<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Liposome Company, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
LOGO THE
LIPOSOME
COMPANY, INC. __________________________________________________
April 10, 1995
TO: All Stockholders
You are cordially invited to attend the 1995 Annual Meeting of the
Stockholders of The Liposome Company, Inc., which will be held at the Holiday
Inn (formerly the Ramada Inn), 1053 Route #1, Princeton, New Jersey 08540, on
May 11, 1995, at 2:30 p.m. Information about the Annual Meeting, including a
listing and discussion of the various matters on which the Stockholders will
act, may be found in the enclosed formal Notice of Annual Meeting of
Stockholders and Proxy Statement. The Company's Annual Report for the fiscal
year ending December 31, 1994 is also included.
At the Annual Meeting you will be asked to (i) elect the members of the Board
of Directors, (ii) approve amendments to increase by 1,000,000 the number of
shares available under the 1986 Employee Stock Option Plan and extend the term
of said plan to March 3, 2005, (iii) extend the term of the 1986 Non-Qualified
Stock Option Plan to March 3, 2005, and (iv) ratify the appointment of Coopers
& Lybrand as the Company's auditors.
The Liposome Company has reached a significant turning point in its
development as it begins to market products and prepares for large scale
manufacturing, and it becomes increasingly important that we attract and retain
the best people to lead this effort. While we will continue to offer a high
level of personal satisfaction that comes from participating in the success of
a growing company, the Company is unable to compete with huge pharmaceutical
companies in terms of cash compensation, pension plans and other benefits.
Accordingly, we will rely on our employee stock option program to help attract
and retain the kind of entrepreneurial individuals who are best qualified and
willing to put forth the effort to bring about that success. Your continued
support of this employee stock option program has never been more crucial, and
we urge you to show that support by approving Proposals (ii) and (iii), as set
forth in the Proxy Statement.
We plan to give a slide presentation at the Annual Meeting highlighting the
Company's recent progress and our future plans. Upon adjournment of the
Meeting, the directors and officers of the Company will be available to confer
informally with stockholders.
We hope that you will be able to attend the Annual Meeting. Whether or not
you plan to attend, your vote is important, so please sign, date and return
your proxy promptly in the envelope provided.
Sincerely,
Charles A. Baker
Chairman and Chief Executive Officer
<PAGE>
THE LIPOSOME COMPANY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 1995
--------------------------------------------------------------------------------
The Annual Meeting of Stockholders of The Liposome Company, Inc. (the
"Company") will be held at the Holiday Inn (formerly the Ramada Inn), 1053
Route #1, Princeton, New Jersey 08540, on May 11, 1995, at 2:30 p.m. for the
following purposes:
(i) To elect nine Directors to serve during the ensuing year;
(ii) To amend the 1986 Employee Stock Option Plan to increase the number of
shares of Common Stock that may be issued under the plan from
5,525,000 shares to 6,525,000 shares and to extend the term of said
plan to March 3, 2005;
(iii) To amend the 1986 Non-Qualified Stock Option Plan to extend its term
to March 3, 2005;
(iv) To ratify the appointment by the Board of Directors of Coopers &
Lybrand as the Company's auditors for the fiscal year 1995; and
(v) To transact such other business as may properly come before the meeting
and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 23, 1995, as
the record date for determining the stockholders entitled to notice and to vote
at the Annual Meeting and any adjournment or postponement thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT
YOU INTEND TO BE PRESENT, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE STAMPED AND ADDRESSED ENVELOPE ENCLOSED FOR YOUR CONVENIENCE.
STOCKHOLDERS CAN HELP THE COMPANY AVOID UNNECESSARY EXPENSE AND DELAY BY
PROMPTLY RETURNING THE ENCLOSED PROXY CARD. THE BUSINESS OF THE MEETING CANNOT
BE TRANSACTED UNLESS AT LEAST A MAJORITY OF THE OUTSTANDING SHARES ARE
REPRESENTED AT THE MEETING.
By Order of the Board of Directors
Carol J. Gillespie
Secretary
Princeton, New Jersey
April 10, 1995
<PAGE>
THE LIPOSOME COMPANY, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 1995
----------------
GENERAL INFORMATION
This Proxy Statement is being sent by the Board of Directors of The Liposome
Company, Inc. (the "Company") to solicit proxies for the ANNUAL MEETING OF
STOCKHOLDERS to be held on May 11, 1995.
Each proxy will be voted as specified by the stockholder. Any duly executed
proxy not specifying the contrary will be voted FOR (i) the nine Directors
nominated for election at the meeting, (ii) the proposal to amend the 1986
Employee Stock Option Plan to increase the number of shares of Common Stock
issuable under the plan to a total of 6,525,000 shares and to extend the term
of said plan to March 3, 2005, (iii) the proposal to amend the 1986 Non-
Qualified Stock Option Plan to extend its term to March 3, 2005, and (iv) the
ratification of Coopers & Lybrand as the Company's auditors for the fiscal year
1995. A stockholder giving a proxy may revoke it by written notice to the
Secretary of the Company that is received at any time before it is voted. The
address of the Company is One Research Way, Princeton Forrestal Center,
Princeton, New Jersey 08540.
At the close of business on March 23, 1995, the record date for the Annual
Meeting, there were outstanding and entitled to vote 24,099,115 shares of
Common Stock. Each share of Common Stock entitles the holder to one vote.
Pursuant to Delaware General Corporation Law, only votes cast "FOR" a matter
constitute affirmative votes. Votes "WITHHELD" or abstaining from voting on a
particular matter and broker non-votes are counted for purposes of determining
the presence or absence of a quorum for the transaction of business. Votes
"WITHHELD" or abstaining from voting on a particular matter, because they are
not cast "FOR" the particular proposal, will have the same effect as negative
votes or votes cast "AGAINST" a particular matter, but broker non-votes will
have no effect on any of the proposals.
