or less as cash equivalents.
INVESTMENTS:
Short-term investments represent marketable securities available for current
operations, all of which have been classified as available for sale, while
long-term investments represent marketable securities available for expected
capital acquisitions. These investments, which are all investment grade, are
stated at market value of the portfolio.
On December 31, 1993, the Company adopted the provisions of the Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. This Statement requires certain
investments in debt and equity securities to be reported at current market
value. Prior to 1993 investments were carried at the lower of cost or market.
For the years ended December 31, 1994 and 1993, investment income includes
gross realized gains of $150,000 and $765,000, respectively. At December 31,
1994 and 1993, investments included gross unrealized gains of $7,000 and
$845,000 and losses of $5,040,000 and $195,000, respectively. The fair values
of debt securities maturing within one year and and after one year but less
than 5 years, amounted to $5,954,000 and $57,148,000, respectively.
RESTRICTED CASH:
The Company has entered into certain financing arrangements that require the
issuance of letters of credit that are partially secured by certain securities.
The aggregate amount of these securities are segregated and identified as
restricted cash. The Company is also required to maintain minimum cash balances
in connection with these financings.
NET LOSS PER SHARE APPLICABLE TO COMMON STOCK:
Net loss per share applicable to Common Stock is computed based on the
weighted average of the Common Stock shares outstanding. Common Stock
equivalents are not included in the computation of weighted average shares
outstanding since the effect would be anti-dilutive.
RECLASSIFICATION:
Certain reclassifications have been made to the prior year financial
statement amounts to conform with the presentation in the current year
financial statements.
2. STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
In January 1993, the Company completed an offering of 2,760,000 Depositary
Shares, each of which represents one-tenth of a share of Series A Cumulative
Convertible Exchangeable Preferred Stock carrying a 7 3/4% dividend rate. The
liquidation value is $25.00 per Depositary Share, plus accrued and unpaid
dividends. Each Depositary Share is convertible at any time into shares of the
Company Common Stock at a conversion price of $12.85 per share of Common Stock,
which is equivalent to a conversion rate of 1.9455 shares of Common Stock for
each Depositary Share. 5,369,580 shares of Common Stock are reserved for such
conversion. The proceeds to the Company were $66,240,000 net of underwriter
fees. Additional stock issuance costs, including professional, registration,
filing and printing fees of approximately $505,000 were incurred in connection
with this offering.
F-8
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PREFERRED STOCK DIVIDENDS:
During 1994 and 1993, the Board of Directors of the Company declared the
quarterly cash dividends on the Series A Cumulative Convertible Exchangeable
Preferred Stock at a prorated dividend rate of $.484375 per Depositary Share.
Dividend payments in 1994 and 1993 totaled $5,348,000 and $4,011,000,
respectively. An additional dividend payment of $1,337,000 was paid on January
16, 1995 to stockholders of record on January 2, 1995.
COMMON STOCK:
In March 1992, the Company completed the sale of 3,450,000 shares of Common
Stock. Proceeds from the stock sale were $44,954,000 net of underwriter fees.
Additional stock issuance costs, including professional, registration, filing
and printing fees of approximately $351,000 were incurred in connection with
the sale.
3. STOCK OPTION PLANS:
The Company has several stock option plans available for the issuance of
incentive stock options and non-qualified stock options ("NQSO"). These options
are designed to attract and retain key employees, directors and consultants. As
of December 31, 1994, the Company had outstanding grants of 4,226,105 shares
and 1,455,808 shares available for grants, totaling 5,671,913 shares of Common
Stock reserved for stock option grants.
Options are granted at fair market value. These options generally become
exercisable in ratable installments over a five-year period. Options under the
1991 Non-Employee Directors NQSO Plan ("Directors' Plan") are automatically
granted upon appointment to the Board of Directors and annually on July 1 of
each year to such non-employee Directors. Such initial grants vest over a five
year period and subsequent annual grants vest in one year. Activity under all
stock option plans for 1992, 1993 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE RANGE PER
SHARES SHARE
--------- -------------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1991................... 2,737,080
Granted......................................... 705,275 $ 7.875 -- $ 22.75
Exercised....................................... (309,730) .85 -- 9.75
Forfeited....................................... (45,535) 1.25 -- 22.75
---------
Outstanding December 31, 1992................... 3,087,090
Granted......................................... 1,243,470 5.75 -- 11.75
Exercised....................................... (202,634) .75 -- 3.625
Forfeited....................................... (261,339) 1.0625 -- 16.50
---------
Outstanding December 31, 1993................... 3,866,587
Granted......................................... 1,042,320 5.75 -- 10.1875
Exercised....................................... (246,161) 2.036 -- 8.00
Forfeited....................................... (436,641) .85 -- 21.25
---------
Outstanding at December 31, 1994................ 4,226,105
=========
Exercisable at December 31, 1994................ 2,141,990 $ .85 -- $ 21.25
=========
</TABLE>
F-9
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Building and building improvements................. $ 2,778,000 $ 2,771,000
Land and land improvements......................... 423,000 423,000
Automobiles........................................ 12,000 12,000
Furniture and fixtures............................. 1,574,000 814,000
Machinery and equipment............................ 9,070,000 8,172,000
Leasehold improvements and other................... 4,597,000 3,870,000
Construction in process............................ 2,269,000 1,682,000
Machinery and equipment under capital lease........ 7,496,000 7,496,000
----------- -----------
Total property, plant and equipment................ 28,219,000 25,240,000
Less: Accumulated depreciation and amortization.... (10,533,000) (7,473,000)
----------- -----------
Net property, plant and equipment.................. $17,686,000 $17,767,000
=========== ===========
</TABLE>
5. INVENTORIES:
The components of inventory are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Raw Materials........................................... $611,000 $214,000
Supplies................................................ 137,000 --
-------- --------
$748,000 $214,000
======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
Total rental expense for property, plant and equipment was approximately
$1,618,000, $1,139,000, and $739,000 for 1994, 1993 and 1992, respectively.
The Company's future minimum lease payments under noncancelable operating
leases at December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995.............................. $1,326,000
1996.............................. 1,289,000
1997.............................. 1,252,000
1998.............................. 753,000
1999.............................. 568,000
2000 and thereafter............... 4,596,000
----------
Total........................... $9,784,000
==========
</TABLE>
CAPITAL LEASES:
On July 1, 1993 the Company entered into an agreement which provided for
equipment lease financing. As of December 31, 1994, the Company had received a
total of $7,496,000 under the lease financing agreement in sale-leaseback
refinancings outstanding against this arrangement. The sale-leaseback
refinancings are secured by $3,748,000 in standby letters of credit provided
under a letter of credit agreement which is secured by AAA rated securities
owned by the Company. The Company is required to maintain a minimum balance of
$20,000,000 in cash and marketable securities, including those securities
securing the letters of credit in connection with the lease financing.
F-10
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a schedule by year of future minimum payments under capital
leases together with the present value of the minimum lease payments and the
capital lease portion of certain classes of property as of December 31, 1994:
<TABLE>
<CAPTION>
<S> <C>
1995..................................................... $1,584,000
1996..................................................... 1,584,000
1997..................................................... 1,584,000
1998..................................................... 1,084,000
1999..................................................... --
2000 and thereafter...................................... --
----------
Total minimum lease payments................................. 5,836,000
Less: Amount representing interest........................... (234,000)
----------
Present value of minimum lease payments...................... $5,602,000
==========
</TABLE>
CLASSES OF PROPERTY:
<TABLE>
<S> <C>
Machinery.................................................... $4,205,000
Leasehold improvements....................................... 3,291,000
----------
Total machinery and leasehold improvements................... 7,496,000
Less: Accumulated amortization............................... (2,058,000)
----------
Net machinery and leasehold improvements..................... $5,438,000
==========
</TABLE>
7. LONG-TERM DEBT:
On July 24, 1992, The Liposome Manufacturing Company, Inc., a wholly-owned
subsidiary of The Liposome Company, Inc., entered into a mortgage-backed note
to partially fund the purchase of a pharmaceutical manufacturing facility in
Indianapolis, Indiana. The principal will be paid in equal installments of
$25,225 each month plus accrued interest. The note payments will be completed
on November 1, 2001. The interest rate, based on the prime rate plus 1/2%, has
a floor and ceiling of 6% and 10%, respectively. The note is guaranteed by The
Liposome Company, Inc. and the mortgage lending institution is holding a
$1,000,000 AAA rated security owned by The Liposome Company, Inc. as collateral
for the note. The Company is required to maintain a minimum balance of
$10,000,000 in cash and marketable securities, including those securities
securing the letter of credit in connection with the financing.
