<PAGE> 1
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
Allergan Specialty Therapeutics, 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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1. Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set 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.
6. Amount Previously Paid:
- --------------------------------------------------------------------------------
7. Form, Schedule or Registration Statement No.:
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8. Filing Party:
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9. Date Filed:
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<PAGE> 2
ALLERGAN SPECIALTY THERAPEUTICS, INC.
2525 DUPONT DRIVE
IRVINE, CA 92612
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 1999
TO THE STOCKHOLDERS OF ALLERGAN SPECIALTY THERAPEUTICS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Allergan
Specialty Therapeutics, Inc., a Delaware corporation (the "Company" or "ASTI"),
will be held on April 23, 1999 at 10:00 a.m., local time, at 2525 Dupont Drive,
Irvine, California 92612 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To ratify the selection of KPMG LLP as independent auditors of the
Company for its fiscal year ending December 31, 1999.
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 17, 1999 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ WILLIAM C. SHEPHERD
William C. Shepherd
Chairman of the Board,
President and Chief Executive Officer
Irvine, California
March 22, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
ALLERGAN SPECIALTY THERAPEUTICS, INC.
2525 DUPONT DRIVE
IRVINE, CA 92612
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 1999
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Allergan Specialty Therapeutics, Inc., a Delaware corporation ("ASTI" or the
"Company"), for use at the Annual Meeting of Stockholders to be held on April
23, 1999, at 10:00 a.m., local time, or at any adjournment or postponement
thereof (the "Annual Meeting"), for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. The Annual Meeting will be held at 2525
Dupont Drive, Irvine, California 92612. The Company intends to mail this proxy
statement and accompanying proxy card on or about March 22, 1999, to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Class A Common Stock beneficially
owned by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Class A Common Stock for their costs
of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors or officers. No additional compensation will
be paid to directors or officers for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Class A Common Stock at the close of business on
March 17, 1999 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on March 17, 1999 the Company had outstanding and
entitled to vote 3,272,690 shares of Class A Common Stock.
Each holder of record of Class A Common Stock on such date will be entitled
to one vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 2525
Dupont Drive, Irvine, California 92612, a written notice of revocation or a duly
executed proxy
1
<PAGE> 4
bearing a later date, or it may be revoked by attending the meeting and voting
in person. Attendance at the meeting will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is November 23, 1999. The deadline for submitting a stockholder
proposal or a nomination for director that is not to be included in such proxy
statement and proxy is sixty days in advance of the 2000 annual meeting of
stockholders or ten days after the date on which notice of the meeting is first
given to the stockholders, whichever is later. Stockholders are also advised to
review the Company's Bylaws, which contain additional requirements with respect
to advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions presently authorized
in the Company's Bylaws. Each director to be elected will hold office until the
next annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the five nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected, and management has no reason to believe that any nominee
will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
<S> <C> <C>
William C. Shepherd................ 60 Chairman of the Board of Directors,
President and Chief Executive Officer
Lester J. Kaplan, Ph.D............. 48 Corporate Vice President and President,
Research & Development and Global
BOTOX(R) of Allergan, Inc.
Alan J. Lewis, Ph.D.(1)............ 53 Chief Executive Officer of Signal
Pharmaceuticals, Inc.
Gary L. Neil, Ph.D.(1)............. 58 President and Chief Executive Officer
of Crescendo Pharmaceuticals
Corporation
Marvin E. Rosenthale, Ph.D......... 65 Member, Board of Directors
</TABLE>
- ---------------
(1) Member of the Audit Committee.
William C. Shepherd, 60, has been President and Chief Executive Officer of
the Company since March 1998. He also served as Chairman of the Board of
Allergan, Inc., a technology-driven, global health care company ("Allergan"),
from January 1996, and as Allergan's President and Chief Executive Officer from
2
<PAGE> 5
1992, until his retirement effective January 1, 1998. Since his retirement, Mr.
Shepherd has served as a consultant to Allergan. Mr. Shepherd first joined
Allergan in 1966 and from 1984 to 1991, was its President and Chief Operating
Officer. He is a director, and serves on the compensation committee, of Furon
Company, a publicly-traded company engaged in the design, development and
manufacture of highly engineered products made primarily from specially
formulated high performance polymer materials, and serves on the Boards of
Directors of Techniclone Corporation, a publicly-held biotechnology company
engaged in the research and development of therapeutics for the treatment of
cancer, and ANSYS Diagnostics, Inc, a private company engaged in the
development, manufacture and marketing of disposable medical diagnostic
products. Mr. Shepherd was elected to the Board in 1998.
Lester J. Kaplan, Ph.D., 48, has served as Corporate Vice President and
President, Research & Development and Global Botox(R) of Allergan since May 1998
and, from July 1996 to May 1998, was Corporate Vice President, Science and
Technology of Allergan. From 1992 to 1996, he was Corporate Vice President,
Research and Development of Allergan. He served as Senior Vice President,
Pharmaceutical Research and Development of Allergan from 1991 to 1992, and as
Senior Vice President, Research and Development of Allergan from 1989 to 1991.
Dr. Kaplan is an Advisory Board Member to the Pediatric Cancer Research
Foundation (PCRF) and Healthcare Ventures. He is also a member of the Board of
Directors of the Orange County Performing Arts Center. He first joined Allergan
in 1983 and was elected to the Allergan Board of Directors in 1994. Dr. Kaplan
has been a director of ASTI since its formation in November 1997 and, from
November 1997 until March 1998, was its President and Chief Executive Officer.
Alan J. Lewis, Ph.D., 53, has served as Chief Executive Officer and
director of Signal Pharmaceuticals, Inc., an integrated target and drug
discovery company ("Signal"), since 1996 and as President of Signal since 1994.
Prior to joining Signal, Dr. Lewis served for 15 years at Wyeth-Ayerst Research
division of Wyeth Laboratories, Inc., a subsidiary of American Home Products,
where he held a variety of positions, including Vice President of Research from
1990 to 1994. At Wyeth-Ayerst, Dr. Lewis was responsible for research efforts in
CNS, cardiovascular, inflammatory, allergy and bone metabolism diseases. Dr.