The holders of a majority of the issued and outstanding stock of the Company
entitled to vote at the Annual Meeting, present in person or represented by
proxy, constitute a quorum. To be elected, a Director must receive a plurality
of the votes of the issued and outstanding shares of Common Stock present in
person or represented by proxy at the Annual Meeting. Approval of Proposals
(ii), (iii) and (iv) will require the affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting. Votes will be tabulated preliminarily by the Company's transfer agent,
Midlantic National Bank. Inspectors of Election, appointed by the Board of
Directors, will finally count and tabulate the votes and determine and announce
the results.
A copy of the Annual Report of the Company, including financial statements
and a description of its operations for the fiscal year 1994, accompanies this
proxy statement. Such report is not incorporated herein by reference.
Mailed to Stockholders
on or about April 10, 1995
<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS.
--------------------------------------------------------------------------------
Nine Directors are to be elected at the Annual Meeting of Stockholders and
will serve until their successors are elected. All are currently serving as
Directors.
It is intended that proxies received will be voted FOR the election of the
nominees named below unless marked to the contrary. In the event any of these
persons is unable or unwilling to serve as a nominee, the proxies may be voted
for the balance of those nominees named and for substitute nominees designated
by the proxy holders or by the present Board of Directors to fill such vacancy,
or for the balance of those nominees named without nomination of a substitute.
Proxies cannot be voted for more than nine nominees. The Board of Directors
believes that each of the persons named will be able and willing to serve as a
nominee and, if elected, as a Director.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Charles A. Baker(1).................... 62 Chairman of the Board, President,
Chief Executive Officer and Director
James G. Andress(2).................... 56 Director
Morton Collins, Ph.D.(1)(2)............ 59 Director
Stuart F. Feiner(1)(3)................. 46 Director
Robert F. Hendrickson(3)............... 62 Director
Bengt Samuelsson, M.D.................. 61 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
NOMINEES FOR ELECTION AS DIRECTORS
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
2
<PAGE>
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.
--------------------------------------------------------------------------------
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 director of, and 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
A.G., Berlin, Germany. He is a Director of Cephalon, Inc., a neuroscience
company, and Aastrom Biosciences, Inc., a cellular therapy medical products
company.
--------------------------------------------------------------------------------
3
<PAGE>
STOCK OWNERSHIP
--------------------------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of January 31, 1995 by (i) each
director and Named Executive Officer of the Company (as defined under the
section entitled "Executive Compensation"), (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)................... 39,009 *
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).......... 1,209,618 4.8
</TABLE>
--------
*Less than 1.0 percent
(1) Ardsley Advisory Partners holds the Company's Common Stock in discretionary
accounts and investment partnerships which are managed by them and their
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.
4
<PAGE>
(3) Includes shares of Common Stock issuable upon the exercise of outstanding
options granted under the Company's stock option plans which are
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; all directors and
executive officers as a group, 1,126,810.
(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 Weissmann, 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. Weissmann's wife serves as trustee.
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ended December 31, 1994, 1993
and 1992, the annual and long-term compensation paid by the Company to the
Chief Executive Officer, and the four other most highly compensated individuals
who served as executive officers of the Company as of December 31, 1994 (these
individuals, together with the Chief Executive Officer, are sometimes referred
to as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- ---------------
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS(1) STOCK OPTIONS COMPENSA-
NAME AND PRINCIPAL POSITION YEAR ($) ($) (NO. OF SHARES) TION(2)($)
--------------------------- ---- ---------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Charles A. Baker 1994 295,000 65,000 40,000 3,810
Chairman of the Board,
President, 1993 280,000 20,000 25,000 4,280
and Chief Executive Offi-
cer 1992 255,000 45,000 35,000 2,182
Edward G. Silverman(3) 1994 193,846 -- 25,000 5,348
Executive Vice President, 1993 149,490 -- 87,840 2,291
Chief Operating Officer 1992 119,873 -- 31,500 578
David S. Gordon, M.D.(4) 1994 187,979 -- 5,000 4,749
Vice President, US Clini-
cal 1993 145,866 -- 99,810 2,097
1992 -- -- -- --
Brooks Boveroux(5) 1994 173,388 -- 7,500 4,576
Vice President, Finance
and 1993 49,039 -- 139,915 --
Chief Financial Officer 1992 -- -- -- --
Guenter E. Ksionski,
M.D.(6) 1994 169,296 -- -- 3,309
Vice President, 1993 128,000 15,000 96,460 3,080
International Clinical 1992 -- -- -- --
</TABLE>
--------
(1) Bonuses, all of which have been paid, are shown in the year earned. The
Company has no long-term incentive compensation plans other than its stock
option plans.
(2) All other compensation reported represents amounts credited as Company
matching contributions under the Company's 401(k) stock match. Company
contributions under the 401(k) stock match plan for 1994 were as follows:
$3,810 to Mr. Baker; $5,348 to Mr. Silverman; $4,749 to Dr. Gordon; $4,576
to Mr. Boveroux and $3,309 to Dr. Ksionski.
5
<PAGE>
(3) Mr. Silverman was promoted to Vice President, Strategic Planning and
Business Development on June 19, 1992, to Senior Vice President, Strategic
Operations on June 21, 1993 and to Executive Vice President and Chief
Operating Officer on November 22, 1993.
(4) Dr. Gordon commenced employment with the Company on March 22, 1993.
(5) Mr. Boveroux commenced employment with the Company on September 20, 1993.
(6) Dr. Ksionski commenced employment with the Company on March 17, 1993. He
resigned as a Vice President of the Company effective at the close of
business on December 31, 1994.
EMPLOYMENT AND TERMINATION AGREEMENTS
--------------------------------------------------------------------------------
The Company has had an employment agreement with Mr. Baker which began in
December 1989 and has been extended to expire on June 30, 1995, to allow time
for certain provisions to be re-negotiated. The compensation portion of the
agreement is discussed in the Report of the Compensation Committee on Executive
Compensation. Under the agreement, Mr. Baker has agreed that he will not during
his employment period and for a period of two years after the termination of
his employment, without the prior approval of the Company's Board of Directors,
engage in any business involved in the research, development, manufacture or
sale of lipids or liposomes or products or services which use natural or
artificial lipids or liposomes to encapsulate, enhance or deliver any product.
