<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 (S)240.14a-11(c) or (S)240.14a-12
ALZA CORPORATION
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF ALZA CORPORATION]
ALZA CORPORATION
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1998 AT 9:00 AM
To the Stockholders of ALZA Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of ALZA
Corporation will be held at 950 Page Mill Road, Palo Alto, California, on
Thursday, May 7, 1998 at 9:00 am, for the following purposes:
1. To elect three Class II directors to hold office for a term ending in
2001 and until their successors are elected;
2. To increase by 950,000 shares the number of shares of ALZA Common Stock
reserved for issuance under ALZA's Amended and Restated Employee Stock
Purchase Plan;
3. To ratify the appointment of Ernst & Young LLP as ALZA's independent
auditors for the fiscal year ended December 31, 1998; and
4. To transact such other business as may properly be presented at the
meeting and at any adjournments or postponements thereof.
Only holders of record of ALZA Common Stock at the close of business on
March 12, 1998 are entitled to notice of, and to vote at, the meeting and any
adjournments or postponements thereof.
By Order of the Board of Directors,
JULIAN N. STERN
Secretary
Palo Alto, California
March 27, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE
ACCOMPANYING POSTPAID ENVELOPE. YOUR DOING SO MAY SAVE ALZA THE EXPENSE OF A
SECOND MAILING.
<PAGE>
ALZA CORPORATION
PROXY STATEMENT
---------------------
To the Stockholders of ALZA Corporation:
The accompanying proxy is solicited on behalf of the Board of Directors (the
"Board") of ALZA Corporation ("ALZA"), a Delaware corporation, for use at
ALZA's 1998 Annual Meeting of Stockholders (the "Annual Meeting") to be held
at 9:00 am on Thursday, May 7, 1998 at ALZA's headquarters located at 950 Page
Mill Road, Palo Alto, California 94304; telephone number (650) 494-5000.
Only holders of record of ALZA Common Stock as of the close of business on
March 12, 1998 are entitled to notice of, and to vote at, the Annual Meeting
and any adjournments or postponements thereof. At the close of business on
that date, ALZA had outstanding 86,039,522 shares of its Common Stock, par
value $.01 per share. Holders of Common Stock are entitled to one vote for
each share of Common Stock held.
Any holder of Common Stock giving a proxy in the form accompanying this
Proxy Statement has the power to revoke the proxy prior to its use. A proxy
can be revoked (i) by an instrument of revocation delivered prior to the
Annual Meeting to the Secretary of ALZA, (ii) by a duly executed proxy bearing
a later date or time than the date or time of the proxy being revoked, or
(iii) at the Annual Meeting if the stockholder is present and elects to vote
in person. Mere attendance at the Annual Meeting will not serve to revoke a
proxy.
Broker non-votes, and shares held by stockholders present in person or by
proxy at the meeting but abstaining on a vote, will be counted in determining
whether a quorum is present at the Annual Meeting. The vote required for the
election of directors is described below. For all other proposals, abstentions
by stockholders present in person or by proxy at the meeting are counted as
votes against a proposal for purposes of determining whether or not the
proposal has been approved, whereas broker non-votes are not counted for
purposes of determining whether a proposal has been approved.
This Proxy Statement and the accompanying proxy card are being mailed to
ALZA stockholders on or about March 27, 1998. Directors, officers and other
employees of ALZA may solicit proxies by personal interview, telephone or
facsimile, without special compensation. Any costs of such solicitation will
be borne by ALZA.
ELECTION OF DIRECTORS
ALZA's Certificate of Incorporation provides for three classes of directors:
Class I, Class II and Class III. Only one class of directors is elected at
each annual meeting of stockholders, each director to serve for a three-year
term. In accordance with the Certificate of Incorporation, Class II directors
are to be elected at the 1998 annual meeting, Class III directors are to be
elected at the 1999 annual meeting and Class I directors are to be elected at
the annual meeting in the year 2000.