Lewis was elected to the Board in 1998 and is a member of its Audit Committee.
Gary L. Neil, Ph.D., 58, has served as President and Chief Executive
Officer and a director of Crescendo Pharmaceuticals Corporation, a
pharmaceutical development and commercialization company, since 1997. From 1993
to 1997, Dr. Neil was President and Chief Executive Officer and a director of
Therapeutic Discovery Corporation. From 1990 to 1993, Dr. Neil served as
Executive Vice President of the Wyeth-Ayerst Research division of Wyeth
Laboratories, Inc., a subsidiary of American Home Products. From 1966 to 1989,
he served at The Upjohn Company in various positions, including Director, Cancer
Research, Vice President, Biotechnology and Basic Research Support and Vice
President, Discovery Research. Dr. Neil is also a member of the Board of
Directors of Geron Corporation, a publicly held corporation and of Calydon,
Inc., Camitro Inc. and Pharsight Corp., each of which is a privately held
company. He is also a member of the Compensation Committee of Calydon, Inc. and
Pharsight Corporation. Dr. Neil was elected to the Board in 1998 and is a member
of its Audit Committee.
Marvin E. Rosenthale, Ph.D., 65, served as President and Chief Executive
Officer of Allergan Ligand Retinoid Therapeutics., Inc. ("ALRT") from December
1994 until November 1997. ALRT was formed by Allergan and Ligand Pharmaceuticals
Incorporated ("Ligand") in 1994 to accelerate development of retinoid products
previously being pursued in the Allergan/Ligand joint venture (the "Joint
Venture"), of which Dr. Rosenthale was Vice President from August 1993 until the
formation of ALRT. Prior to joining the Joint Venture, Dr. Rosenthale served as
Vice President, Drug Discovery Worldwide, at R. W. Johnson Pharmaceutical
Research Institute from 1990 to 1993. From 1977 to 1990, Dr. Rosenthale served
in a variety of positions in drug discovery research for Ortho Pharmaceutical
Corporation, including director of the divisions of pharmacology and of
biological research and executive director of drug discovery research. From 1960
to 1977, he served in various positions with Wyeth Laboratories, Inc. Dr.
Rosenthale is a member of the Board of Directors and the Compensation Committee
of Acute Therapeutics Inc., a privately held company. Dr. Rosenthale was elected
to the Board in 1998.
3
<PAGE> 6
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board of Directors held
three meetings. The Board has an Audit Committee. There are no other Committees
of the Board of Directors, and the full Board of Directors served all functions
other than those functions served by the Audit Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors: Drs. Lewis and Neil. The Audit Committee did not meet during the
fiscal year ended December 31, 1998.
During the fiscal year ended December 31, 1998, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the committees
on which he served, held during the period for which he was a director or
committee member, respectively.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999 and has further directed
that management submit the selection of independent auditors for ratification by
the stockholders at the Annual Meeting. KPMG LLP has audited the Company's
financial statements since its inception in November 1997. Representatives of
KPMG LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of KPMG LLP as the Company's
independent auditors is not required by the Company's Bylaws or otherwise.
However, the Board is submitting the selection of KPMG LLP to the stockholders
for ratification as a matter of good corporate practice. If the stockholders
fail to ratify the selection, the Audit Committee and the Board will reconsider
whether or not to retain that firm. Even if the selection is ratified, the Audit
Committee and the Board in their discretion may direct the appointment of
different independent auditors at any time during the year if they determine
that such a change would be in the best interests of the Company and its
stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of KPMG LLP. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
4
<PAGE> 7
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the ownership
of the Company's Class A Common Stock and Class B Common Stock as of January 31,
1999 by: (i) each nominee for director; (ii) each of the executive officers
named under "Executive Compensation and Other Information"; (iii) all executive
officers and directors of the Company as a group; and (iv) all those known by
the Company to be beneficial owners of more than five percent of its Class A
Common Stock or Class B Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
OF
CLASS A COMMON STOCK
-----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNERS OF CLASS A COMMON STOCK SHARES(2) TOTAL
----------------------------------------- --------- ----------
<S> <C> <C>
Lester J. Kaplan, Ph.D. .................................... 579 *
Alan J. Lewis, Ph.D. ....................................... 0 0
Gary L. Neil, Ph.D.(3)...................................... 5,000 *
Marvin E. Rosenthale, Ph.D. ................................ 0 0
William C. Shepherd......................................... 1,830 *
Douglas S. Ingram........................................... 232 *
Dwight J. Yoder............................................. 181 *
Farallon Capital Management LLC(4).......................... 917,921 28.0%
One Maritime Plaza, Suite 1325
San Francisco, California 94111
Lourde John Constable(5).................................... 476,000 14.5%
5 Radnor Corp. Center
100 Matsonford Road, Suite 520
Radnor, Pennsylvania 19087
Woodbourne Partners, L.P.(6)
200 N. Broadway, Suite 825
St. Louis, Missouri 63102................................. 245,200 7.5%
Wellington Management Company, LLP(7)
75 State Street
Boston Massachusetts 02109................................ 186,770 5.71%
All executive officers and directors as a group (7
persons)(8)............................................... 7,822 *
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
3,272,690 shares of Class A Common Stock outstanding on January 31, 1999,
adjusted as required by rules promulgated by the SEC.
(2) Includes shares described in footnote (1) above, as applicable.
(3) Shares held by the Beverly M. Neil and Gary L. Neil Family Trust dated
12/16/93, Beverly M. Neil and Gary L. Neil, Trustees.