Under the agreement, Mr. Baker is entitled to receive an additional payment
should he resign within six months of a change of control of the Company. A
change of control shall be deemed to occur if (i) the Company is not the
surviving entity following a merger or consolidation, (ii) a person acquires,
directly or indirectly, securities of the Company representing 50% or more of
the voting power of all then outstanding securities of the Company having the
right to elect the Board of Directors or (iii) the individuals who constitute
the Board of Directors of the Company at the time of the agreement or
individuals who are subsequently elected to the Board of Directors with the
approval of the incumbent Board cease to constitute a majority of the members
of such Board. If Mr. Baker should choose to resign from his position with the
Company during the first six months following the effective date of a change of
control, Mr. Baker would be entitled to receive his then current monthly base
salary for a 12-month period from such effective date. In addition, all stock
options granted to Mr. Baker which shall not have vested and remain exercisable
as of such date would thereupon automatically vest.
In November 1994, the Company entered into an agreement with Dr. Guenter
Ksionski pursuant to which Dr. Ksionski will no longer serve as an executive
officer of the Company after December 1994 but will continue to receive salary
payments and benefits until the earlier of October 6, 1995 or the date he
commences full-time employment with another employer. The agreement also
provides for accelerated vesting and an extended exercise period for certain
stock options granted to Dr. Ksionski under the Company's 1986 Employee Stock
Option Plan.
6
<PAGE>
OPTION GRANTS
--------------------------------------------------------------------------------
The following table presents stock options granted for the period from
January 1, 1994, through December 31, 1994 to the Named Executive Officers. All
grants were made under the Company's 1986 Employee Stock Option Plan.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(1) (#) FISCAL YEAR (%) ($ PER SHARE) DATE 5% ($) 10% ($)
---- -------------- --------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Baker........ 40,000 3.8 8.688 12/06/04 218,541 553,826
Edward G. Silverman..... 25,000 2.4 8.750 11/10/04 137,571 348,631
David S. Gordon, M.D. .. 5,000 0.5 8.750 11/10/04 27,514 69,726
Brooks Boveroux......... 7,500 0.7 8.750 11/10/04 41,271 104,589
Guenter E. Ksionski,
M.D. .................. 0 0 N/A N/A 0 0
</TABLE>
--------
(1) All options granted expire ten years from the date of grant and become
exercisable in five equal annual installments beginning one year from the
date of grant.
(2) The percentage rates of increase shown are assumed rates established by the
U.S. Securities and Exchange Commission for purposes of uniform
compensation reporting. Accordingly, they do not constitute predictions or
estimates by the Company of the future price appreciation of its Common
Stock or of the potential realizable value of the options referred to in
the table.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
--------------------------------------------------------------------------------
The following table summarizes unexercised stock options to purchase the
Common Stock and the fiscal year-end values of all outstanding options for the
Named Executive Officers. No options were exercised by the Named Executive
Officers in 1994.
OPTION EXERCISES IN 1994 AND DECEMBER 31, 1994 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1994 DECEMBER 31, 1994(1)
--------------------------------- ---------------------------------
NAME EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
---- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Charles A. Baker........ 657,000 93,000 4,203,125 37,500
Edward G. Silverman..... 77,768 120,572 295,917 69,168
David S. Gordon, M.D. .. 19,962 84,848 7,241 28,962
Brooks Boveroux......... 27,984 119,432 71,121 284,483
Guenter E. Ksionski,
M.D. .................. 19,292 77,168 2,948 11,792
</TABLE>
--------
(1) Value of unexercised in-the-money options is equal to the fair market value
of $8.375 per share of common stock at December 31, 1994, the closing price
on that date as quoted by the Nasdaq National Market, less the exercise
price.
7
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
--------------------------------------------------------------------------------
The Board of Directors has three standing committees established in the
Company's bylaws: the Audit Committee, the Compensation Committee and the
Executive Committee. The Company has no standing nominating committee, and the
Board of Directors as a whole functions as such a committee. Stockholders
desiring to submit recommendations for nominees to the Board of Directors
should address their recommendations in writing to the Chairman of the Board.
--------------------------------------------------------------------------------
The Audit Committee consists of Mr. James G. Andress, Dr. Morton Collins and
Dr. Gerald Weissmann. This committee provides advice and assistance to the
Company regarding accounting, auditing and financial reporting. The Audit
Committee also recommends a firm of certified public accountants, whose duty it
is to audit the books and accounts of the Company for the fiscal year for which
they were appointed, and monitors the effectiveness of the audit effort and the
Company's financial and accounting organization and financial reporting. The
Audit Committee held three meetings during the fiscal year ended December 31,
1994. No member of the Audit Committee is an officer or employee of the
Company.
--------------------------------------------------------------------------------
The Compensation Committee consists of Mr. Stuart F. Feiner, Mr. Robert F.
Hendrickson and Dr. Horst Witzel. Its functions are to review and approve
salaries and other matters relating to compensation of all officers and
employees of the Company above a specified salary level, to review and make
recommendations to the Board of Directors with respect to compensation and
benefit plans and practices, and to administer certain benefit plans of the
Company. The Compensation Committee also reviews and approves grants of options
to employees and consultants who are not also Directors of the Company. Option
grants to persons who are Directors of the Company are reviewed and approved by
the Board of Directors. The Compensation Committee held eleven meetings during
the fiscal year ended December 31, 1994. No member of the Compensation
Committee is an officer or employee of the Company.
--------------------------------------------------------------------------------
The Executive Committee consists of Mr. Charles A. Baker, Mr. Stuart F.
Feiner and Dr. Morton Collins. This Committee is authorized to exercise all the
powers of the Board of Directors in the management of the business and affairs
of the Company, and to take actions that might be required between Board
meetings. The Executive Committee held no meetings during the fiscal year ended
December 31, 1994.