The Liposome Manufacturing Company's principal repayment obligations as of
December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995........................................ $ 303,000
1996........................................ 303,000
1997........................................ 303,000
1998........................................ 303,000
1999........................................ 303,000
2000 and thereafter......................... 579,000
----------
Subtotal.................................. 2,094,000
Less: Current portion....................... (303,000)
----------
Total..................................... $1,791,000
==========
</TABLE>
F-11
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SUPPLEMENTAL INFORMATION:
ACCRUED EXPENSES:
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accrued expenses for preclinical and clinical
programs............................................ $2,068,000 $1,527,000
Accrued legal fees.................................. 344,000 235,000
Accrued wages and vacation.......................... 433,000 585,000
Other............................................... 1,853,000 784,000
---------- ----------
Total............................................. $4,698,000 $3,131,000
========== ==========
</TABLE>
STATEMENT OF CASH FLOW:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Supplemental disclosure of cash flow informa-
tion:
Cash paid during the year for interest........ $310,000 $251,000 $66,000
======== ======== =======
</TABLE>
9. INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The Company provides a valuation allowance against the net deferred
tax debits due to the uncertainty of realization. The increase in the valuation
allowance for the year ended December 31, 1994 was $16,050,000.
Temporary differences and carryforwards which give rise to the deferred tax
assets and liabilities at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
DEFERRED DEFERRED
TAX ASSETS TAX LIABILITIES
------------ ---------------
<S> <C> <C>
Depreciation.................................. $ 517,000 --
Net unrealized investment loss................ 1,711,000 --
State taxes (net of Federal benefit).......... 5,533,000 --
Amortization.................................. 709,000 --
Net operating losses--Federal................. 34,480,000 --
Other......................................... 355,000 --
Tax credits................................... 2,905,000 --
------------ -------
Subtotal...................................... 46,210,000 --
------------ -------
Valuation allowance--Federal.................. (40,677,000) --
Valuation allowance--State.................... (5,533,000) --
------------ -------
Total deferred taxes........................ $ 0 $ 0
============ =======
</TABLE>
At December 31, 1994, the Company had approximately $101,412,000 of net
operating loss carryforwards, $45,000 of investment tax credit carryforwards,
and $2,860,000 of research and
F-12
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
development credit carryforwards. These carryforwards expire in the periods
1996 through 2009. The timing and manner in which these losses are used may be
limited as a result of certain ownership changes which occurred as provided by
IRS Regulations under Section 382.
10. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data (in thousands of dollars, except for per
share) for the years ended December 31, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- -------- --------
<S> <C> <C> <C> <C>
1994
Total revenues........................... $ 3,036 $ 2,941 $ 2,446 $ 2,017
Total expenses........................... 9,874 11,084 11,127 12,008
------- ------- -------- --------
Net loss................................. (6,838) (8,143) (8,681) (9,991)
Preferred stock dividends................ (1,337) (1,337) (1,337) (1,337)
------- ------- -------- --------
Net loss applicable to Common Stock...... $(8,175) $(9,480) $(10,018) $(11,328)
======= ======= ======== ========
Net loss per share applicable to Common
Stock................................... $ (.34) $ (.40) $ (.42) $ (.48)
======= ======= ======== ========
<CAPTION>
QUARTER
------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- -------- --------
<S> <C> <C> <C> <C>
1993
Total revenues........................... $ 2,847 $ 3,556 $ 3,480 $ 3,159
Total expenses........................... 6,354 7,220 10,797 11,148
------- ------- -------- --------
Net loss................................. (3,507) (3,664) (7,317) (7,989)
Preferred Stock dividends................ (1,337) (1,337) (1,337) (1,337)
------- ------- -------- --------
Net loss applicable to Common Stock...... $(4,844) $(5,001) $ (8,654) $ (9,326)
======= ======= ======== ========
Net loss per share applicable to Common
Stock................................... $ (.21) $ (.21) $ (.37) $ (.39)
======= ======= ======== ========
</TABLE>
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR
THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OF-
FER TO BUY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY OFFER OR
SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COM-
PANY OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference......................... 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
The Company............................................................. 9
Use of Proceeds......................................................... 10
Price Range of Common Stock and Dividend Policy......................... 11
Capitalization.......................................................... 12
Selected Consolidated Financial Data.................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 14
Business................................................................ 18
Management.............................................................. 31
Principal Shareholders.................................................. 35
Description of Capital Stock............................................ 36
Underwriting............................................................ 38
Legal Matters........................................................... 39
Experts................................................................. 39
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
LOGO
THE
LIPOSOME
COMPANY, INC. (R)
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
INCORPORATED
UBS SECURITIES INC.
, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be born by the
Company in connection with the issuance and distribution of the securities
being registered hereby other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee......................................... $ 12,937.50
NASD filing fee.............................................. 3,751.88
Accountants' fees and expenses*.............................. 25,000.00
Legal fees and expenses*..................................... 200,000.00
Blue Sky qualification legal fees and expenses*.............. 30,000.00
Cost of printing and engraving*.............................. 80,000.00
Miscellaneous*............................................... 20,810.62
-----------
Total...................................................... $372,500.00
===========
</TABLE>
- --------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, among other things, and
subject to certain conditions, authorizes the Company to indemnify its officers
and directors against certain liabilities and expenses incurred by such persons
in connection with claims made by reason of their being such an officer or
director. The By-laws of the Company provide for indemnification of its
officers and directors to the full extent authorized by law.
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty or loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the Director derived any improper personal benefit. Any
repeal or modification of the foregoing amendment after its adoption by the
stockholders of the Company will not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
The Board of Directors and the Company's stockholders have approved the use
of an indemnification agreement (the "Indemnification Agreement"). The
Indemnification Agreement requires that the Company indemnify directors and
executive officers who are parties thereto in all cases to the fullest extent
permitted by applicable Delaware law. This contract right to indemnification
gives all directors and executive officers protection against a subsequent
adverse change in the Company's indemnification provisions in its By-laws on a
change of control of the Company.
The Company has obtained an insurance policy insuring its officers and
directors for certain acts in connection with their services as such.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1, in which each underwriter agrees to indemnify the
directors and certain officers of the Registrant and certain other persons
against certain civil liabilities.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- -------- -----------------------
<S> <C>
1 --Form of Underwriting Agreement.
4.1 --Provisions of the Articles of Incorporation of the Registrant defining
rights of holders of Common Stock of the Registrant (Exhibit 3(i)-01 to the
Company's annual report on Form 10-K for the year ended December 31, 1994,
incorporated herein by reference thereto).
4.2 --Provisions of the By-laws of the Registrant defining rights of holders of
the Common Stock of the Registrant (Exhibit 4.5 to Registration Statement
No. 33-23292, incorporated herein by reference thereto).
5 --Opinion of Dewey Ballantine.
23.1 --Consent of Dewey Ballantine (included in Exhibit 5).
23.2 --Consent of Coopers & Lybrand L.L.P.
23.3 --Consent of Dechert Price & Rhoads.
24 --Power of Attorney (included in the Registration Statement, page II-3).
</TABLE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant described in Item 15 or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for the indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO
DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, STATE OF NEW JERSEY ON THE 21ST
DAY OF MARCH, 1995.
THE LIPOSOME COMPANY, INC.
/s/ Charles A. Baker
By: ____________________________________
CHARLES A. BAKER
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS CHARLES A. BAKER AND CAROL J. GILLESPIE, AND
EACH OR EITHER OF THEM, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS,
WITH FULL POWER OF SUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES TO SIGN ANY AND ALL AMENDMENTS OR POST-EFFECTIVE
AMENDMENTS TO THIS REGISTRATION STATEMENT AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL
INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM OR THEIR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON THE 21ST DAY
OF MARCH, 1995 IN THE CAPACITIES INDICATED.