(4) Amendment No. 9 to the Schedule 13G filed on December 2, 1998 was filed
jointly by Andrew B. Fremder ("Fremder"), David I. Cohen ("Cohen"), Enrique
H. Boilini ("Boilini"), Fleur E. Fairman ("Fairman"), Jason M. Fish
("Fish"), Joseph F. Downes ("Downes"), Meridee A. Moore ("Moore"), Stephen
L. Millham ("Millham"), Thomas F. Steyer ("Steyer"), William F. Mellin
("Mellin"), Farallon Capital Partners, L.P. ("FCP"), Farallon Partners,
L.L.C. ("FPLLC"), Farallon Capital Institutional Partners, L.P. ("FCIP"),
Farallon Capital Institutional Partners II, L.P. ("FCIPII"), Farallon
Capital Institutional Partners III, L.P. ("FCIPIII"), Farallon Capital
Management LLC
5
<PAGE> 8
("FCMLLC") and Tinicum Partners, L.P. ("Tinicum"). The filing was made
jointly because Mr. Steyer is the senior managing member of FPLLC, Messrs.
Boilini, Cohen, Downes, Fish, Fremder, Mellin, Millham and Moore are
managing members of both FPLLC and FCMLLC, and Mr. Fairman is a managing
member of FPLLC. FPLLC is the General Partner of FCP, FCIP, FCIPII, FCIPIII
and Tinicum. The foregoing entities and individuals do not affirm membership
in a group. FPLLC has shared voting and dispositive power as to 513,421
shares which includes 196,121 shares as to which FCP has shared voting and
dispositive power, 208,100 as to which FCIP has shared voting and
dispositive power, 41,200 shares as to which FCIPII has shared voting and
dispositive power, 48,800 shares as to which FCIPIII has shared voting and
dispositive power and 19,200 as to which Tinicum has shared voting and
dispositive power. FCMLLC has shared voting and dispositive power as to
399,800 shares. All of the individuals (other than Fairman) have shared
voting and dispositive power as to 913,221 shares, since they are the
managing members of both FPLLC and FCMLLC. Fairman has shared voting and
dispositive power as to 513,421 shares because he is a managing member of
FPLLC only.
(5) Includes 149,800 shares as to which Lourde John Constable has sole voting
and dispositive power and 326,200 shares as to which Lourde John Constable
has shared voting and dispositive power.
(6) Clayton Management Company and John D. Weil have sole voting and dispositive
power as to 245,200 shares, which includes 181,900 shares beneficially owned
by Woodbourne Partners and 63,300 shares beneficially owned by Forsyth Joint
Venture. John D. Weil is the President of Clayton Management Company, which
is the General Partner of Woodbourne Partners and the Manager of Forsyth
Joint Venture.
(7) Includes 29,375 shares as to which Wellington Management Company ("WMC") has
shared voting power and 186,770 shares as to which WMC has shared
dispositive power.
(8) See footnote (3).
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF
CLASS B COMMON STOCK
-----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER OF CLASS B COMMON STOCK SHARES TOTAL
---------------------------------------- --------- ----------
<S> <C> <C>
Allergan, Inc............................................... 1,000 100%
2525 Dupont Drive
Irvine, California 92612
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the 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 ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
6
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives an annual retainer of
$10,000 plus a per meeting fee of $1,000. In the fiscal year ended December 31,
1998, the total compensation paid to each non-employee director was $13,000. The
non-employee members of the Board of Directors are eligible for reimbursement
for their expenses incurred in connection with attendance at Board meetings in
accordance with Company policy.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- ---------------------------------------
<S> <C> <C>
William C. Shepherd............ 60 President and Chief Executive Officer
Douglas S. Ingram.............. 36 Secretary and General Counsel
Dwight J. Yoder................ 53 Chief Financial Officer
</TABLE>
Officers are appointed by and hold office at the pleasure of the Board of
Directors.
Mr. Shepherd's biography is set forth in Proposal 1 under the heading
"Election of Directors -- Nominees."
Mr. Ingram has been the Secretary and General Counsel of the Company since
October 1998. He has also been the Associate General Counsel of Allergan since
August 1998, and its Assistant Secretary since November 1998. Prior to that, Mr.
Ingram was Allergan's Assistant General Counsel from January 1998 and Senior
Attorney and Chief Litigation Counsel of Allergan from March 1996, when he first
joined Allergan. Prior to joining Allergan, Mr. Ingram was, from August 1988 to
March 1996, an attorney with the Orange County office of the law firm of Gibson,
Dunn & Crutcher.
Mr. Yoder has been the Chief Financial Officer of the Company since its
formation in November 1997 and had been the Chief Financial Officer of Allergan
Ligand Retinoid Therapeutics, Inc. from July 1995 until November 1997. Mr. Yoder
has also been Senior Vice President and Controller of Allergan since July 1996
and was its Vice President and Controller from 1990, when he first joined
Allergan.
COMPENSATION OF EXECUTIVE OFFICERS
The executive officers did not receive compensation for services rendered
in any capacity to the Company for the fiscal years ended December 31, 1997 and
1998.
STOCK OPTION, STOCK APPRECIATION RIGHTS, EXERCISES AND HOLDINGS
The Company does not currently maintain an option program for its employees
and is prevented by its Certificate of Incorporation from issuing any additional
shares, class or series of stock without the affirmative vote of the holders of
a majority of the issued and outstanding shares of the Class B Common Stock, all
of which are held by Allergan. The Company did not grant any stock options or
stock appreciation rights to any of its executive officers during the year ended
December 31, 1998.