--------------------------------------------------------------------------------
The Company's Board of Directors held eight meetings during the fiscal year
ended December 31, 1994. All directors except Mr. Andress attended at least 75
percent of the aggregate number of meetings of the Board of Directors and of
Committees on which they served.
--------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is made up of three non-
employee Directors: Stuart F. Feiner, Robert F. Hendrickson and Dr. Horst
Witzel.
Based upon preliminary data developed by the Company's human resources
personnel, the Committee reviews and determines the base salaries of the
Company's executive officers and the amount of annual bonus awards to be paid,
if any, to the executive officers. In addition, the Committee administers the
Company's stock option plans under which stock option grants may be made to
executive officers and other employees.
COMPENSATION POLICIES AND COMPONENTS OF COMPENSATION
--------------------------------------------------------------------------------
The Committee's fundamental executive compensation philosophy is to enable
the Company to attract and retain key executive personnel and to motivate those
executives to achieve the Company's objectives. Each executive officer's
compensation package is reviewed annually and is comprised of up to three
8
<PAGE>
components: base salary, cash bonuses and stock options, all of which are
determined by the Committee. The Committee's determination as to each element
of the compensation package is based on an annual evaluation of the executive's
performance.
While the Company has begun to commercialize its amphotericin B lipid complex
product, and certain of its other products are in late stage human clinical
trials, the Company is still in its research and development phase and has not
yet achieved profitability. Accordingly, traditional methods of evaluating
executive performance, such as profit levels and return on equity, would be
inappropriate. Thus, the assessment of each executive's performance is based on
attainment of his or her specific personal objectives, which contribute toward
attainment of the Company's overall annual strategic goals. The Company's
annual strategic goals are reviewed and approved by the Board of Directors. For
1994, these goals included achieving budgeted financial targets, making
progress toward obtaining marketing authorizations for late-stage products,
establishing plans to manufacture and market these products as approvals are
obtained, advancing the clinical testing and development programs for earlier-
stage products, and identifying promising new products in the research
pipeline. Each executive's objectives are weighted in accordance with their
relationship with the Company's overall strategic goals and the extent to which
the objectives are achieved.
In addition to the salary, bonus and stock option components of compensation,
executive officers of the Company are eligible to participate in the employee
benefit programs generally available to all other Company employees.
BASE SALARY
--------------------------------------------------------------------------------
In setting the base salary levels for each executive officer, the Committee
reviews data compiled by human resources personnel of the Company, surveys and
other available information on the base salaries of executive officers in
comparable positions at certain of the biotechnology/biopharmaceutical
companies included in the Performance Graph (the "Peer Group"). Factors
considered include, but are not limited to, company size, stage of development
of a company's products and geographic location. Internal performance reviews,
the level of the executive's responsibilities and the value of the executive's
job in the marketplace, are also important criteria in establishing salary
increases, in combination with overall compensation recommendations initially
developed by the human resources personnel of the Company. To remain
competitive, the Company's base salary ranges and salaries generally fall
within the broad mid-range of the Peer Group. The Committee, however, does not
target a specific position in the range of comparative surveys and available
data for each executive. Other factors, such as length of service and the
Committee's judgment as to an individual's contribution toward the achievement
of the Company's overall annual strategic goals, are also considered, but are
not assigned any specific mathematical weight.
BONUS AWARDS
--------------------------------------------------------------------------------
The Company does not have a formal bonus plan for executives. As part of the
review and setting of the Chief Executive Officer's annual compensation, cash
bonuses tied to the achievement of certain specified corporate objectives and
milestones have been awarded to Mr. Baker, as discussed below. Cash bonus
objectives may from time to time be set for other executive officers and key
employees, based on the attainment by the Company of specific annual
milestones, but no such bonuses were offered or paid during or with respect to
1994 to any executive officer other than Mr. Baker. From time to time, but not
during 1994, cash bonuses have been awarded to other executive officers and key
employees, based upon exceptional performance relating to achievement of
critical milestones or objectives.
STOCK OPTIONS
--------------------------------------------------------------------------------
The Compensation Committee recognizes that the Company is in a highly
competitive field, and the success of the Company is very much dependent on its
ability to attract and retain top scientific and
9
<PAGE>
management talent. The Company must compete with over a thousand biotechnology
firms, hundreds of universities and many large, pharmaceutical firms to recruit
top people. The Committee has concluded that the best way to compete for key
personnel is to offer significant potential rewards based on the Company's
success through the issuance of stock options.
The Company has several stock option plans available for the issuance of
incentive stock options and non-qualified stock options (the "Option Plans").
Each of the Option Plans has been approved by the stockholders. Options granted
under the Option Plans 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 had 1,445,808 shares available for future
grants. Stock options are generally granted at the fair market value of the
Common Stock on the date of grant, and they lapse if not exercised within 10
years from the date of grant. Options granted to employees typically vest
ratably over a period of years. Further information about employee stock
options is contained in the sections of this proxy statement entitled
"Amendment to Add Shares to Employee Stock Option Plan and to Extend Term of
Plan" and "Amendment to Extend Term of Non-Qualified Stock Option Plan".
The Option Plans in which executive officers participate are administered by
the Compensation Committee, which has the authority to determine the grantees,
the exercise price, the number of shares subject to each option, the time or
times during which all or a portion of each option may be exercised, and the
other provisions of each option. In determining the number of options to be
granted to executive officers, the Compensation Committee considers a number of
factors, including each officer's level of job responsibility, the prospective
contributions of individuals to the success of the Corporation, and the number
of options awarded to executives in comparable positions by companies in the
Peer Group. Generally, the Company's grants are in the mid-range of the Peer
Group. In granting stock options in 1994, the Committee did not consider the
overall number and value of options then held by individuals who were granted
options. The Company does not currently have specific target ownership levels
for equity holding in the Company by executive officers and other key
employees, although increasing share ownership by executive officers is an
additional advantage of stock options over some other forms of long-term
compensation. Stock option awards in 1994 to continuing executive officers were
somewhat larger than in prior years due to the Company's achievement of its
product development objectives, particularly with respect to ABLC (R), TLC D-
99, TLC C-53 and TLC I-16. In addition, during 1994, first time grants of stock
options were awarded to three new executive officers who joined the Company
during the year.