/s/ Charles A. Baker Chairman of the Board of
---------------------------------------- Directors, President, Chief
CHARLES A. BAKER Executive Officer and
Director (Principal
Executive Officer)
/s/ Edward G. Silverman Executive Vice President and
---------------------------------------- Chief Operating Officer
EDWARD G. SILVERMAN
/s/ Brooks Boveroux Vice President, Finance,
---------------------------------------- Chief Financial Officer and
BROOKS BOVEROUX Treasurer (Principal
Financial Officer)
/s/ Dennis Rodrigues Controller (Principal
---------------------------------------- Accounting Officer)
DENNIS RODRIGUES
Director
----------------------------------------
JAMES G. ANDRESS
/s/ Morton Collins, Ph.D. Director
----------------------------------------
MORTON COLLINS, PH.D.
/s/ Stuart F. Feiner Director
----------------------------------------
STUART F. FEINER
II-3
<PAGE>
/s/ Robert F. Hendrickson Director
----------------------------------------
ROBERT F. HENDRICKSON
---------------------------------------- Director
BENGT SAMUELSSON, M.D.
/s/ Joseph T. Stewart, Jr. Director
----------------------------------------
JOSEPH T. STEWART, JR.
Director
----------------------------------------
GERALD WEISSMANN, M.D.
/s/ Horst Witzel, Dr. - Ing. Director
----------------------------------------
HORST WITZEL, DR. - ING.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
- ------- ---------------------- ----------
<S> <C> <C>
1 --Form of Underwriting Agreement.
4.1 --Provisions of the Articles of Incorporation of the Registrant defining
rights of holders of Common Stock of the Registrant (Exhibit 3(i)-01 to
the Company's annual report on Form 10-K for the year ended December
31, 1994, incorporated herein by reference thereto).
4.2 --Provisions of the By-laws of the Registrant defining rights of holders
of the Common Stock of the Registrant (Exhibit 4.5 to Registration
Statement No. 33-23292, incorporated herein by reference thereto).
5 --Opinion of Dewey Ballantine.
23.1 --Consent of Dewey Ballantine (included in Exhibit 5).
23.2 --Consent of Coopers & Lybrand L.L.P.
23.3 --Consent of Dechert Price & Rhoads.
24 --Power of Attorney (included in the Registration Statement, page II-3).
</TABLE>
<PAGE>
Exhibit 1
THE LIPOSOME COMPANY, INC.
3,000,000 Shares/*/
Common Stock
FORM OF
UNDERWRITING AGREEMENT
----------------------
_______, 1995
HAMBRECHT & QUIST INCORPORATED
UBS SECURITIES INC.
c/o HAMBRECHT & QUIST INCORPORATED
One Bush Street
15th Floor
San Francisco, CA 94104
Ladies and Gentlemen:
The Liposome Company, Inc., a Delaware corporation (the "Company"),
proposes to issue 3,000,000 shares of the Company's authorized but unissued
common stock, par value $.01 per share (the "Common Stock").
Subject to the terms and conditions stated herein, the Company hereby
agrees to sell to you (also referred to herein as the "Underwriters") and you
hereby agree to purchase 3,000,000 shares of Common Stock (said 3,000,000 shares
of Common Stock being herein called the "Underwritten Stock"), and the Company
proposes to grant to you an option to purchase up to 450,000 additional shares
of Common Stock (said 450,000 shares of Common Stock being herein called the
"Option Stock" and, with the Underwritten Stock, herein collectively called the
"Stock"). The Common Stock is more fully described in the Registration
Statement and Prospectus hereinafter mentioned.
- -----------
/*/ Plus an option to purchase from the Company up to 450,000 additional shares
of Common Stock to cover over-allotments.
<PAGE>
2
1. Registration Statement. The Company has filed with the Securities
----------------------
and Exchange Commission (herein called the "Commission") a registration
statement on Form S-3 (No. 33-_____), including the related preliminary
prospectus, for the registration under the Securities Act of 1933, as amended
(the "Securities Act"), of the Stock. Copies of such registration statement and
of each amendment thereto, if any, including the related preliminary prospectus
(meeting the requirements of Rule 430A of the rules and regulations of the
Commission) heretofore filed by the Company with the Commission have been
delivered to you.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement, including all exhibits, financial statements and
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act and all information omitted therefrom in reliance on
Rule 430A and contained in the Prospectus referred to below, in the form in
which it became effective and, in the event of any amendment thereto after the
effective date of such registration statement (herein called the "Effective
Date"), shall also mean (from and after the effectiveness of such amendment)
such registration statement as so amended. The term "Prospectus" as used in
this Agreement shall mean the prospectus, including the documents incorporated
by reference therein, relating to the Stock first filed with the Commission
pursuant to Rule 424(b) and Rule 430A or (if no such filing is required) as
included in the Registration Statement and, in the event of any supplement or
amendment to such prospectus after the Effective Date, shall also mean (from and
after the filing with the Commission of such supplement or of the effectiveness
of such amendment) such prospectus as so supplemented or amended. The term
"Preliminary Prospectus" as used in this Agreement shall mean each preliminary
prospectus, including the documents incorporated by reference therein, included
in such registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants as follows:
(i) The Company meets the requirements for use of Form S-3 under the
Securities Act.
(ii) [Each][The] Preliminary Prospectus filed prior to the Effective
Date bore the legends required by Item 501 of Regulation S-K of the
Securities Act.
<PAGE>
3
(iii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement and the Prospectus and as being conducted, and is duly qualified
as a foreign corporation and in good standing in all jurisdictions in which
the character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure to
be so qualified would not have a material adverse effect on the business,
properties, financial condition or earnings of the Company and its
subsidiaries, taken as a whole).
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in the business affairs or business prospects,
properties, financial condition or earnings of the Company and its
subsidiaries as a whole, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, neither the Company nor its subsidiaries have entered
into any material transaction not referred to in the Registration Statement
and the Prospectus. Since such dates, no dividend or distribution of any
kind has been declared or has been paid or made by the Company on its
capital stock.
(v) There are no outstanding options, warrants or other rights granted
by the Company to purchase shares of its Common Stock or other securities,
other than the Stock to be sold pursuant to this Agreement and as otherwise
described in the Prospectus and, to the best of the knowledge of the
Company, no such option, warrant or other right has been granted to any
person, the exercise of which would cause such person to own more than 5
percent of its Common Stock outstanding immediately after the offering of
the Stock, other than as might result from the sale of the Stock pursuant
to this Agreement and as otherwise described in the Prospectus.
(vi) No further approval or authority of the stockholders or
shareholders or the Board of Directors of the Company will be required for
the issuance and sale of the Stock as contemplated herein.
(vii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus; the Registration
Statement and the Prospectus comply and, on the Closing Date (as
hereinafter defined) and any later date on which shares of Option Stock are
to be purchased, the Prospectus will comply in all material respects with
the provisions of the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder; on the Effective Date, the Registration Statement
did not contain any untrue statement of material fact and did not omit to
state any material
<PAGE>
4
fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the date of its issuance, the
Prospectus did not and, on the Closing Date and any later date on which
shares of Option Stock are to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that none of
-------- -------
the representations and warranties in this subparagraph (vii) shall apply
to statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of you expressly for
use in the Registration Statement or the Prospectus.
(viii) The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-3 under the Securities Act, at the time they
were filed with the Commission, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder and, when read together and with the other
information in the Prospectus, at the time the Registration Statement
became effective and at all times subsequent thereto up to the Closing Date
(and, if any shares of Option Stock are purchased, up to the Date of
Delivery), will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
(ix) The execution and delivery of this Agreement, the issuance, sale
and delivery of the Stock, the consummation by the Company of the
transactions contemplated in this Agreement and in the Registration
Statement and compliance by the Company with the terms of this Agreement
have been duly authorized by all necessary corporate action on the part of
the Company and do not and will not conflict with, or result in a breach
of, the respective Articles or Certificate of Incorporation or bylaws (or
corporate documents of similar effect) of the Company or any of its
subsidiaries, nor will the performance of this Agreement and the
consummation of the transactions herein contemplated result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, (a) any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the property of any of them is
bound or (b) any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or over the properties of any of them; and no consent,
approval, authorization or order of any court or governmental agency or
body is required for the consummation by the Company of the transactions
herein and therein contemplated, except such as may be required under the
Securities Act or under the
<PAGE>
5
securities or Blue Sky laws of the various states, or by the National
Association of Securities Dealers, Inc. (herein called the "NASD").