NOMINEES
Three Class II directors are to be elected to the Board at the Annual
Meeting, each to serve until the annual meeting of stockholders to be held in
2001 and until his or her successor has been elected and qualified, or until
his or her earlier death, resignation or removal. The current Class II
directors are Dr. Robert J. Glaser, Mr. Dean O. Morton and Ms. Denise O'Leary.
In November 1997, Dr. Alejandro Zaffaroni, Co-Chairman of the Board and the
Founder of ALZA, retired from the Board. He was a Class III director. After
Dr. Zaffaroni's retirement, the Board amended ALZA's Bylaws to decrease the
number of directors constituting the Board from nine to eight directors.
<PAGE>
The nominees for election at the Annual Meeting are Dr. Glaser, Mr. Morton
and Ms. O'Leary. Each of the nominees presently is a director of ALZA. If any
nominee is unable or unwilling to serve as a director, proxies may be voted
for a substitute nominee designated by the present Board. The Board has no
reason to believe that any nominee will be unable or unwilling to serve as a
director if elected. Proxies received will be voted "FOR" the election of all
nominees unless marked to the contrary. Pursuant to applicable Delaware
corporation law, assuming the presence of a quorum, three directors will be
elected from among those persons duly nominated for such positions by a
plurality of the votes actually cast by stockholders entitled to vote at the
meeting who are present in person or by proxy. Thus, nominees who receive the
first, second and third highest number of votes in favor of their election
will be elected, regardless of the number of abstentions or broker non-votes.
The following table provides the names of the nominees for election as
directors, and of each other director, and indicates the periods during which
such persons have served as directors of ALZA.
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AND POSITIONS WITH ALZA IN ADDITION TO DIRECTOR SINCE
---------------------------------------------------- ------------
<S> <C>
NOMINEES (CLASS II DIRECTORS)
Dr. Robert J. Glaser......................................... 1987
Dean O. Morton............................................... 1987
Denise M. O'Leary............................................ 1996
INCUMBENTS
CLASS III DIRECTORS
Dr. Ernest Mario............................................. 1993
Chairman and Chief Executive Officer
Isaac Stein.................................................. 1987
CLASS I DIRECTORS
Dr. William R. Brody......................................... 1996
William G. Davis............................................. 1989
Julian N. Stern.............................................. 1982
Secretary
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS
NOMINEES (CLASS II DIRECTORS)
Dr. Robert J. Glaser, 79, was the Director for Medical Science of the
Lucille P. Markey Charitable Trust, a philanthropic foundation supporting
basic biomedical research, from 1984 to June 1997, and a trustee from 1988 to
June 1997. In accordance with the donor's will, the Trust ceased operations in
June 1997. Prior to 1984, Dr. Glaser was President, Chief Executive Officer
and a trustee of the Henry J. Kaiser Family Foundation. He is a director of
Hanger Orthopedic Group, Inc. In 1991, Dr. Glaser retired as a director of
Hewlett-Packard Company after serving since 1971.
Dean O. Morton, 66, retired in October 1992 as Executive Vice President,
Chief Operating Officer and a director of Hewlett-Packard Company, where he
held various positions since 1960. Mr. Morton is a director of Raychem
Corporation, BEA Systems, Inc., The Clorox Company, Centigram Communications
Corporation and KLA-Tencor Corporation. He is a trustee of the State Street
Research group of mutual funds and a director of the Metropolitan Series Fund,
Inc. and State Street Research Portfolios, Inc.
Denise M. O'Leary, 40, is a Special Limited Partner with Menlo Ventures, a
venture capital investment company. Ms. O'Leary has been with Menlo Ventures
since 1983 and she served as a General Partner with that company from 1987 to
1996. Ms. O'Leary is a director of Del Monte Foods USA.
2
<PAGE>
Incumbents
CLASS III DIRECTORS
Dr. Ernest Mario, 59, is the Chairman and Chief Executive Officer of ALZA.