CHIEF EXECUTIVE OFFICER COMPENSATION
--------------------------------------------------------------------------------
The Committee generally determines cash bonuses, options and other
compensation paid to Mr. Baker based on an annual review conducted during the
November-December period each year. When Mr. Baker joined the Company in
December 1989, the Company entered into an employment agreement with him. The
agreement provides that Mr. Baker will receive a designated annual base salary,
which could be increased from time to time by the Committee. The Committee
increased Mr. Baker's 1993 base salary by $15,000 to $295,000 for 1994. This
increase reflected the review of salary data for chief executive officers of
various companies in the Peer Group and Mr. Baker's role in successfully
completing a preferred stock offering in 1993, in meeting budget targets, and
in advancing the Company's clinical development program.
Mr. Baker's employment agreement also provides that he is entitled to receive
a cash bonus upon the achievement of certain annual objectives. These
objectives are set by the Committee, and for 1994 they focused on achieving
budget targets and meeting milestones in the development of each of the
Company's products. Mr. Baker substantially met these objectives--among other
achievements, income and spending for the year were within budgeted ranges;
applications to market amphotericin B lipid complex had been filed in 18
countries by January 1995; Phase III trials were initiated with TLC D-99 in
metastatic breast cancer; and a Phase II study with TLC C-53 in acute
respiratory distress syndrome was completed. Based
10
<PAGE>
upon the achievement of these objectives, among others, the Committee awarded
Mr. Baker a cash bonus of $65,000 in respect of 1994.
The Committee also granted 40,000 stock options to Mr. Baker effective as of
December 6, 1994, which vest in five equal annual installments and have an
exercise price equal to fair market value on the date of grant. This award,
which was larger than the grant made in the prior year, was given both in
recognition of Mr. Baker's performance in 1994 and as additional incentive for
his future efforts in meeting the Company's goals. In addition, Mr. Baker is
entitled to receive the same standard benefits other Company executives
receive.
Other aspects of Mr. Baker's employment agreement are discussed in the
section of this proxy statement entitled "Employment Agreement."
DEDUCTIBILITY CAP ON EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
Effective January 1, 1994, a new federal tax law disallows corporate
deductibility for certain compensation paid in excess of $1 million to the
chief executive officer and the four other most highly paid executive officers
of publicly held corporations. During 1994, the Company did not exceed the $1
million deductibility cap with respect to any executive officer covered by the
new law. The Committee anticipates that amounts paid as cash compensation will
continue to be less than the $1 million threshold. There can be no assurance,
however, that total compensation for the executive officers will continue to be
fully deductible under the new law in future years.
SUMMARY
--------------------------------------------------------------------------------
In summary, the Compensation Committee believes that the Company's
compensation policies, and their application to compensation paid to executive
officers in 1994, appropriately take into account those factors characteristic
of the biotechnology/biopharmaceutical industry of which the Company is part
and provide adequate rewards and incentives to help ensure that the Company's
management team is among the best in the industry.
Stuart F. Feiner
Robert F. Hendrickson
Horst Witzel, Dr.-Ing
Members of the Compensation
Committee
March 3, 1995
11
<PAGE>
PERFORMANCE GRAPH
--------------------------------------------------------------------------------
The graph below summarizes the total cumulative return experienced by the
Company's stockholders from December 31, 1989 through 1994, compared to the
Nasdaq Total Return Index of U.S. Companies (the "Nasdaq U.S. Stock Index") and
the Hambrecht & Quist Incorporated Healthcare Sector Index (the "H & Q
Healthcare Sector Index"). As stated in the 1994 proxy statement, the Company
believes that the Nasdaq U.S. Stock Index is an appropriate index to use as a
broad-based comparative measure of the Company's performance, as it
incorporates the stocks of many companies whose size and stage of development
are similar to the Company's.
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG THE LIPOSOME COMPANY, INC., NASDAQ U.S. STOCK INDEX
AND H&Q HEALTHCARE SECTOR INDEX
<CAPTION>
H&Q
NASDAQ U.S. HEALTHCARE
Measurement period THE LIPOSOME STOCK SECTOR
(Fiscal year Covered) COMPANY, INC. INDEX INDEX
--------------------- ------------- ----------- ----------
<S> <C> <C> <C>
Measurement PT -
12/31/89 $ 100.00 $100.00 $100.00
FYE 12/31/90 $ 236.36 $ 84.92 $144.02
FYE 12/31/91 $1,027.27 $136.28 $349.92
FYE 12/31/92 $ 854.55 $158.58 $300.07
FYE 12/31/93 $ 481.82 $180.93 $233.20
FYE 12/31/94 $ 609.09 $176.92 $235.19
</TABLE>
12
<PAGE>
DIRECTORS' COMPENSATION
--------------------------------------------------------------------------------
Directors who are not employees of the Company receive annual cash
compensation for their services of $1,000 per quarter. In addition, such
directors receive $1,000 for each Board meeting attended in person, and $250
for each telephonic Board meeting attended.
Dr. Weissmann and Dr. Samuelsson are consultants to the Company. In the
fiscal year ended December 31, 1994, the Company paid approximately $20,000 in
fees to Dr. Weissmann for his services as Chairman of the Company's Cell
Adhesion Scientific Advisory Board and of the Company's Cancer Scientific
Advisory Board, and approximately $11,500 in fees to Dr. Samuelsson for his
services as a member of the Cell Adhesion Scientific Advisory Board. In
addition, Dr. Weissmann received a stock option grant under the Company's 1986
Non-Qualified Stock Option Plan of 20,000 shares, and Dr. Samuelsson received a
grant of 10,000 shares, each at an exercise price of $6.375 per share.