EMPLOYMENT AGREEMENT
William C. Shepherd provides services to ASTI pursuant to the terms of a
letter agreement between Mr. Shepherd and Allergan regarding Mr. Shepherd's
retirement from Allergan, which was effective January 1, 1998. Pursuant to the
terms of the letter agreement, Allergan has agreed to pay Mr. Shepherd severance
payments totaling $3,210,000, on a semi-monthly basis, during the period
commencing January 1, 1998 and ending 36 months following such date (the
"Severance Pay Period"). In partial consideration of such severance payments,
Mr. Shepherd has agreed to provide consulting services to Allergan as requested
by Allergan's Chief Executive Officer for up to a maximum of 50 days per year
during the Severance Pay Period. In addition, pursuant to the terms of the
letter agreement, the vesting of all of Mr. Shepherd's outstanding unvested
Allergan options was accelerated as of January 1, 1998. Such options are
exercisable by
7
<PAGE> 10
Mr. Shepherd at any time prior to the earlier of (a) January 1, 2003 or (b) the
expiration of any such options in accordance with their terms. Under the terms
of the letter agreement, Allergan has also agreed to provide Mr. Shepherd with
continued medical, dental, group term life, disability and flexible spending
account benefits, continued pension benefit accruals and other miscellaneous
perquisites and benefits during the Severance Pay Period.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
All of the Company's officers are affiliated with Allergan and are not
separately compensated by the Company. Accordingly, the Board has not
established any policies governing executive officer compensation, and
compensation of such executive officers by Allergan is not directly related to
their performance as executive officers of the Company.
BOARD OF DIRECTORS
Lester J. Kaplan, Ph.D.
Alan J. Lewis, Ph.D.
Gary L. Neil, Ph.D.
Marvin E. Rosenthale, Ph.D.
William C. Shepherd
- ---------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the 1933 Act or the 1934 Act, whether made
before or after the date hereof and irrespective of any general
incorporation language contained in such filing.
8
<PAGE> 11
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on March 10, 1998 (the date of which the Company's Class A Common
Stock was first traded on the Nasdaq National Market) for (i) the Company's
Class A Common Stock, (ii) the weighted average return of stock companies
included in the Nasdaq Stock Market Total Return Index (US) ("Market Index") and
(iii) the Nasdaq Pharmaceutical Stocks Index ("Industry Index"). All values
assume reinvestment of the full amount of all dividends and are calculated as of
December 31 of each year.
The stockholder return shown on the graph below is not necessarily
indicative of future performance and the Company will not make or endorse any
predictions as to future stockholder returns:
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
<TABLE>
<CAPTION>
ASTI MARKET INDEX INDUSTRY INDEX
---- ------------ --------------
<S> <C> <C> <C>
3/10/98 100 100 100
12/01/98 103 127 122
</TABLE>
- ------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP BETWEEN THE COMPANY AND ALLERGAN, INC.
In connection with the distribution by Allergan of all of the Class A
Common Stock to its stockholders in March 1998 (the "Distribution"), the Company
and Allergan entered into the following agreements:
Technology License Agreement. Pursuant to the Technology License Agreement,
Allergan granted to ASTI an exclusive (subject to certain pre-existing rights),
perpetual license, with certain rights to sublicense, to use certain Allergan
technology (the "Allergan Technology") solely to conduct research and
development with respect to products proposed by Allergan and approved by the
Company's Board (the "ASTI Products") and to conduct related activities, and to
commercialize such products, in the U.S. with respect to Memantine and worldwide
with respect to other ASTI Products. Until a product candidate becomes an ASTI
Product,
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<PAGE> 12
Allergan will have full rights to exploit such product, subject only to its
obligations to pay royalties on net sales of products (other than ASTI Products)
covered by technology developed or otherwise obtained by ASTI pursuant to the
Research and Development Agreement ("Developed Technology Products") and
products ("Pre-Selection Products") resulting from other research and
pre-clinical development work undertaken by ASTI to determine the suitability of
other lead compounds and product candidates for research and development
("Pre-Selection Work"). ASTI has agreed to enter into license arrangements to
document such rights, as necessary.
In exchange for the license to use the existing Allergan Technology
relating to the ASTI Products and Allergan's commitment to make specified
payments on sales of certain products, ASTI will pay a technology fee (the
"Technology Fee") to Allergan and has granted Allergan the License Option and
the option to independently develop Pre-Selection Products. The Technology Fee
is payable monthly over a period of four years and is $833,333 per month for the
first 12 months following October 23, 1997, $558,333 per month for the following
12 months, $275,000 per month for the following 12 months and $166,667 per month
for the following 12 months; provided that the Technology Fee will no longer be
payable at such time as fewer than two of the ASTI Products are being developed
by ASTI and/or have been licensed by Allergan pursuant to Allergan's exercise of
its option to commercialize an ASTI Product pursuant to the License Option
Agreement described below (the "License Option").
Either Allergan or ASTI may terminate the Technology License Agreement upon
the occurrence of a material breach of the Technology License Agreement or the
License Option Agreement by the other party which continues for 60 days after
written notice. The Technology License Agreement will automatically terminate
(a) upon termination by ASTI of the Research and Development Agreement
(described below) other than due to a breach thereof by Allergan or (b) upon
termination by Allergan of the Research and Development Agreement due to a
breach thereof by ASTI.
Pursuant to the Technology License Agreement, Allergan has licensed to ASTI
rights to research and develop Memantine for commercialization in the United
States only. Commercialization rights to Memantine for the rest of the world
other than the United States have been licensed to Allergan-Ireland.
Allergan-Ireland and ASTI have entered into a cross-license agreement whereby
each has exclusively licensed to the other rights to commercialize in each
party's respective territory any improvements to the Memantine technology
developed by the licensing party.
Allergan Technology excludes, and ASTI will have no rights with respect to,
any topical formulation of Tazarotene. Allergan is currently marketing a topical
formulation of Tazarotene for the treatment of psoriasis and acne in the United
States under the brand name "Tazorac" and outside of the United States under the
brand name "Zorac."
Research and Development Agreement. Under the Research and Development
Agreement, Allergan has agreed to perform diligently all work necessary to
conduct the activities agreed upon by Allergan and ASTI. Allergan is not
required to devote any specific amount of time or resources to research and
development activities under the Research and Development Agreement, and
Allergan expects to devote a substantial amount of its time and resources to
activities for its own account. Activities under the Research and Development
Agreement are undertaken pursuant to work plans and cost estimates proposed by
Allergan and accepted by ASTI. ASTI may approve all or any portion of a proposed
work plan and cost estimate or may determine not to approve any proposed work
plan and cost estimate. ASTI is not obligated to fund research and development
of ASTI Products or Pre-Selection Work in excess of amounts reflected in
approved work plans and cost estimates. Allergan is not required to undertake
activities that would result in research and development costs exceeding those
in approved work plans and cost estimates.