Prior to joining ALZA, Dr. Mario served as Chief Executive of Glaxo Holdings
plc, a pharmaceutical corporation, from May 1989 to March 1993, and as Deputy
Chairman from January 1992 to March 1993. Prior to that time, Dr. Mario served
as Chairman and Chief Executive Officer of Glaxo, Inc., a subsidiary of Glaxo
Holdings, from 1988 to 1989 and as President and Chief Operating Officer of
Glaxo, Inc. from 1986 to 1988. Prior to joining Glaxo, Dr. Mario held various
executive positions at Squibb Corporation and served as a director of that
company. Dr. Mario is also a director of ATL Ultrasound, Inc., Catalytica,
Inc., COR Therapeutics, Inc., ENACT Health Management Systems, Inc. and
Pharmaceutical Product Development, Inc.
Isaac Stein, 51, has been President of Waverley Associates, Inc., a private
investment firm, since 1983. Mr. Stein served as Chairman of the Board of
Esprit de Corp from June 1990 to December 1992. Mr. Stein is also a trustee of
the Benham Group of Mutual Funds and a director of Raychem Corporation and CV
Therapeutics, Inc.
CLASS I DIRECTORS
Dr. William R. Brody, 54, has been the President of The Johns Hopkins
University since 1996. Prior to assuming that position, Dr. Brody was the
provost of the University of Minnesota Academic Health Center from 1994 to
1996 and the Martin Donner Professor and Director of the Department of
Radiology at The John Hopkins University from 1987 to 1994. Dr. Brody is a
director of Medtronic, Inc. and Mercantile Bankshares.
William G. Davis, 66, is an independent business consultant. Prior to his
retirement from Eli Lilly & Company in 1984, Mr. Davis held various senior
executive positions during his 27-year tenure with that company. Mr. Davis is
a director of CardioVascular Dynamics, Inc., Collagen Corporation and
Endosonics Corporation.
Julian N. Stern, 73, has been Secretary of ALZA since 1968. He is the sole
employee of a professional corporation that is a member of the law firm of
Heller Ehrman White & McAuliffe.
MEETINGS AND COMMITTEES OF THE BOARD
There were ten meetings of the full Board during fiscal 1997. The Board
currently has three standing committees: the Compensation and Benefits
Committee, the Finance and Audit Committee and the Nominating Committee. The
current members of the Compensation and Benefits Committee are Dr. Glaser
(Chairman), Mr. Morton, Ms. O'Leary and Mr. Stein. The Compensation and
Benefits Committee, which met eight times during fiscal 1997, approves all of
ALZA's compensation plans, including grants of stock options under ALZA's
stock plan and the compensation arrangements for ALZA's senior management. The
Finance and Audit Committee, which met four times during fiscal 1997, consults
with ALZA's independent auditors concerning their audit plan, the results of
their audit, the appropriateness of accounting principles used by ALZA and the
adequacy of ALZA's internal controls. The current members of the Finance and
Audit Committee are Mr. Morton (Chairman), Dr. Brody, Mr. Davis, Ms. O'Leary,
Mr. Stein and Mr. Stern.
In 1995, the Board established a Nominating Committee, the members of which
are Mr. Stein (Chairman), Mr. Davis, Dr. Glaser and Mr. Morton. The Nominating
Committee identifies and recommends qualified persons to serve as directors of
ALZA. The Nominating Committee did not meet during fiscal 1997. ALZA's Bylaws
provide that stockholders may nominate candidates for election as directors by
delivery of written notice to ALZA's Secretary at least sixty days in advance
of the stockholders' meeting or ten days after notice of the meeting is first
given to stockholders, whichever is later. Any such notice must set forth the
name and address of the nominating stockholder and the nominee, and such
information concerning both such persons as would be required by the rules and
regulations of the Securities and Exchange Commission ("SEC") to be included
in a proxy statement soliciting proxies for the election of the nominee. The
notice must be accompanied by the written consent of the nominee to serve as a
director, if elected.