The Company believes that it is very important that it be able to continue to
attract the highest caliber of Independent Directors (as defined below). To do
so, the Company must be able adequately to compensate the directors for the
responsibility and risk they assume. Since the Company does not offer directors
the levels of cash compensation they would normally receive for a directorship
of a large pharmaceutical or other industrial company, stock options offer a
suitable way partially to compensate directors and allow them to share as
stockholders in the ultimate success of the Company. The 1991 Directors'
Nonqualified Stock Option Plan (the "Directors' Plan"), which was adopted by
the stockholders in 1992, constitutes a key element of the Company's long-term
program to attract and compensate Independent Directors.
The Directors' Plan provides that options to purchase 5,000 shares of Common
Stock are automatically granted on July 1 of each year from 1991 until 2001 to
each Independent Director. In addition, Independent Directors appointed after
March 10, 1992 are automatically granted options to purchase 10,000 shares of
Common Stock upon their appointment (the "Appointment Option"). The options
have an exercise price equal to the fair market value of the Common Stock on
the date of grant. Each Independent Director is eligible for participation in
the Directors' Plan, subject to the overall limit on the number of shares
issuable under the Directors' Plan. Any Independent Director who has been
granted an option under the Directors' Plan automatically receives additional
options in subsequent years as long as he or she continues to be a member of
the Board. Twenty percent of the Appointment Options granted to Independent
Directors vest and become exercisable each year over a five-year period. All
other options under the Directors' Plan vest and become fully exercisable one
year from the date of grant. The maximum term of each option is ten years. The
options are nontransferable, except by will or the laws of descent and
distribution, and the estate of a deceased optionee must exercise the options
within two years. If an optionee leaves the Board for other than cause, death
or disability with outstanding options, they may be exercised within six
months, but only with respect to the shares that were immediately exercisable
on the optionee's last day of Board service. If an optionee is removed from the
Board for cause, he or she forfeits all options.
An "Independent Director" is one who is not an employee of the Company and
(a) does not own 5 percent or more of the Common Stock of the Company, (b) does
not represent an owner of 5 percent or more of the Common Stock of the Company,
or (c) did not become a member of the Board as a result of a contractual
agreement between the Company and a third party.
As of January 31, 1995, there were eight Independent Directors participating
in the Directors' Plan. There were eight grants of options to acquire an
aggregate of 45,000 shares of the Company's Common Stock during fiscal year
1994 under the Directors' Plan at exercise prices of $5.625 and $6.375 per
share.
13
<PAGE>
PROPOSAL 2. AMENDMENT TO ADD SHARES TO EMPLOYEE STOCK OPTION PLAN AND TO EXTEND
TERM OF PLAN.
--------------------------------------------------------------------------------
During its progression from an early-stage research company to a
pharmaceutical company having products in all stages of the research and
development process, the Company has made strategic use of employee stock
options as a means of recruiting high caliber, entrepreneurial employees and
providing them with incentive to put forth their best efforts. Now, as it
begins to market its first products, the Company must recruit outstanding
employees experienced in the areas of sales, marketing, medical affairs, and
manufacturing, as well as research and development. More than ever, the
Company's success depends on its ability to attract and retain top scientific
and management talent. The Company must compete for this talent with more than
one thousand other biotechnology firms, hundreds of universities, and many
large pharmaceutical companies. The Company does not offer any of the
retirement annuity benefits that are typically offered by large companies, nor
can it compete with such companies in terms of cash compensation. The Company
must therefore have available a sufficient number of shares under the Employee
Stock Option Plan of 1986 (the "Employee Plan") to attract new talent and to
provide greater incentives for its high-performing employees to stay with the
Company and contribute further to its success.
As of January 31, 1995, the Company had options outstanding under the
Employee Plan covering a total of 3,379,453 shares, and the number of shares
that remained available for option grants was 811,508, which number includes
shares previously subject to options that expired or were canceled without
being exercised. In order to ensure the availability of an adequate number of
shares to permit the continuation of the Company's employee stock option
program under the Employee Plan, the Board of Directors of the Company, in
March 1995, approved an amendment increasing the number of shares available for
issuance under the Employee Plan by 1 million, or less than 5% of the Company's
issued and outstanding shares on March 1, 1995. At the same time, in view of
the Employee Plan's scheduled expiration date of February 13, 1996, the Board
also approved an amendment extending to March 3, 2005 the period during which
options may be granted under the Employee Plan. If approved by the
stockholders, these amendments will increase the total number of shares
authorized for the grant of options under the Employee Plan to 6,525,000, of
which 1,811,508 will be available for future grants and may be granted under
the Employee Plan until March 3, 2005.
The Company also maintains other stock option plans under which grants are
made to individuals who are not employees. The 1986 Non-Qualified Stock Option
Plan is discussed in the next section, and the 1991 Directors Stock Option Plan
is discussed in the section of this proxy statement entitled "Directors'
Compensation." Options granted under these and earlier plans are included in
the discussion of aggregate shares subject to outstanding options that is
contained in the Report of the Compensation Committee on Executive
Compensation. However, the only plan for which additional shares will be
requested at the 1995 Annual Meeting is the Employee Plan.
The Employee Plan, which was adopted with stockholders' approval in 1986,
provides for the issuance to employees of both incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and nonqualified options. The Employee Plan is administered by
the Compensation Committee of the Board of Directors, which has the authority
to determine the grantees, the exercise price and number of shares subject to
each option, the time or times during which all or a portion of each option may
be exercised, and the other provisions of each option.
INCENTIVE STOCK OPTIONS
The exercise price of each incentive stock option granted under the Employee
Plan must be at least equal to the fair market value of a share of Common Stock
on the date of grant, and the maximum term of each option is ten years. The
options are nontransferable and must be exercised by the optionee during the
period of his or her employment by the Company, except that an employee's
estate may exercise the option within
14
<PAGE>
one year of the employee's death. Options granted under the Employee Plan
generally provide that the right to exercise the option vests over time. The
periods of vesting are set by the Compensation Committee at the time of grant.