Under the Research and Development Agreement, ASTI is expected to utilize
substantially all of the $200 million contributed to it by Allergan in
connection with the Distribution, plus any investment income earned thereon,
less certain research and development costs, ASTI's administrative expenses and
the technology fee payments described below (the "Available Funds"), to
reimburse Allergan for its fully-burdened cost of activities undertaken pursuant
to such agreement (the "Research and Development Costs") and Pre-Selection Work.
Research and Development Costs are determined on the same basis as charged by
10
<PAGE> 13
Allergan to its pharmaceutical company clients, and Allergan will recognize
reimbursement of such amounts as research and development revenue. The
corresponding research and development expenses of Allergan will offset this
revenue. Under the Research and Development Agreement, ASTI also may use
Available Funds for licensing technology, products or therapeutic agents from
third parties and for the research and development of ASTI Products with third
parties; provided, however, that Allergan's consent will be required if such
activities involve Allergan Technology or could affect Allergan's rights under
any of the Allergan/ ASTI Agreements or Allergan's rights as a holder of the
ASTI Class B Common Stock. Any agreements between ASTI and third parties
relating to ASTI Products or Developed Technology must include appropriate
provisions for the protection of Allergan Technology and Developed Technology
and Allergan's rights under the Allergan/ASTI Agreements. Subject to the
foregoing, the amount and nature of the work to be performed by third parties
will be determined by ASTI. It is anticipated that if ASTI were to fund the
continued research and development of the current ASTI Products through FDA
review for marketing clearance, the funding of these activities, together with
Pre-Selection Work undertaken by Allergan and funded by ASTI, would require
substantially all of the Available Funds.
ASTI has agreed to use diligent efforts to research and develop ASTI
Products in accordance with approved work plans and cost estimates under the
Research and Development Agreement, most likely by paying Allergan or third
parties to perform research and development services. ASTI is required to spend
all Available Funds under the Research and Development Agreement. It is
currently anticipated that ASTI will spend the Available Funds over a period of
approximately three to four years. Prior to expenditure, ASTI has and will
continue to invest Available Funds in certain types of high quality marketable
securities. ASTI may not encumber, pledge or otherwise take any action with
respect to Available Funds that could prevent the full expenditure of such funds
under the Research and Development Agreement. There are no restrictions on
ASTI's use of its funds other than Available Funds to conduct its business as it
determines, subject to the terms of ASTI's Restated Certificate of Incorporation
and the Allergan/ASTI Agreements.
Unless ASTI agrees otherwise, all ASTI Products will be owned by ASTI or,
in the case of a product licensed from a third party (or a product incorporating
a therapeutic agent licensed from a third party), exclusively licensed to ASTI,
in each case subject to the License Option. Any such exclusive license will be
worldwide, will include the right to sublicense and will grant rights to ASTI
that are substantially similar to those rights ASTI would have as the owner of
such product. As between Allergan and ASTI, Allergan will own all Developed
Technology, including patents, subject to ASTI's exclusive license to use
Developed Technology to select and develop ASTI Products and to conduct related
activities, and to commercialize ASTI Products. Allergan will determine whether
and to what extent to seek patent protection for Developed Technology and/or
ASTI Products. The costs of obtaining and maintaining patents covering ASTI
Products during the term of the Research and Development Agreement are included
as Research and Development Costs under the Research and Development Agreement.
Allergan will make payments with respect to Developed Technology Products
("Developed Technology Royalties") to ASTI, on a country-by-country basis, equal
to the sum of (i) 1% of Net Sales of such Developed Technology Product, plus
(ii) 10% of any Sublicensing Revenues with respect to such Developed Technology
Product. Subject to Allergan's payment buy-out option, Developed Technology
Royalties will be payable with respect to a Developed Technology Product in any
country until expiration of the last to expire of the relevant patent or
patents.
Allergan will make payments with respect to Pre-Selection Products
("Pre-Selection Product Payments") to ASTI equal to the sum of (i) 1% of Net
Sales of such Pre-Selection Product, plus (ii) 10% of any Sublicensing Revenues
with respect to such Pre-Selection Product. Subject to Allergan's payment
buy-out option, Pre-Selection Product Payments will be payable with respect to a
Pre-Selection Product until seven years after the first commercial sale of such
Pre-Selection Product in the first Major Market Country in which such product is
commercially sold.
In the case where Allergan is required to make payments with respect to a
product that is both a Pre-Selection Product (by virtue of ASTI having funded
Pre-Selection Work therefor) and a Developed Technology Product (by virtue of
the issuance of a patent covering such product which claims Developed
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<PAGE> 14
Technology) in any country, the payment due for any period with respect to such
product will be limited to the sum of (i) 1% of Net Sales, plus (ii) 10% of
Sublicensing Revenues.
In determining the Developed Technology Royalties and Pre-Selection Product
Payments due to ASTI, Net Sales by Allergan will be reduced by the amount of any
license payments or similar payments due to third parties from Allergan with
respect to such Developed Technology Product or Pre-Selection Product. It is
possible that, to develop certain products using Developed Technology or
Pre-Selection Products, licenses or other arrangements with third parties may be
necessary or appropriate. Such arrangements could require payments by Allergan
that would reduce payments owed to ASTI.
Allergan has the option to buy out the right of ASTI to receive Developed
Technology Royalties and Pre-Selection Product Payments with respect to any
Developed Technology Product or Pre-Selection Product, in each case, on either a
country-by-country or worldwide basis.