3
<PAGE>
During 1997, each director attended at least 75% of the meetings of the full
Board and the committees of the Board on which he or she served.
Each director who is not an employee of ALZA receives an annual retainer
fee, which is currently $25,000, plus $1,000 for each meeting day of the Board
and $750 for each regular meeting of any standing committee, or other
committee formed by the Board from time to time, on which the director serves,
and $500 for each special meeting of any committee on which the director
serves (except for chairmen of the committees, who receive $1,250 for each
meeting day of their respective committees). In addition, each director who is
not an employee of ALZA receives a fee of $350 for each teleconference meeting
of the Board, or of any committee of the Board, if such meeting lasts more
than one hour. ALZA's Secretary receives a fee for attending meetings of the
Nominating Committee and the Compensation and Benefits Committee equal to the
fee paid to the directors who serve on those committees. ALZA's non-employee
directors receive options to purchase Common Stock pursuant to the automatic
grant provisions of ALZA's Amended and Restated Stock Plan.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information relating to compensation
paid or accrued for services in all capacities during the fiscal years
indicated with respect to Dr. Ernest Mario, ALZA's Chief Executive Officer,
and each of ALZA's other four most highly compensated executive officers who
were serving as executive officers as of December 31, 1997 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
---------------------
ANNUAL
COMPENSATION
------------------ RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY(1) BONUS(1) AWARD(2) OPTIONS COMPENSATION(3)
- ---------------------------- ---- --------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Ernest Mario................. 1997 $599,999 $180,000 $ -- 75,000 $160,689
Chairman and 1996 595,835 100,000 -- 75,000 103,820
Chief Executive Officer 1995 570,840 100,000 -- 75,000 62,825
Dr. Felix Theeuwes............... 1997 362,503 100,000 -- 40,000 128,540
President, New Ventures 1996 347,505 75,000 -- -- 112,785
and Chief Scientist 1995 331,680 70,000 -- 60,000 96,487
Dr. Samuel R. Saks............... 1997 333,337 100,000 759,125 40,000 7,849
Senior Vice President, 1996 311,668 75,000 -- -- 6,949
Medical Affairs 1995 291,674 70,000 -- 45,000 6,360
Bruce C. Cozadd.................. 1997 287,504 120,000 -- 40,000 8,890
Senior Vice President and 1996 247,509 75,000 -- -- 6,585
Chief Financial Officer 1995 213,383 50,000 -- 38,800 4,204
Dr. James W. Young............... 1997 277,920 125,000 -- 30,000 16,375
Senior Vice President, 1996 249,569 50,000 -- -- 14,323
Research and Development 1995 128,709 30,000 -- 80,000 --
</TABLE>
- --------
(1) Amounts shown include compensation earned and received by the Named
Executive Officers as well as amounts deferred at the election of such
persons under ALZA's Executive Deferral Plans and Tax Deferral Investment
Plan. Dr. Young commenced his employment with ALZA in July of 1995.
(2) Dr. Saks was awarded 25,000 shares of restricted stock in 1997.
Restrictions on the shares lapse with respect to 25% of the shares on
December 17, 1999, with respect to 50% of the shares on June 17, 2000 and
with respect to the remaining 25% of the shares on January 17, 2001. All
shares for which restrictions have not lapsed are subject to forfeiture in
the event of termination of Dr. Saks' employment with ALZA. In the event
that certain change in control events were to occur, the restricted stock
agreement between ALZA and Dr. Saks generally provides that all
restrictions on the shares will lapse only if Dr. Saks' employment with
ALZA is terminated (other than for "cause") within two years after the
change of control. Dr. Saks paid ALZA an aggregate of $250 for the shares.
Dividends, if any, paid in cash or in ALZA Common Stock with respect to
the shares of restricted stock will be paid in additional shares of ALZA
Common Stock, subject to the same restrictions as the restricted stock.