(x) The Company had at the date indicated a duly authorized and
outstanding capitalization as set forth in the Prospectus under the caption
"Capitalization", and the Common Stock conforms in all material respects to
the description thereof contained or incorporated by reference in the
Prospectus, and such description conforms in all material respects to the
rights set forth in the instruments defining the same.
(xi) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and non-
assessable; no holder thereof is or will be subject to personal liability
solely by reason of being such a holder, and none of the outstanding shares
of Common Stock was issued in violation of the preemptive rights of any
stockholder of the Company.
(xii) The shares of Stock have been duly authorized and, when issued,
sold and delivered against payment therefor as provided herein, such shares
of Stock will be validly issued, fully paid and non assessable; no holder
thereof will be subject to personal liability solely by reason of being
such a holder; such shares of Stock will not be subject to the preemptive
rights of any stockholder of the Company; and all corporate action required
to be taken for the authorization, issuance and sale of the shares of Stock
has been validly and sufficiently taken.
(xiii) The Company owns, or possesses adequate rights to use, all
material patents, patent rights, inventions, trade secrets, licenses, know-
how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names and copyrights described or referred
to in the Prospectus, or owned or used by it or which are necessary for the
conduct of its business as described in the Prospectus (herein collectively
called the "Information Property"). Except as disclosed in the Prospectus,
the Company has not received any notice of infringement of, or notice from
the holder of any Information Property or from any person having a
proprietary interest in any Information Property of a conflict with
asserted rights of others with respect to, any Information Property which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the business
operations, financial condition, income or business prospects of the
Company and its subsidiaries, taken as a whole.
(xiv) The Company holds all material licenses, certificates and
permits from state, federal and other regulatory authorities which are
necessary for the conduct of its business; the Company is not in violation
of its Articles or Certificate of Incorporation or bylaws (or corporate
documents of similar effect). Neither the
<PAGE>
6
Company nor its subsidiaries are in default in the performance or
observance of any provision of any obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which any of them or any of their respective
properties may be bound, or are in violation of any law, order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign, the violation of which, or
default in the performance or observance of which, would have a material
effect on the business affairs or business prospects, properties, financial
condition or earnings of the Company and its subsidiaries, taken as a
whole.
(xv) Except as set forth in the Prospectus, there is no action, suit
or proceeding, at law or in equity, pending or, to the best of the
Company's knowledge, threatened against the Company or any of its
subsidiaries by a private litigant, by any federal, state or other
commission, board or agency or in any proceeding before any administrative
agency, wherein any unfavorable result or decision could materially
adversely affect the business affairs or business prospects, properties,
financial condition or income or earnings of the Company or its
subsidiaries, taken as a whole, or prevent consummation of the transactions
contemplated hereby; and there are no contracts or documents of the Company
which would be required to be filed as exhibits to the Registration
Statement by the Securities Act and which have not been filed as exhibits
to the Registration Statement.
(xvi) The consolidated financial statements of the Company and its
subsidiaries, together with related notes and schedules as set forth in the
Registration Statement or incorporated by reference therein, present fairly
the financial position and the results of operations of the Company and its
subsidiaries on a consolidated basis, at the indicated dates and for the
indicated periods, in accordance with generally accepted accounting
principles. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied
throughout the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary
financial data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with
the financial statements presented therein.
(xvii) The Company and each of its subsidiaries have fulfilled their
obligations, if any, under the minimum funding standards of Section 302 of
the United States Employee Retirement Income Security Act of 1974 (herein
called "ERISA") and the regulations and published interpretations
thereunder with respect to each "plan" (as defined in ERISA and such
regulations and published interpretations)
<PAGE>
7
in which employees of the Company or any of its subsidiaries are eligible
to participate, and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and such
regulations and published interpretations, and have not incurred any unpaid
liability to the Pension Benefit Guaranty Corporation (other than for the
payment of premiums in the ordinary course) or to any such plan under Title
IV of ERISA.
(xviii) No authorization, approval, consent or license of any
government, governmental instrumentality or court, domestic or foreign
(other than under the Securities Act, the securities or blue sky laws of
the various states and the NASD), is required for the valid authorization,
issuance and delivery of the Stock or the execution, delivery or
performance of this Agreement by the Company.
(xix) Coopers & Lybrand, who have certified certain of the financial
statements filed with the Commission as part of or incorporated by
reference in the Registration Statement, are independent public accountants
with respect to the Company as required by the Securities Act.
(xx) Except as set forth in the Registration Statement and the
Prospectus, each of the Company and its subsidiaries has filed all
necessary United States income tax returns and all necessary state income,
franchise, sales and use tax returns as required by law or regulation,
domestic or foreign, and has paid all taxes shown thereon as due, and each
of the Company and its subsidiaries has no knowledge of any tax deficiency
which has been or might be asserted against any of them which would
materially and adversely affect any of the businesses or properties of the
Company and its subsidiaries taken as a whole; to the knowledge of the
Company all tax liabilities are adequately provided for on the books of the
Company and its subsidiaries.
(xxi) Neither the Company nor any subsidiary is involved in any labor
dispute which, either individually or in the aggregate, could have a
material adverse effect on the business or operations of the Company and
its subsidiaries taken as a whole, nor, to the knowledge of the Company, is
any such dispute threatened.
(xxii) All material contracts, leases and agreements referred to in
or filed as exhibits to the Registration Statement to which the Company or
any subsidiary is a party, or by which the Company or any subsidiary is
bound, are in full force and effect.
3. Purchase of the Stock by the Underwriters. (a) On the basis of
-----------------------------------------
the representations and warranties and subject to the terms and conditions
herein set forth, the Company agrees to issue and sell the Underwritten Stock to
you, and you agree to purchase
<PAGE>
8
from the Company the Underwritten Stock. The price at which the shares of
Underwritten Stock shall be sold by the Company and purchased by you shall be
$______ per share. Except as provided in paragraph (b) of this Section 3, your
obligation is to purchase only the Underwritten Stock.
(b) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company hereby grants an option to you to purchase from the Company any or all
of the 450,000 shares of Option Stock at the same price per share as you shall
pay for the shares of Underwritten Stock. Said option may be exercised only to
cover over-allotments in the sale of shares of Underwritten Stock by you and may
be exercised in whole or in part at any time (but not more than once) on or
before the thirtieth day after the date of this Agreement upon written or
telecopied notice by you to the Company setting forth the aggregate number of
shares of Option Stock as to which you are exercising the option. Delivery of
certificates for shares of Option Stock, and payment therefor, shall be made as
provided in Section 5 hereof.
4. Offering by the Underwriters. (a) The terms of the public
----------------------------
offering by you of the Stock to be purchased by you shall be as set forth in the
Prospectus. You may from time to time change the public offering price after
the closing of the public offering, but not the consideration to be paid to the
Company for the Stock, and increase or decrease the concessions and discounts to
dealers as you may determine.
(b) The information set forth in the last paragraph on the front cover
page of the Prospectus, the statement with respect to stabilization set forth on
the inside front cover page of the Prospectus and the information under
"Underwriting" in the Registration Statement, any Preliminary Prospectus, and
the Prospectus filed by the Company (insofar as such information relates to you)
constitutes the only information furnished by you to the Company for inclusion
in any Preliminary Prospectus, the Prospectus or the Registration Statement, and
you represent and warrant to the Company that the statements made therein are
correct.
5. Delivery of and Payment for the Stock. (a) Delivery of
-------------------------------------
certificates for shares of Underwritten Stock and shares of Option Stock (if the
option granted by Section 3(b) hereof shall have been exercised not later than
10:00 a.m., New York City time, on the date two business days preceding the
Closing Date (as hereinafter defined)), and payment therefor, shall be made at
the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York
10022, at 10:00 a.m., New York City time, on the fifth business day after the
date of this Agreement, or at such time on such other day, not later than seven
full business days after such fifth business day, as shall be agreed upon in
writing by the Company and you. The date and hour of such delivery and payment
are herein called the "Closing Date".