A country-by-country buy-out option may be exercised for any Developed
Technology Product or Pre-Selection Product in any country at any time after the
end of the twelfth calendar quarter during which the product was commercially
sold in such country. The buy-out price will be 15 times the payments made by or
due from Allergan to ASTI with respect to sales of such product in such country
for the four calendar quarters immediately preceding the quarter in which the
buy-out option is exercised. The global buy-out option may be exercised for any
Developed Technology Product or Pre-Selection Product at any time after the end
of the twelfth calendar quarter during which the product was commercially sold
in either the United States or two other Major Market Countries. The global
buy-out price will be (i) 20 times (a) the payments made by or due from Allergan
to ASTI for the relevant product, plus (b) such payments as would have been made
by or due from Allergan to ASTI if Allergan had not exercised any
country-specific buy-out option with respect to such product, in each case, for
the four calendar quarters immediately preceding the quarter in which the global
buy-out option is exercised, less (ii) any amounts previously paid to exercise
any country-specific buy-out option with respect to such product.
The Research and Development Agreement will terminate upon the exercise or
expiration of the Purchase Option; provided, however, that Allergan's obligation
to pay Developed Technology Royalties and Pre-Selection Product Payments will
continue if the Purchase Option expires unexercised. Either party may terminate
the Research and Development Agreement if the other party (i) breaches a
material obligation thereunder or under the Technology License Agreement, the
License Option Agreement or any license thereunder (if such breach continues for
60 days after written notice by the terminating party), or (ii) enters into any
proceeding, whether voluntary or involuntary, in bankruptcy, reorganization or
similar arrangement for the benefit of creditors. In addition, ASTI's
expenditures under the Research and Development Agreement relating to an ASTI
Product in any country will terminate after exercise of the License Option for
such ASTI Product in such country if the development of such ASTI Product is
being continued by Allergan, alone or with a third party, and if Allergan elects
not to include ASTI in the continuing development activities related to the ASTI
Product. If Allergan does include ASTI in such development activities, ASTI may
continue to fund all or a portion of Research and Development Costs, even after
any arrangement with the third party has been executed, subject to ASTI's
continued approval of the work plans and cost estimates for the ASTI Product.
License Option Agreement. Pursuant to the License Option Agreement, ASTI
has granted the License Option to Allergan pursuant to which Allergan may, on a
product-by-product and country-by-country basis, obtain from ASTI a perpetual,
exclusive license (with the right to sublicense) to research, develop, make,
have made and use an ASTI Product and to sell and have sold such product (a
"Licensed Product") in the country or countries as to which the License Option
is exercised (the "Territory"). Allergan may exercise the License Option with
respect to any ASTI Product on a country-by-country basis at any time until (i)
with respect to the United States, 30 days after FDA clearance to market such
ASTI Product in the United States and (ii) with respect to all other countries,
90 days after the earlier of (a) clearance by the appropriate regulatory agency
to market such ASTI Product in such country, or (b) clearance by the FDA to
market the ASTI Product in the United States. The License Option will expire, to
the extent not previously exercised, 30 days after the expiration of the
Purchase Option. Allergan must exercise the License Option for any
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<PAGE> 15
country prior to the date of the first commercial sale of the ASTI Product in
such country. Even if Allergan exercises its License Option with respect to an
ASTI Product, ASTI may continue to fund the development of such product to the
extent proposed by Allergan and accepted by ASTI's Board of Directors.
If Allergan exercises the License Option for an ASTI Product, ASTI and
Allergan will enter into a License Agreement with respect to such product
(thereafter a "Licensed Product"), and Allergan will be required to use diligent
efforts to complete the research and development of and to commercialize such
Licensed Product in each Major Market Country covered by the License Agreement.
Allergan will devote to its commercialization efforts the same resources as
other pharmaceutical companies of similar size devote to products with similar
market potential and similar relative importance in their product portfolios and
may use reasonable discretion in allocation of its resources in performing such
obligations.
Allergan will make payments (the "Product Payments") to ASTI with respect
to each Licensed Product as follows: (a) if the Licensed Product is sold by
Allergan, royalties of up to a maximum of 6% of Net Sales of the Licensed
Product determined as follows: (i) 1% of Net Sales of the Licensed Product, plus
(ii) an additional 0.1% of such Net Sales for each full $1 million of Research
and Development Costs of the Licensed Product paid by ASTI; and (b) if the
Licensed Product is sold by a third party, sublicensing fees of up to a maximum
of 50% of Sublicensing Revenues with respect to such Licensed Product determined
as follows: (i) 10% of such Sublicensing Revenues, plus (ii) an additional 1% of
Sublicensing Revenues for each full $1 million of Research and Development Costs
of the Licensed Product paid by ASTI. For purposes of determining the payments
due for any quarter, Research and Development Costs will be determined as of the
last day of the immediately preceding calendar quarter. Because the marketing
expenses associated with a newly introduced product during the first few years
after launch are generally significantly higher than those for an established
product, the Product Payments will not exceed 3% of Net Sales, on a quarterly
basis, for the first twelve calendar quarters during which the Licensed Product
is commercially sold in the first Major Market Country. As a result of this
provision, if a Licensed Product were to be cleared for marketing in a country
or countries that are not Major Market Countries prior to marketing clearance in
the first Major Market Country and Product Payments in such countries would
exceed 3% of Net Sales, the Product Payment rates in such countries will not
exceed 3% for the first twelve calendar quarters during which the Licensed
Product is commercially sold in the first Major Market Country.
In determining the payments due to ASTI with respect to any Licensed
Product, Net Sales by and Sublicensing Revenues of Allergan will be reduced by
the amount of any license or similar payments made by or due from Allergan to
third parties with respect to sales of such Licensed Product in the Territory.
It is possible that, to develop the ASTI Products, licenses or other
arrangements with third parties may be necessary or appropriate. Such
arrangements could also require payments by Allergan that would reduce the
Product Payments owed to ASTI.
Subject to Allergan's buy-out option described below, Product Payments will
commence on the date of the first commercial sale of such Licensed Product in
any country for which the License Option has been exercised. Allergan will make
such Product Payments, with respect to all countries for which the License
Option has been exercised, until 10 years after the first commercial sale of the
Licensed Product in the first Major Market Country in which such product is
commercially sold.