Any vested option may be exercised within one year by an employee whose
employment terminates by reason of disability, or within 90 days if the
termination was for any reason other than disability or death. The aggregate
fair market value (at the time of grant) of the Common Stock for which any
employee may be granted incentive stock options in any calendar year may not
exceed $100,000.
Under Section 422 of the Code, no taxable income is realized by the optionee
upon the grant or exercise of an incentive stock option, except that the excess
of the fair market value of the stock at the time of exercise over the option
price is an item of tax preference for purposes of the alternative minimum tax.
The grant of an incentive stock option and the optionee's exercise of the
incentive stock option result in no federal income tax consequences to the
employing corporation. If stock acquired upon the exercise of an incentive
stock option is disposed of more than one year from the date of exercise (and
two years after the date of grant), any difference between the option price and
the amount realized on the disposition of the stock is treated as a long-term
capital gain or loss, and the employing corporation is not allowed an income
tax deduction. If stock so acquired is disposed of within such holding period,
the optionee realizes ordinary income in the year of disposition, and the
employing corporation is entitled to a deduction, equal to the difference
between the option price and the lesser of the fair market value at date of
exercise or the amount realized on such disposition (subject to the $1 million
deduction limitation described below). Any gain in excess of the ordinary
income portion is treated as capital gain. The exercise of an incentive stock
option later than three months after termination of employment for any reason
other than death or disability has the same tax consequences as the exercise of
a nonqualified option, as discussed below.
NONQUALIFIED STOCK OPTIONS
Under the Employee Plan, the Compensation Committee may set the exercise
price of nonqualified options above or below the fair market value of the
Common Stock, provided that the exercise price cannot be less than 85% of the
fair market value of the Common Stock as of the date the option is granted, and
the maximum term of each nonqualified option is ten years. Nonqualified options
under the Employee Plan are nontransferable except in the event of death.
The grant of a nonqualified option does not result in taxable income to the
optionee or in a deduction to the employing corporation. The exercise of a
nonqualified option generally results in the realization of ordinary income for
the optionee and a deduction for the employing corporation in an amount equal
to the excess (if any) of the fair market value of the stock on the date of
exercise over the option price. However, under the new federal tax law that
became effective January 1, 1994, the employing corporation may not be able to
take a deduction for this excess in the event that the amount is subject to the
limitations of such law for compensation to executive officers in excess of $1
million. Income tax withholding is required.
NEW PLAN BENEFITS
It is not possible at this time to determine who may be selected to receive
future options under the Employee Plan or the number of options that may be
granted to any individual. Such selection and determination will be made by the
Compensation Committee on the basis of the duties, responsibilities, and
present and future contributions of individuals to the success of the
Corporation and the other factors discussed in the section entitled "Report of
the Compensation Committee on Executive Compensation." As of January 31, 1995,
there were approximately 260 optionees participating in the Employee Plan.
During the 1994 fiscal year, there were 12 grants of options to all executive
officers as a group to acquire a total of 452,720 shares of the Company's
Common Stock, at an average exercise price of $6.57. During the same period,
there were 256 grants of options to all other employees as a group to acquire a
total of 514,600 shares of the Company's Common Stock at an average exercise
price of $7.41 per share. Information as to stock options granted to the Named
Executive Officers during 1994 is set forth above in the Summary Compensation
Table and in the table entitled "Option Grants in 1994." Directors who are not
employees or executive officers of
15
<PAGE>
the Company are not eligible to participate in the Employee Plan. On March 22,
1995, the closing price of the Common Stock traded on the Nasdaq National
Market was $10.625.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENTS TO
THE COMPANY'S 1986 EMPLOYEE STOCK OPTION PLAN.
PROPOSAL 3. AMENDMENT TO EXTEND TERM OF NON-QUALIFIED STOCK OPTION PLAN.
--------------------------------------------------------------------------------
The Non-Qualified Stock Option Plan of 1986 (the "NQSO Plan") contains a
provision that no further options may be granted under the plan more than ten
years after February 13, 1986, which was the date on which the Board of
Directors approved the plan. Rather than proposing a new plan to replace the
NQSO Plan, the Board has, subject to stockholder approval, approved an
amendment extending the term of this plan until March 3, 2005, which will be
ten years after the date on which the Board adopted the amendment. The Board
recommends stockholder approval of this amendment in order to provide in
advance for a sufficient number of options to be available over the next
several years in conjunction with the Company's anticipated growth, and to
avoid any uncertainty regarding the Company's intention to continue its stock
option program.
The purpose of the NQSO Plan is to enable the Company to grant stock options
to consultants, advisors, associate members of the Company's Scientific
Advisory Boards, and others who contribute to the Company's growth but are not
eligible for options under the Employee Plan. The NQSO Plan is administered by
the Compensation Committee of the Board of Directors, which has the authority
to determine the grantees, the exercise price and number of shares subject to
each option, the time or times during which all or a portion of each option may
be exercised, and the other provisions of each option. The option price may be
at, above or below the fair market value of the Common Stock, but in no event
less than the par value of the Common Stock. All options granted under the NQSO
Plan are considered nonqualified options for purposes of the federal tax laws,
and the income tax treatment is the same as described in the prior section of
this proxy statement with respect to nonqualified options granted under the
Employee Plan.
NEW PLAN BENEFITS
It is not possible at this time to determine who may be selected to receive
future options under the NQSO Plan or the number of options that may be granted
to any individual. Such selection and determination will be made by the
Compensation Committee on the basis of the need to offer stock options to
attract qualified scientific advisors and other non-employee consultants and
the potential contribution of such individuals to the Company's growth. As of
January 31, 1995, there were approximately 31 participants in the NQSO Plan.