<PAGE>
9
(b) If the option granted by Section 3(b) hereof shall be exercised
after 10:00 a.m., New York City time, on the date two business days preceding
the Closing Date, delivery of certificates for shares of Option Stock, and
payment therefor, shall be made at the offices of Shearman & Sterling, 599
Lexington Avenue, New York, New York 10022, at 10:00 a.m., New York City time,
on the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order by certified or official bank check or checks payable
in New York Clearing House funds. Such payment shall be made upon delivery of
certificates for the Stock to you against receipt therefor signed by you. The
certificates to be delivered to you shall be registered in such name or names
and shall be in such denominations as you may request at least three business
days before the Closing Date, in the case of shares of Underwritten Stock, and
at least 24 hours (or one full business day) prior to the purchase thereof, in
the case of shares of Option Stock. The certificates will be made available to
the Underwriters for inspection, checking and packaging at the office of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004, not less than one
full business day prior to the Closing Date or, in the case of shares of Option
Stock, by 12:00 p.m., New York City time, on the business day preceding the date
of purchase.
6. Further Agreements of the Company. The Company covenants and
---------------------------------
agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus (including documents incorporated by reference
in such Prospectus) of which you shall not have previously been advised and
furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules
and regulations of the Commission.
(b) The Company will promptly notify you in the event of (i) the
request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii)
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the institution or
notice of intended institution of any action or proceeding for that
purpose, (iv) the receipt by the Company of any notification with respect
to the suspension of the qualification of the Stock for sale in any
jurisdiction or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company will make
every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal
thereof at the earliest possible moment.
<PAGE>
10
(c) The Company will (i) on or before the Closing Date, deliver to you
one signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
became effective and, promptly upon the filing thereof, one signed copy of
each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto and documents filed
therewith, including documents incorporated by reference into the
Prospectus, unless previously furnished to you), and will also deliver to
you a sufficient number of additional conformed copies of each of the
foregoing (but without exhibits) as you may reasonably request, (ii) as
promptly as possible deliver to you, at such office or offices as you may
designate, as many copies of each Preliminary Prospectus and the Prospectus
as you may reasonably request, and (iii) thereafter from time to time
during the period in which a prospectus is required by law to be delivered
by an Underwriter or dealer, likewise deliver to you as many additional
copies of the Prospectus and as many copies of any supplement to the
Prospectus and of any amended prospectus, filed by the Company with the
Commission, as you may reasonably request for the purposes contemplated by
the Securities Act.
(d) If at any time during the period in which the Prospectus is
required by law to be delivered by an Underwriter or dealer any event
relating to or affecting the Company or any of its subsidiaries, or of
which the Company shall be advised in writing by you, shall occur as a
result of which it is necessary, in the opinion of counsel for the Company
or your counsel, to supplement or amend the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser of the Stock, the Company will
forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended Prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time
such Prospectus is delivered to such purchaser, not misleading. If, after
the initial public offering of the Stock by you and during such period in
which the Prospectus is required by law to be delivered by an Underwriter
or dealer, you shall propose to vary the terms of the offering thereof by
reason of changes in general market conditions or otherwise (provided,
--------
however, that the price to be paid to the Company for the Stock shall not
-------
be varied), you will advise the Company in writing of the proposed
variation, and, if in the opinion of either counsel for the Company or your
counsel such proposed variation requires that the Prospectus be
supplemented or amended, the Company will forthwith prepare and file with
the Commission a supplement to the Prospectus or an amended Prospectus
setting forth such variation. The Company authorizes you and all dealers
to whom any of the Stock may be sold by you to use the Prospectus, as from
time to time amended or supplemented, in
<PAGE>
11
connection with the sale of the Stock in accordance with the applicable
provisions of the Securities Act and the applicable rules and regulations
thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or Blue
Sky laws of such jurisdictions in the United States as you may reasonably
request and, during the period in which the Prospectus is required by law
to be delivered by an underwriter or dealer, in keeping such qualifications
in good standing under said securities or Blue Sky laws; provided, however,
-------- -------
that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified. The Company will, from time
to time, prepare and file such statements, reports, and other documents as
are or may be required to continue such qualifications in effect for so
long a period as you may reasonably request for distribution of the Stock.
(g) The Company will use its best efforts to effect the "listing" of
the shares of Stock on the National Association of Securities Dealers
Automated Quotation National Market System (herein called "NASDAQ NMS").
The Company will file with NASDAQ NMS all documents and notices required by
NASDAQ NMS of companies that have issued securities that are traded in the
over-the-counter market and quotations for which are reported by NASDAQ
NMS.
(h) During a period of five years commencing with the date hereof, the
Company will furnish to you copies of all periodic and special reports
furnished to stockholders of the Company and of all information, documents
and reports filed with the Commission.
(i) Not later than the 45th day following the end of the fiscal
quarter first commencing after the first anniversary of the effective date
of the Registration Statement, the Company will make generally available to
its security holders an earnings statement of the Company in accordance
with Section 11(a) of the Securities Act or shall otherwise comply in full
with the provisions of Rule 158 of the Commission.
(j) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all
reasonable costs and expenses incident to (i) the preparation, printing and
filing with the Commission
<PAGE>
12
and the NASD of the Registration Statement, any Preliminary Prospectus and
the Prospectus, and any amendments or supplements thereto, (ii) the
furnishing to you of copies of any Preliminary Prospectus and of the
several documents required by paragraph (c) of this Section 6 to be so
furnished, (iii) the reproduction of this Agreement and related documents
delivered to you, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d)
of this Section 6, (v) the furnishing to you of the reports and information
referred to in paragraph (h) of this Section 6, and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees.
(k) The Company agrees to reimburse you for Blue Sky fees and related
disbursements (including counsel fees and disbursements and the cost of
reproducing memoranda for you) paid by or for your account or your counsel
in qualifying the Stock under state securities or Blue Sky laws and in the
review of the offering by the NASD.
(l) The Company agrees that, without the prior written consent of
Hambrecht & Quist Incorporated ("Hambrecht & Quist"), the Company will not,
directly or indirectly, sell, offer, contract to sell, make any short sale
of, pledge, grant any option to purchase or otherwise dispose of any shares
of Common Stock or any securities convertible into or exchangeable or
exercisable for or any rights to purchase or acquire Common Stock for a
period of 90 days following the commencement of the public offering of the
Stock by you, other than (i) the Stock to be sold to you pursuant to this
Agreement, (ii) to consultants and grantors of licensing rights and (iii)
to directors, officers and employees in accordance with the Company's
customary practices.
(m) The Company is familiar with the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder (the "Investment
Company Act"), and has in the past conducted its affairs, and will invest
the proceeds of the transaction contemplated by this Agreement (the
"Proceeds"), in such a manner as to ensure that the Company was not, and
will not as a result of investment of the Proceeds be, an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act.
(n) If the Company has elected to rely upon Rule 430A, it will take
such steps as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for filing
by the Commission and, in the event that it was not, it will promptly file
such prospectus.
7. Indemnification and Contribution. (a) Subject to the provisions
--------------------------------
of paragraph (d) of this Section 7, the Company agrees to indemnify and hold
harmless each
<PAGE>
13
Underwriter and each person (including each partner and officer thereof) who
controls such Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, the common law or otherwise, and the
Company agrees to reimburse each Underwriter and each such controlling person
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
of or inquiry into, or other proceeding which may be brought against, the
respective indemnified parties, in each case arising out of or based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (including the Prospectus as part thereof and
documents incorporated by reference therein) or any post-effective amendment
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto, including documents incorporated by reference
therein), or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
-------- -------
that (1) the indemnity agreements of the Company contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the
Underwriters expressly for use in any Preliminary Prospectus or the Registration
Statement or the Prospectus or any such amendment thereof or supplement thereto
and (2) the indemnity agreement contained in this paragraph (a) with respect to
any Preliminary Prospectus shall not inure to the benefit of the Underwriters
from whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) (in each case exclusive of the documents
from which information is incorporated by reference) was not sent or delivered
to such person and the untrue statement or omission of a material fact contained
in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented) unless the failure is the result of the
noncompliance by the Company with paragraph (c) of Section 6 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 2 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
<PAGE>
14
(b) Subject to the provisions of paragraph (d) of this Section 7, you
agree to indemnify and hold harmless the Company, each of its officers who signs
the Registration Statement on his own behalf or pursuant to a power of attorney,
each of its directors and each person (including each partner or officer
thereof), if any, who controls the Company or the Underwriters within the
meaning of Section 15 of the Securities Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Securities Act, the Exchange
Act or the common law or otherwise and to reimburse each of them for any legal
or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation of or
inquiry into, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof) or any post-
effective amendment thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of you expressly for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreements of the Underwriters contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Stock representing the
Preferred Shares.