Dividends paid in the form of other securities will also be subject to the
same restrictions as the restricted stock. The value of such award shown
in the table is calculated based on the closing sales price of ALZA Common
Stock on the date of the award. The aggregate number of shares of
restricted stock granted by ALZA outstanding at the end of 1997 was 25,000
shares. The value of such restricted stock is $795,063 (calculated based
on the closing sales price on December 31, 1997 less the amounts paid to
ALZA for the shares).
(3) Amounts shown for the fiscal year ended December 31, 1997 consist of: (i)
amounts contributed by ALZA to the employees' accounts under the ALZA
Retirement Plan as follows: $17,317 for Dr. Mario, $17,317 for Dr.
Theeuwes, $7,689 for Dr. Saks, $4,182 for Mr. Cozadd, and $15,125 for Dr.
Young; (ii) amounts representing interest in excess of 120% of the
applicable federal long-term rate on amounts deferred at the election of
the participants under ALZA's Executive Deferral Plans which totaled
$143,372 for Dr. Mario, $109,973 for Dr. Theeuwes, $160 for Dr. Saks and
$3,458 for Mr. Cozadd; and (iii) amounts contributed by ALZA to employees'
accounts under ALZA's Tax Deferral Investment Plan as follows: $1,250 for
each of Dr. Theeuwes, Mr. Cozadd and Dr. Young.
5
<PAGE>
1997 OPTION GRANTS
The following table sets forth information relating to options granted in
1997 to the Named Executive Officers. In addition, in accordance with the
rules of the SEC, the table shows hypothetical gains that would exist for such
options based on assumed rates of annual compound stock price appreciation of
0%, 5% and 10% per year from the date the options were granted over the full
option term.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(1)
--------------------------------------------- -----------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION 0% 5% 10%
NAME GRANTED(2) FISCAL YEAR SHARE(3) DATE PER YEAR PER YEAR PER YEAR
- ---- ---------- ------------- --------- ---------- -------------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dr. Ernest Mario........ 75,000 4.65% $29.0625 5/6/2007 -- $ 1,370,794 $ 3,473,861
Dr. Felix Theeuwes...... 40,000 2.48 29.0625 5/6/2007 -- 731,090 1,852,726
Dr. Samuel R. Saks...... 40,000 2.48 29.0625 5/6/2007 -- 731,090 1,852,726
Bruce C. Cozadd......... 40,000 2.48 29.0625 5/6/2007 -- 731,090 1,852,726
Dr. James W. Young...... 30,000 1.86 29.0625 5/6/2007 -- 548,318 1,389,544
</TABLE>
- --------
(1) The amounts represent certain assumed rates of appreciation over the
exercise price per share (before taxes). Actual gains, if any, on stock
option exercises are dependent on the future performance of ALZA Common
Stock. There can be no assurance that any of the values reflected in this
table will be achieved.
(2) The options were granted for a term of ten years. All unvested options are
subject to earlier termination in the event of the termination of an
employee's relationship with ALZA. The option granted to Dr. Mario is
fully exercisable on May 6, 2000. The options granted to Dr. Theeuwes, Dr.
Saks, Mr. Cozadd and Dr. Young are fully exercisable in two equal annual
installments beginning on May 6, 1999. All options were granted at fair
market value on the date of grant. In the event that certain change in
control events were to occur, all such options would become immediately
exercisable. Under the terms of ALZA's Amended and Restated Stock Plan,
the Compensation and Benefits Committee retains discretion, subject to
plan limits, to modify the terms (including the exercise price and vesting
dates) of outstanding options.
(3) Options were granted at an exercise price equal to the fair market value
of ALZA Common Stock, which is the average of the high and low price
reported on the New York Stock Exchange on the date of grant.