Allergan has the option to buy out ASTI's right to receive Product Payments
for any Licensed Product on either a country-by-country or global basis. A
country-specific buy-out option may be exercised for any Licensed Product at any
time after the end of the twelfth calendar quarter during which the product was
commercially sold in such country. The global buy-out option may be exercised
for any Licensed Product, for all countries for which Allergan has exercised the
License Option, at any time after the end of the twelfth calendar quarter during
which the product was commercially sold in either the United States or two other
Major Market Countries. The buy-out price in the case of a country-specific
buy-out will be 15 times the Product Payments made by or due from Allergan to
ASTI with respect to such Licensed Product in such country for the four calendar
quarters immediately preceding the quarter in which the buy-out option is
exercised. The buy-out price in the case of a global buy-out will be (i) 20
times (a) the Product Payments made by or due from Allergan to ASTI with respect
to the Licensed Product, plus (b) such Product Payments
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as would have been made by or due from Allergan to ASTI if Allergan had not
exercised any country-specific buy-out option with respect to such Licensed
Product, in each case for the four calendar quarters immediately preceding the
quarter in which the global buy-out option is exercised, less (ii) any amounts
previously paid to exercise any country-specific buy-out option with respect to
such Licensed Product. In either case, the buy-out price will be computed as if
Product Payments were not limited to 3% of Net Sales during early marketing as
described above. At the time Allergan exercises the global buyout option for any
Licensed Product, the License Option for such product will expire for all
countries for which it has not been exercised.
If Allergan exercises the License Option for any ASTI Product, Allergan
will continue to own and have the right to use any clinical supplies, materials
and other assets purchased, manufactured or developed for use in the development
of such ASTI Product under approved work plans and cost estimates (the
"Development Assets"), without any additional payment to or reimbursement of
ASTI. To the extent Allergan does not exercise the License Option for any ASTI
Product prior to its expiration, or to the extent Allergan notifies ASTI that it
will not exercise its License Option for any ASTI Product, Allergan must make
Development Assets relating to such ASTI Product available to ASTI at no charge,
unless such Development Assets are being used under the Research and Development
Agreement.
During the term of the License Agreement for a Licensed Product, Allergan
will provide quarterly reports to ASTI detailing payments due for such period
with respect to the Licensed Product. Such reports will be due 90 days after the
end of each calendar quarter and will indicate the quantity and dollar amount of
Net Sales of or Sublicensing Revenue relating to the Licensed Product, or other
consideration in respect of Net Sales, during the quarter covered by such
report. No more than once in each calendar year upon reasonable notice and
during regular business hours, at ASTI's expense, Allergan is required to make
available for inspection by an independent public accountant selected by ASTI
such records of Allergan as may be necessary to verify the accuracy of reports
and payments made under the License Agreement. Allergan must provide similar
reports and records with respect to all Developed Technology Products and
Pre-Selection Products.
A License Agreement may be terminated by ASTI in the event that Allergan
(i) breaches any material obligation under the License Agreement (which breach
continues for a period of 60 days after written notice by ASTI) or (ii) enters
into any proceeding, voluntary or involuntary, in bankruptcy, reorganization or
similar arrangement for the benefit of its creditors. Allergan may terminate a
License Agreement as to any country upon 30 days' written notice to ASTI.
To the extent Allergan does not exercise the License Option with respect to
any ASTI Product, ASTI will retain exclusive rights to develop and commercialize
such ASTI Product.
Purchase Option. Under ASTI's Restated Certificate of Incorporation,
Allergan has an exclusive, irrevocable option to purchase all, but not less than
all, of the issued and outstanding Class A Common Stock (the "Purchase Option").
Allergan may exercise the Purchase Option by written notice to ASTI at any time
during the period beginning immediately after the Distribution and ending on
December 31, 2002; provided that such date will be extended for successive six
month periods if, as of any June 30 or December 31 beginning with June 30, 2001,
ASTI has not paid or accrued expenses for at least 95% of all Available Funds
pursuant to the Research and Development Agreement. The Purchase Option will in
any case terminate on the 90th day after the date (the "Statement Date") on
which Allergan receives notice that the amount of cash and marketable securities
held by ASTI is less than $15 million. All certificates evidencing Class A
Common Stock will bear a legend indicating that such shares are subject to the
Purchase Option. If the Purchase Option is exercised, the exercise price (the
"Purchase Option Exercise Price") will be the greatest of:
(a) (i) 25 times the aggregate of (a) all worldwide payments made by
and all worldwide payments due to be made by Allergan to ASTI with respect
to all Licensed Products, Developed Technology Products and Pre-Selection
Products for the four calendar quarters immediately preceding the quarter
in which the Purchase Option is exercised (the "Base Period") and (b) all
payments that would have been made and all payments due to be made by
Allergan to ASTI during the Base Period if Allergan had not previously
exercised its payment buy-out option with respect to any product; provided,
however, that, for the purposes of the foregoing calculation, for any
product which has not been commercially sold during each of the four
calendar quarters in the Base Period, Allergan will be deemed to have made
Product
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<PAGE> 17
Payments, Developed Technology Royalties and Pre-Selection Product Payments
to ASTI for each such quarter equal to the average of the payments made
during each of such calendar quarters during which such product was
commercially sold, less (ii) any amounts previously paid to exercise any
payment buy-out option for any product;
(b) the fair market value of 500,000 shares of Allergan Common Stock
determined as of the date Allergan provides notice of its intention to
exercise its Purchase Option;
(c) $250 million less the aggregate amount of all Technology Fee
payments and Research and Development Costs paid or incurred by ASTI as of
the date the Purchase Option is exercised; or
(d) $60 million.