(c) Each party indemnified under the provisions of paragraph (a) or
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation of or inquiry into or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the "Notice") of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraph
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such
<PAGE>
15
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or other than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation of or inquiry into, an indemnified party. Any indemnifying
party shall be entitled, if it so elects within a reasonable time after receipt
of the Notice, by giving written notice (herein called the "Notice of Defense")
to the indemnified party to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
-------- -------
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then one counsel for the indemnified party or
parties chosen by the indemnified party or parties with the consent of the
indemnifying party, whose consent shall not be unreasonably withheld shall be
entitled to conduct the defense to the extent reasonably determined by such
counsel to be necessary to protect the interests of the indemnified party or
parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
<PAGE>
16
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received by
the Company and the total underwriting discounts received by the Underwriters,
as set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this Section 7(d) were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this Section
7(d). The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this Section
7(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating, preparing to defend
or defending against any action or claim which is the subject of this Section
7(d). Notwithstanding the provisions of this Section 7(d), the Underwriters
shall not be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Stock purchased by the Underwriters.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Each party entitled to contribution agrees that, upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it shall promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought of any
obligation it may have hereunder or otherwise (except as specifically provided
in Section 7(c) hereof). No party will be liable for contribution with respect
to any action or claim settled without its written consent.
(e) No party will, without the prior written consent of the other
party to this Agreement (herein called the other party), settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of
<PAGE>
17
which indemnification or any joinder may be sought hereunder (whether or not
such other party or any person who controls such other party within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act is a party
to such claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of such other party and each such
controlling person from all liability arising out of such claim, action, suit or
proceeding.
8. Termination. This Agreement may be terminated by you at any time
-----------
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, calamity, crisis or change in economic or political conditions in
the financial markets of the United States would, in the Underwriters'
reasonable judgment, make the offering or delivery of the Stock impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, NASDAQ or the NASDAQ National Market System, or
limitation on prices (other than limitations on hours or numbers of days of
trading) for securities on any such exchange or system, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of, or commencement of any proceeding or investigation
by, any court, legislative body, agency or other governmental authority which in
the Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Underwriters to the Company
or of the Company to the Underwriters; provided, however, that in the event of
-------- -------
any such termination the Company agrees to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (j) and (k) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all of its respective obligations to be performed
hereunder at or prior to the Closing Date or at any later date on which shares
of Option Stock are to be purchased, as the case may be, and to the following
further conditions:
<PAGE>
18
(a) The Prospectus shall have been transmitted for filing with the
Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the
Securities Act. The Registration Statement shall have become effective;
and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings therefor shall be pending or threatened by the
Commission.
(b) The legality and sufficiency of the sale of Stock hereunder, and
the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein) shall have been approved at
or prior to the Closing Date by Shearman & Sterling, counsel for the
Underwriters, and such counsel shall have been furnished with such papers
and information as they may reasonably have requested to enable them to
pass upon the matters referred to in this subsection.
(c) You shall have received from Dewey Ballantine, counsel to the
Company, an opinion, addressed to the Underwriters and dated the Closing
Date, in the form attached hereto as Annex A, and, if shares of Option
Stock are purchased at any date after the Closing Date, an additional
opinion from such counsel addressed to the Underwriters and dated such
later date, in the form attached hereto as Annex A.
(d) You shall have received from Dechert Price & Rhoades, special
patent counsel to the Company, an opinion, addressed to the Underwriters
and dated the Closing Date, in the form attached hereto as Annex B, and, if
shares of Option Stock are purchased at any date after the Closing Date, an
additional opinion from such counsel addressed to the Underwriters and
dated such later date, in the form attached hereto as Annex B.
(e) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus (including
the documents incorporated by reference) were true and correct and neither
the Registration Statement nor the Prospectus omitted to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, (ii) since the Effective Date, no event
has occurred which should have been set forth in a supplement or amendment
to the Prospectus which has not been set forth in such a supplement or
amendment, (iii) since the respective dates as of which information is
given in the Registration Statement in the form in which it originally
became effective and the Prospectus contained therein, there has not been
any material adverse change in the business affairs or business prospects,
properties, financial condition or earnings of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, and since such dates, except in
<PAGE>
19
the ordinary course of business, neither the Company nor any of its
subsidiaries has entered into any transaction material to the Company and
its subsidiaries, taken as a whole, and not referred to in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, (iv) neither the Company nor any of its
subsidiaries has any contingent obligations material to the Company and its
subsidiaries, taken as a whole, which are not disclosed in the Registration
Statement and the Prospectus, (v) there are no pending or known threatened
legal proceedings to which the Company or any of its subsidiaries is a
party or of which property of the Company or its subsidiaries is the
subject and which are material to the business of the Company or any of its
subsidiaries, and which are not disclosed in the Registration Statement and
the Prospectus, (vi) there are no franchises, contracts, leases or other
documents which are required to be filed as exhibits to the Registration
Statement which have not been filed as required, (vii) the representations
and warranties of the Company herein are true and correct in all material
respects as of the Closing Date or any later date on which shares of Option
Stock are to be purchased, as the case may be, and (viii) there has not
been any material change in the market for securities in general or in
political, financial or economic conditions from those reasonably
foreseeable as to render it impractical in your sole judgment to make a
public offering of the Stock, or a material adverse change in market levels
for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(f) You shall have received on the Closing Date and on any later date
on which shares of Option Stock are purchased a certificate, dated the
Closing Date or such later date, as the case may be, and signed by the
Chairman of the Board-Chief Executive Officer and by the Vice President-
Chief Financial Officer and Treasurer of the Company stating that the
respective signers of said certificates have carefully examined the
Registration Statement in the form in which it originally became effective
and the Prospectus contained therein and any supplements or amendments
thereto, and that the statements included in clauses (i) through (vii) of
paragraph (e) of this Section 9 are true and correct.
(g) You shall have received from Coopers & Lybrand, a letter or
letters, addressed to you and dated the Effective Date, the Closing Date
and any later date, as the case may be, on which shares of Option Stock are
purchased, confirming that they are independent public accountants with
respect to the Company within the meaning of the Securities Act and based
upon the procedures described in their letter delivered to you concurrently
with the execution of this Agreement (herein called the "Original Letter"),
but carried out to a date not more than five business days prior to the
Effective Date, the Closing Date or such later date, as the case may be, on
which shares of Option Stock are purchased (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original Letter
are accurate as of the
<PAGE>
20
Effective Date, the Closing Date or such later date, as the case may be, on
which shares of Option Stock are purchased and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or
to reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties
of the Company or any of its subsidiaries which, in your sole judgment,
makes it impractical or inadvisable to proceed with the public offering of
the Stock or the purchase of shares of Option Stock as contemplated by the
Prospectus.
(h) You shall have been furnished evidence in the usual written or
telecopied form from the appropriate authorities of the several states, or
other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company) as to the accuracy of the representations and
warranties of the Company, the performance of their respective obligations
hereunder, and as to other conditions concurrent with and precedent to the
obligations of the Underwriters hereunder.
(j) On or prior to the Closing Date, you shall have received from all
of the officers listed on Schedule 1 hereto agreements stating that without
the prior written consent of Hambrecht & Quist, each of such holders will
not, directly or indirectly, sell, offer, contract to sell, make any short
sale, pledge or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock for a period of 90 days
following the commencement of the public offering of the Stock by the
Underwriters.
All of the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if Shearman & Sterling, counsel for the Underwriters,
shall be reasonably satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
--------
however, that (i) in the event of any such termination, the Company agrees to
- -------
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under
<PAGE>
21
this Agreement, including all costs and expenses referred to in paragraphs (j)
and (k) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein, to fulfill any of the conditions herein or to
comply with any provision hereof other than by reason of a default by the
Underwriters, the Company will reimburse the Underwriters upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by it in connection with the transactions
contemplated hereby.
10. Conditions to the Obligations of the Company. The obligation of
--------------------------------------------
the Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceedings therefor shall be pending or threatened by the Commission at
the Closing Date.
In case either of the conditions specified in this Section 10 shall
not be fulfilled, this Agreement may be terminated by the Company by giving
notice to you. Any such termination shall be without liability of the Company
to the Underwriters and without liability of the Underwriters to the Company;
provided, however, that in the event of any such termination the Company agrees
- -------- -------
to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company under this
Agreement, including all costs and expenses referred to in paragraphs (j) and
(k) of Section 6 hereof.