During the 1994 fiscal year, there were 16 grants of options to participants in
the NQSO Plan to acquire 100,500 shares of the Company's Common Stock, at an
average exercise price of $6.84. There were two grants to Directors who are not
executive officers to acquire a total of 30,000 shares of the Company's Common
Stock at an exercise price of $6.375. There were no grants of options to
executive officers or other employees, since employees are not eligible to
participate in the NQSO Plan. On March 22, 1995, the closing price of the
Common Stock traded on the Nasdaq National Market was $10.625.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE COMPANY'S NON-QUALIFIED STOCK OPTION PLAN OF 1986.
16
<PAGE>
PROPOSAL 4. APPOINTMENT OF AUDITORS.
--------------------------------------------------------------------------------
The Board of Directors of the Company proposes that its appointment of the
firm of Coopers & Lybrand as the Company's independent accountants for the
fiscal year ending December 31, 1995, be ratified by the stockholders. If not
otherwise specified, proxies will be voted in favor of the ratification of the
appointment. Representatives of Coopers & Lybrand are expected to be present at
the Company's Annual Meeting with the opportunity to make a statement, if they
desire to do so, and will be available to respond to appropriate questions.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
--------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's securities, to file with the
Securities Exchange Commission ("SEC") initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater-than-10% shareholders are required by
SEC regulation to furnish the Company with copies of all forms they file under
Section 16(a).
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and representations that no other reports were
required, during the fiscal year ended December 31, 1994, all Section 16(a)
filing requirements applicable to officers, directors and greater-than-10%
shareholders were complied with, except that, in August 1994 Dr. David Gordon
purchased 500 Depositary Shares for the Company's Series A Convertible
Preferred Stock, which he reported on a Form 4 statement filed 18 days after
the date required by the applicable SEC regulation. Dr. Gordon received another
300 Depositary Shares as a distribution from his father's estate in June 1994,
which were reported on an amended Form 4 statement filed in March 1995.
EXPENSE OF SOLICITATIONS
--------------------------------------------------------------------------------
The Company expects to solicit proxies primarily by mail, but directors,
officers and regular employees of the Company may also solicit in person, by
telephone or telegram. The Company may also retain Corporate Investor
Communications to provide proxy solicitation services, as a cost of
approximately $6,500. All expenses in connection with the solicitation of
proxies will be borne by the Company. Arrangements will be made by the Company
for the forwarding at the Company's expense, of soliciting materials by
brokers, nominees, fiduciaries and other custodians to their principals.
STOCKHOLDER PROPOSALS
--------------------------------------------------------------------------------
To be considered for presentation to the Annual Meeting of Stockholders to be
held in 1996, a stockholder proposal must be received by Carol J. Gillespie,
Vice President, General Counsel and Secretary, The Liposome Company, Inc., One
Research Way, Princeton Forrestal Center, Princeton, New Jersey 08540, not
later than December 9, 1995.
OTHER MATTERS
--------------------------------------------------------------------------------
The Board of Directors knows of no other business which will be presented at
the Annual Meeting. If any other business is properly brought before the Annual
Meeting, it is intended that proxies in the enclosed form will be voted in
respect thereof in accordance with the judgments of the persons voting the
proxies.
17
<PAGE>
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY.
By Order of the Board of Directors
Carol J. Gillespie
Secretary
18
<PAGE>
THE LIPOSOME COMPANY, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 11, 1995
THE HOLIDAY INN (FORMERLY THE RAMADA INN), 1053 ROUTE #1, PRINCETON, NEW
JERSEY 08540
THE UNDERSIGNED HEREBY APPOINTS CHARLES A. BAKER AND CAROL J. GILLESPIE, AND
EACH OF THEM, PROXIES OF THE UNDERSIGNED, EACH WITH FULL POWER TO ACT WITHOUT
THE OTHER AND WITH FULL POWER OF SUBSTITUTION, TO VOTE ALL THE SHARES OF COM-
MON STOCK OF THE LIPOSOME COMPANY, INC. HELD IN THE NAME OF THE UNDERSIGNED AT
THE CLOSE OF BUSINESS ON MARCH 23, 1995, AT THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 11, 1995, AND AT ANY ADJOURNMENTS THEREOF, UPON ANY AND ALL
MATTERS WHICH MAY PROPERLY BE BROUGHT BEFORE SAID MEETING OR ANY ADJOURNMENTS
THEREOF, WITH ALL THE POWERS THE UNDERSIGNED WOULD HAVE IF PERSONALLY PRESENT.
THE UNDERSIGNED HEREBY REVOKES ANY AND ALL PROXIES HERETOFORE GIVEN WITH RE-
SPECT TO SUCH MEETING.
P
R
O
X
Y
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
SEE
REVERSE
SIDE
<PAGE>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
9234
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING ITEMS.
--------------------------------------------------------------------------------
1. Election of directors:
FOR [ ] WITHHELD [ ]
To withhold authority to vote for any individual nominee, write that name on the
line below.
---------------------------------------------
NOMINEES: Charles A. Baker James G. Andress Morton Collins, Ph.D. Stuart F.
Feiner Robert F. Hendrickson Bengt Samuelsson, M.D. Joseph T. Stewart, Jr.
Gerald Weissmann, M.D. Horst Witzel, Dr.-Ing
2. Approval of amendments to the 1986 Employee Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of amendments to the 1986 Non-Qualified Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Ratification of the appointment of Coopers & Lybrand as principle
independent auditors for 1995.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion upon such other matters as may properly come before the
meeting, in accordance with the accompanying Notice and Proxy Statement,
receipt of which is acknowledged.
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES WILL BE VOTED. IF A
CHOICE IS SPECIFIED BY THE STOCKHOLDER(S), THE SHARES WILL BE VOTED ACCORDINGLY.
IF NOT, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS AND FOR PROPOSALS 2, 3 AND 4.
SIGNATURE(S) _____________ DATE ______
SIGNATURE(S) _____________ DATE ______
Please sign your name exactly as it appears hereon. In the case of joint owners,
each should sign. If signing in a representative capacity, please give full
title.