In each case, the amount payable as the Purchase Option Exercise Price will
be reduced to the extent, if any, that ASTI's liabilities at the time of
exercise (other than liabilities under the Research and Development Agreement,
the Services Agreement and the Technology License Agreement) exceed ASTI's cash
and cash equivalents and short-term and long-term investments (excluding the
amount of Available Funds remaining at such time). For this purpose, liabilities
will include, in addition to liabilities required to be reflected on ASTI's
financial statements under generally accepted accounting principles, certain
contingent liabilities relating to guarantees and similar arrangements.
Allergan must pay the Purchase Option Exercise Price in cash. For the
purpose of determining the Purchase Option Exercise Price, the fair market value
of Allergan Common Stock shall be deemed to be the average of the closing sales
price of Allergan Common Stock on the New York Stock Exchange for the 20 trading
days ending with the trading day that is two trading days prior to the date of
determination.
The closing of the acquisition of the Class A Common Stock pursuant to
exercise of the Purchase Option will take place on a date selected by Allergan,
but no later than 60 days after the exercise of the Purchase Option unless, in
the judgment of Allergan, a later date is required to satisfy any applicable
legal requirements or to obtain required consents. Between the time of exercise
of the Purchase Option and the time of closing of the acquisition of the Class A
Common Stock, ASTI may not, without Allergan's consent, incur additional debt,
dispose of assets, pay or declare any dividends or operate its business other
than in the ordinary course.
At Allergan's election, ASTI may redeem on such closing date the Class A
Common Stock for an aggregate redemption price equal to the final Purchase
Option Exercise Price. Any such redemption would be in lieu of Allergan paying
the final Purchase Option Exercise price directly to holders of Class A Common
Stock, and would be subject to Allergan providing the final Purchase Option
Exercise Price to ASTI to allow ASTI to pay the redemption price.
In the event that prior to Allergan's exercise of the Purchase Option, the
number of outstanding shares of Allergan Common Stock is increased by virtue of
a stock split or a dividend payable in Allergan Common Stock or the number of
such shares is decreased by virtue of a combination or reclassification of such
shares, then the number of shares of Allergan Common Stock used to compute the
Purchase Option Exercise Price (if the Purchase Option Exercise Price is the
fair market value of 500,000 shares of Allergan Common Stock) shall be increased
or decreased, as the case may be, in proportion to such increase or decrease in
the number of outstanding shares of Allergan Common Stock.
Distribution Agreement. Under the Distribution Agreement, Allergan
contributed $200 million in cash to ASTI prior to the Distribution, and
distributed the Class A Common Stock to the Holders. Under the Distribution
Agreement, Allergan has agreed to indemnify ASTI's officers and directors to the
same extent such persons are entitled to indemnification under ASTI's Restated
Certificate of Incorporation if Allergan exercises the Purchase Option.
Services Agreement. ASTI and Allergan have entered into a Services
Agreement pursuant to which Allergan has agreed to provide ASTI with
administrative services, including accounting and legal services, and other
services as mutually agreed on a fully-burdened cost reimbursement basis. The
initial term of the Services Agreement expired on December 31, 1998, but such
agreement was renewed and will continue to be renewed automatically for
successive one-year terms during the term of the Research and Development
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<PAGE> 18
Agreement, until six months after the expiration of the Purchase Option. ASTI
may terminate the Services Agreement at any time upon 60 days' written notice.
OTHER RELATIONSHIPS AND TRANSACTIONS
Mr. Shepherd provides services to the Company pursuant to the terms of a
letter agreement between Mr. Shepherd and Allergan regarding Mr. Shepherd's
retirement from Allergan, as described under the caption "Executive
Compensation -- Employment Agreements."
On or about July 22, 1998, Allergan entered into a multi-year research and
development collaboration with the Parke-Davis Pharmaceutical Research Division
of Warner-Lambert Company ("Warner-Lambert") to identify, develop and
commercialize up to two RXR subtype selective retinoid compounds for the
treatment of metabolic diseases, including adult-onset diabetes, insulin
resistant syndromes and dyslipidemias (the "Collaboration Agreement"). The
technologies involved in the collaboration were previously licensed by ASTI from
Allergan, pursuant to the Technology License Agreement. Pursuant to a letter
agreement between Allergan and ASTI dated November 29, 1998 (the "Collaboration
Letter Agreement"), ASTI is entitled to receive Pre-Selection Product Payments
representing a portion of up to $104 million in technology access fees and
development milestones to be received by Allergan pursuant to the Collaboration
Agreement. In addition, ASTI is entitled to royalties on net sales of developed
products, depending on actual lead compound selection and sales results. In
1998, ASTI received $500,000 pursuant to the Collaboration Letter Agreement,
representing ASTI's portion of certain milestone payments made by
Warner-Lambert.
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party be
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
Bylaws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ WILLIAM C. SHEPHERD
William C. Shepherd
Chairman of the Board, President
and Chief Executive Officer
March 22, 1999
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PROXY ALLERGAN SPECIALTY THERAPEUTICS, INC. PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 23, 1999
The undersigned hereby appoints Douglas S. Ingram and Dwight J. Yoder,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Allergan Specialty
Therapeutics, Inc. (the "Company") which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders of the Company to be held at the
offices of the Company, located at 2525 Dupont Drive, Irvine, CA 92612, on
Friday, April 23, 1999, at 10:00 a.m., local time, and at any and all
continuations, adjournments or postponements thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(See Reverse Side)
<PAGE> 20
Please mark your
[ ] votes as in this
example
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
1. To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
FOR WITHHELD
[ ] [ ]
NOMINEES: Lester J. Kaplan, Ph.D., Alan J. Lewis, Ph.D., Gary L. Neil, Ph.D.,
Marvin E. Rosenthale, Ph.D. and William C. Shepherd
To withhold authority to vote for any nominee(s), write such nominee(s)
name(s) below:
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MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
2. To ratify the selection of KPMG LLP as independent auditors of the Company
for its fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please sign exactly as name appears hereon.
If the stock is registered in the names of
two or more persons, each should sign.
Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
Please vote, date and promptly return this
proxy in the enclosed return envelope which
is postage prepaid if mailed in the United
States.
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Signature(s) Date