11. Reimbursement of Certain Expenses. In connection with its
---------------------------------
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse the Underwriters on a quarterly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
-------- -------
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
----------------------------------------
inure to the benefit of the Company and the Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the Underwriters) indemnified under the provisions of said Section
7, and their respective personal representatives, successors and assigns.
Nothing in this Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or
<PAGE>
22
claim under or in respect of this Agreement or any provision herein contained.
The term "successors and assigns" as herein used shall not include any
purchaser, as such purchaser, of any of the Stock from any of the Underwriters.
13. Notices. Except as otherwise provided herein, all communications
-------
hereunder shall be in writing, mailed or telecopied, and, if to the
Underwriters, shall be mailed, telecopied or delivered to Hambrecht & Quist
Incorporated, One Bush Street, 15th Floor, San Francisco, California 94104,
Attn.: William R. Timken; if to the Company, shall be mailed, telecopied or
delivered to The Liposome Company, Inc., One Research Way, Princeton Forrestal
Center, Princeton, New Jersey 08540, Attn.: Carol J. Gillespie, Esq. All
notices given by telecopy shall be promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and
-------------
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of the Underwriters or controlling person thereof, or by or on
behalf of the Company or its respective directors or officers and (c) delivery
of and payment for the Stock under this Agreement; provided, however, that if
-------- -------
this Agreement is terminated prior to the Closing Date, the provisions of
paragraph (l) of Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
<PAGE>
23
Please sign and return to the Company the enclosed copies of this
letter, whereupon this letter will become a binding agreement among the Company
and the Underwriters in accordance with its terms.
Very truly yours,
THE LIPOSOME COMPANY, INC.
By:
--------------------------
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
HAMBRECHT & QUIST INCORPORATED
UBS SECURITIES INC.
By: HAMBRECHT & QUIST INCORPORATED
By:
--------------------------
Name:
Title:
<PAGE>
ANNEX A
-------
______________, 1995
Hambrecht & Quist Incorporated
UBS Securities Inc.
c/o Hambrecht & Quist Incorporated
One Bush Street
15th Floor
San Francisco, CA 94104
RE: THE LIPOSOME COMPANY, INC.
--------------------------
Ladies and Gentlemen:
We have acted as counsel to The Liposome Company, Inc. (the "Company")
in connection with the issuance by the Company of 3,000,000 shares of the
Company's common stock, $.01 par value (the "Common Stock"), pursuant to the
Underwriting Agreement dated _______, 1995 (the "Underwriting Agreement") among
the Company and Hambrecht & Quist Incorporated and UBS Securities Inc. (the
"Underwriters").
We have also acted as counsel to the Company in connection with the
preparation of the Company's Registration Statement on Form S-3, Registration
No. 33-_____, filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"). All
terms, unless otherwise defined herein, have the meanings assigned to them in
the Underwriting Agreement.
In arriving at the opinions expressed below, we have examined and
relied upon, among other things, such certificates of public officials and
responsible officers of the Company and such originals or copies, certified or
otherwise identified to our satisfaction, of corporate documents and records of
the Company and its subsidiaries, as we have deemed necessary or appropriate for
the purposes hereof. In giving this opinion, we assume that the certificates
representing the Common Stock conform to the specimens examined by us, that the
Stock has been completed as to the numbers of shares and names of registered
stockholders pursuant to Section 5 of the Underwriting Agreement and have been
countersigned and registered by Midlantic Bank as
<PAGE>
2
Registrar. In giving this opinion, we are also assuming the authenticity of all
instruments presented to us as originals, the conformity to the originals of all
instruments presented to us as copies, the genuineness of all signatures and the
competency of all individuals signing all instruments presented to us.
On the basis of the foregoing, we are of the opinion that:
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with corporate
power and authority under such laws to own its properties and conduct its
business as described in the Prospectus.
(ii) The Company is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which it owns
or leases property of a nature, or transacts business of a type, that would
make such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
(iii) The shares of Stock have been duly authorized, and, when
issued, sold and delivered against payment therefor in accordance with the
terms of the Underwriting Agreement, such shares of Stock will be validly
issued by the Company, fully paid and non assessable, and no holder thereof
will be subject to personal liability solely by reason of being such a
holder; to the best of our knowledge, such shares of Stock will not be
subject to the preemptive rights of any stockholder of the Company; and all
corporate action required to be taken for the authorization, issuance and
sale of such shares of the Stock has been validly and sufficiently taken.
(iv) The Common Stock conforms in all material respects as to legal
matters to the description thereof contained in the Prospectus under the
heading of "Description of Capital Stock".
----------------------------
(v) All of the outstanding shares of capital stock of the Company
prior to the issuance of the Stock have been duly authorized and validly
issued and are fully paid and non assessable; no holder thereof is or will
be subject to personal liability solely by reason of being such a holder;
and, to our knowledge, none of such outstanding shares of capital stock of
the Company was issued in violation of the preemptive rights of any holder
of any securities of the Company.
(vi) The number of shares of authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under the
heading "Capitalization". We express no opinion as to financial
--------------
information set forth under such heading.
<PAGE>
3
(vii) No approval, consent, order, authorization, designation,
declaration of or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery by the Company of the Underwriting Agreement and the consummation
of the transactions therein contemplated (except such of the aforementioned
as have been obtained under the Securities Act and such as may be required
by the National Association of Securities Dealers, Inc. or as may be
necessary to qualify the Stock for public offering by the Underwriters
under state securities or Blue Sky laws).
(viii) The execution and delivery by the Company of the Underwriting
Agreement, the issuance and delivery of the Common Shares by the Company,
the consummation by the Company of the transactions contemplated in the
Underwriting Agreement and in the Registration Statement and the compliance
by the Company with the terms of the Underwriting Agreement do not and will
not conflict with any provision of the charter or bylaws of the Company or
any of its subsidiaries and do not and will not conflict with, or result in
a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the properties or assets of the Company or any of
its subsidiaries under, (a) any indenture, mortgage or loan agreement, or
any other agreement or instrument of which we have knowledge, to which the
Company or any of its subsidiaries is a party or by which any of them may
be bound or to which any of the properties of any of them may be subject
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise), (b) any
existing applicable law, rule or regulation (other than the securities or
Blue Sky laws of the various states, as to which we express no opinion) or
(c) any judgment, order or decree, of which we have knowledge, of any
government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company, any of its subsidiaries or any of
their properties.
(ix) The Registration Statement has been declared effective by the
Commission under the Securities Act and we have no knowledge of any stop
order or that the effectiveness of the Registration Statement has been
suspended or withdrawn in any manner; any required filing of the Prospectus
or any supplement thereto pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b).
(x) The Registration Statement and the Prospectus, and each amendment
or supplement thereto including documents incorporated by reference therein
(except for the financial statements and other financial or statistical
data included therein or omitted therefrom, as to which we express no
opinion), as of their respective effective or issue dates, appear on their
face to have been appropriately responsive in all material respects to the
requirements of the Securities Act.
<PAGE>
4
(xi) The documents incorporated by reference in the Prospectus (except
for the financial statements and other financial or statistical data
included therein or omitted therefrom, as to which we express no opinion),
as of the dates they were filed with the Commission, appear on their face
to have been appropriately responsive in all material respects to the
requirements of the Exchange Act and the rules and regulations thereunder.
(xii) Except as set forth in the Prospectus, we do not know of any
action, suit or proceeding, at law or in equity, against the Company or its
subsidiaries pending or threatened by a private litigant, by any federal,
state or other commission, board or agency or any proceeding before any
administrative agency wherein any unfavorable result or decision could
materially adversely affect the business, property, financial condition,
income or earnings of the Company and its subsidiaries, taken as a whole,
or prevent consummation of the transactions contemplated in the
Underwriting Agreement; and there are no contracts or documents, of which
we have knowledge, of the Company or of its subsidiaries which would be
required to be filed as exhibits to the Registration Statement by the
Securities Act or by the rules and regulations thereunder which have not
been filed as exhibits to the Registration Statement.
(xiii) To our knowledge, no stop order suspending the effectiveness
of such Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are contemplated under the
Securities Act.
We have acted as counsel to the Company in connection with the
preparation of the Registration Statement and in the course of such
representation have reviewed and discussed the information in the Registration
Statement and the Prospectus with officers and employees of the Company and with
the auditors and you and your counsel. Although we have not independently
checked or verified any statements made in connection with such discussions and
review, except as expressly specified herein, and although we assume no
responsibility for the accuracy, completeness or fairness of the information set
forth in the Registration Statement and Prospectus (except as otherwise stated
in this letter), based upon our participation, we have no reason to believe (a)
that the Registration Statement (except for the financial statements and other
financial or statistical data included therein or omitted therefrom, as to which
we express no opinion), at the time such Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (b) that the Prospectus, including the
documents incorporated by reference therein (except for the financial statements
and other financial or statistical data included therein or omitted therefrom,
as to which we express no opinion), at the time the Prospectus was issued or at
the date hereof, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
<PAGE>
5
In rendering the foregoing opinion, we express no opinion as to laws
other than the laws of the state of New York, the general corporate laws of the
State of Delaware and the federal law of the United States of America (exclusive
of patent law).
This letter is furnished solely for the information of the
Underwriters in connection with the offering and sale of the Stock and may not
be relied upon by any other person.
Very truly yours,
<PAGE>
ANNEX B
-------
__________, 1995
Hambrecht & Quist Incorporated
UBS Securities Inc.
c/o Hambrecht & Quist Incorporated
One Bush Street
15th Floor
San Francisco, CA 94104
Re: The Liposome Company, Inc.
--------------------------
____________ shares of Common Stock
Ladies and Gentlemen:
I represent The Liposome Company, Inc. (the "Company") with respect to
matters of patent and licensing law. At the request of the Company I provide to
you the following opinions. All terms, unless otherwise defined herein, have
the meanings assigned to them in the Underwriting Agreement.
I have studied and agree with the statements in the Prospectus dated
_______, 1995 of the Company under the captions "Risk Factors - Patents and
Proprietary Technology" and "Business - Patents and Proprietary Technology".
Except as disclosed in the sections of the Prospectus mentioned above I
do not know of any pending or threatened legal or governmental proceeding
relating to patents or proprietary know-how owned or used by the Company or
others, to which the Company or any of its subsidiaries is a party or might be a
party or to which any of the properties of the Company or any of its
subsidiaries are subject or might be subject which, if adversely decided, would
have a material effect on the business operations, financial condition, income
or business prospects of the Company or any of its subsidiaries.
Further, except as disclosed in the sections of the Prospectus
mentioned above, I have no knowledge of any infringement or alleged infringement
by the Company or any of its
<PAGE>
2
subsidiaries of patent rights of any holder or of any person having a
proprietary interest in such patent rights, which could have a material adverse
effect on the business affairs or business prospects, properties, financial
condition or earnings of the Company or any of its subsidiaries.
To my knowledge, the Company owns or possesses material licenses or
other rights to use all patents, trade secrets, trademarks, service marks or
other proprietary information or materials necessary to conduct the business now
being or proposed to be conducted by the Company as described in the Prospectus,
including the documents incorporated by reference therein.
To my knowledge, no default exists in the performance or observance of
any material provision of any obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness or in
any contract, indenture, mortgage, loan agreement, joint venture or other
agreement or instrument that is described or referred to in the Registration
Statement or the Prospectus including the documents incorporated by reference
therein or that is filed as an exhibit to the Registration Statement.
Very truly yours,
<PAGE>
THE LIPOSOME COMPANY, INC.
1 Research Way
Princeton, NJ 08540
THE LIPOSOME COMPANY, INC.
______________ SHARES OF COMMON STOCK
-------------------------------------
Ladies and Gentlemen:
This is to confirm our understanding in connection with Section 11 of
the Underwriting Agreement dated of even date herewith between you and the
undersigned (the "Underwriting Agreement"), that, in addition to the obligations
set forth therein and:
In addition to its other obligations under Section 7 of the
Underwriting Agreement, the Underwriters hereby agree to reimburse the
Company, on a quarterly basis, for all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission described in
paragraph (b) of Section 7 of the Underwriting Agreement as applicable to
the Underwriters, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the obligations under this Section 11
and the possibility that such payments might later be held to be improper;
provided, however, that (i) to the extent any such payment is ultimately
-------- -------
held to be improper, the persons receiving such payment shall promptly
refund them and (ii) such persons shall provide to the Underwriters, as
applicable, upon request, reasonable assurances of their ability to effect
any refund, when and if due.
<PAGE>
2
All capitalized terms referred to herein without definition are
ascribed the meaning given to them in the Underwriting Agreement.
Very truly yours,
HAMBRECHT & QUIST INCORPORATED
UBS SECURITIES INC.
By: HAMBRECHT & QUIST
INCORPORATED
By:
------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
THE LIPOSOME COMPANY, INC.
1 Research Way
Princeton, NJ 08540
By:
--------------------------
Name:
Title:
<PAGE>
SCHEDULE 1
----------
Officer Number of Shares
------- ----------------
Charles A. Baker 659,612
Brooks Boveroux 28,695
David S. Gordon, M.D. 22,509
Edward G. Silverman 96,415
<PAGE>
EXHIBIT 5
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK 10019-6092
TELEPHONE 212 259-8000 FACSIMILE 212 259-6333
March 21, 1995
The Liposome Company, Inc.
One Research Way
Princeton Forrestal Center
Princeton, New Jersey 08450
Ladies and Gentlemen:
We have acted as counsel to The Liposome Company, Inc., a Delaware
corporation (the "Company"), in connection with the filing by the Company of a
Registration Statement on Form S-3 on the date hereof (the "Registration
Statement") relating to the public offering of up to 3,450,000 shares (the
"Stock") of the Company's Common Stock, $.01 par value per share.
Based on the foregoing, it is our opinion that:
1. The issuance of the Stock has been lawfully and duly authorized; and
2. When the Stock has been issued, delivered and sold upon the terms
stated in the Registration Statement, the Stock will be legally issued,
fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5 to the Registration
Statement and to the references to this firm on the cover of the Registration
Statement and under the heading "Legal Matters" in the Prospectus included in
such Registration Statement.
Very truly yours,
/s/ Dewey Ballantine
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of our
report dated February 2, 1995, on our audits of the financial statements of The
Liposome Company, Inc. We also consent to the reference to our firm under the
captions "Selected Consolidated Financial Data" and "Experts."
Coopers & Lybrand L.L.P.
Princeton, New Jersey
March 20, 1995
<PAGE>
EXHIBIT 23.3
LAW OFFICES OF
4000 BELL ATLANTIC DECHERT PRICE & RHOADS 477 MADISON AVENUE
TOWER NEW YORK, NY 10022-5891
1717 ARCH STREET (212) 326-3500
PHILADELPHIA, PA 19103-2793
(215) 994-4000
PRINCETON PIKE CORPORATE CENTER TEN POST OFFICE
1500 K STREET, N.W. P.O. BOX 5218 SQUARE - SOUTH
WASHINGTON, DC PRINCETON, NJ 08543-5218 BOSTON, MA 02109-4603
20005-1208 (617) 728-7100
(202) 626-3300
65 AVENUE LOUISE
THIRTY NORTH THIRD STREET 1050 BRUSSELS, BELGIUM
HARRISBURG, PA 17101-1603 TELEPHONE: (609) 520-3200 (32-2) 535-5411
(717) 237-2000
FAX: (609) 520-3259 TITMUSS SAINER DECHERT
2 SERJEANTS' INN
NEW JERSEY RESIDENT PARTNERS FOR HAND DELIVERIES LONDON EC4Y 11T, ENGLAND
ALLEN BLOOM, PH.D. (44-71) 583-5353
TODD D. JOHNSTON PRINCETON PIKE CORPORATE CENTER
JAMES J. MARINO 997 LENOX DRIVE, BLDG. 3, SUITE 210
A. PATRICK NUCCIARONE LAWRENCEVILLE, NJ 08648
GEORGE G. O'BRIEN
GIL C. TILY
JAY L. ZAGOREN
March 17, 1995
The Liposome Company, Inc.
1 Research Way
Princeton, NJ 08540
Re: The Liposome Company, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We hereby consent to the reference to our name in the Prospectus
included in the Registration Statement under the caption "Experts".
Very truly yours,
/s/ Dechert Price & Rhoads