1997 AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table sets forth with respect to the Named Executive Officers
certain information relating to options exercised during fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
SHARES END AT FISCAL YEAR END (2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Ernest Mario........ -- $ -- 524,000 475,000 $6,133,750 $4,128,125
Dr. Felix Theeuwes...... -- -- 166,000 100,000 904,375 586,250
Dr. Samuel R. Saks...... 20,000 154,045 85,000 85,000 378,750 462,813
Bruce C. Cozadd......... 17,000 194,415 53,600 70,000 234,850 356,875
Dr. James W. Young...... -- -- 40,000 70,000 472,500 495,000
</TABLE>
- --------
(1) Market value of ALZA Common Stock based on the closing sales price as
reported on the composite tape at the exercise date minus the exercise
price.
(2) Market value of ALZA Common Stock at fiscal year end based on the closing
sales price as reported on the composite tape on December 31, 1997
($31.8125) minus the exercise price of "in-the-money" options.
6
<PAGE>
CERTAIN EXECUTIVE AGREEMENTS
ALZA has entered into agreements (each, an "Executive Agreement") with its
executive officers (other than Dr. Mario) pursuant to which certain severance
payments would be made in the event of the executive's termination, other than
for cause, following a "change in control" of ALZA (as defined in the
Executive Agreement).
If the executive's employment were terminated by ALZA during the two-year
period following a change in control (the "Severance Period") without "cause"
or by the executive for "good reason" (as defined in the Executive Agreement),
the executive would be entitled to receive a lump sum cash severance payment
equal to two times the sum of his or her salary and bonus paid or accrued in
the twelve months immediately preceding his or her termination. (Such amount
would be reduced, on a monthly basis, if the termination occurred more than
one year after the change in control.) In addition to the severance payments,
the executive would be entitled to a pro rata portion of all bonuses and
awards relating to periods that have not been completed as of the termination
date and a lump sum cash amount equal to the difference, if any, between the
value of the benefits he or she would have received under ALZA's retirement,
pension or deferred compensation arrangements had he or she been fully vested
under such arrangements, and the benefits he or she is otherwise entitled to
receive under such arrangements at the time of termination. The executive
would also receive medical and dental benefits for up to two years. All
outstanding options would become fully exercisable (to the extent they have
not previously become exercisable), and the executive would be entitled to a
cash-out of all options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires ALZA's
directors and executive officers, and persons who own more than 10% of ALZA's
Common Stock, to file reports of ownership and changes in ownership of such
stock with the SEC. Directors, executive officers and greater than 10%
stockholders are required by SEC regulations to furnish ALZA with copies of
all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to ALZA or
written representations that no Forms 5 were required, ALZA believes that from
January 1, 1997 through December 31, 1997 its directors, executive officers
and greater than 10% stockholders complied with all Section 16(a) filing
requirements.
COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee (the "Committee") of the Board of
Directors is generally responsible for decisions concerning the compensation
to be paid to ALZA's executive officers. The Committee consists of Dr. Glaser
(Chairman), Mr. Morton, Ms. O'Leary and Mr. Stein, each of whom is a non-
employee director of ALZA. In determining compensation policies, the Committee
has access to compensation surveys for regional technology-based companies
(which compete with ALZA in the recruitment of senior personnel) and national
pharmaceutical industry compensation information, as well as other executive
compensation data and surveys. The Committee also consults with ALZA's
Executive Director of Compensation and Benefits. Set forth below is the report
of the Committee with respect to ALZA's compensation policies during 1997 as
they affected ALZA's Chief Executive Officer and other executive officers. In
addition to the data currently available, the Committee has recently engaged
an outside compensation consulting firm to provide information and advice to
the Committee concerning ALZA's compensation of its senior executives. The
consulting firm will report to the Committee later this year.
7
<PAGE>
COMPENSATION POLICIES AFFECTING EXECUTIVE OFFICERS
ALZA's compensation policies affecting its executive officers are designed
to provide targeted total compensation levels that are competitive with those
of regional technology-based companies and national pharmaceutical companies,
in order to assist ALZA in attracting and retaining qualified executives. The
Committee believes that ALZA's compensation structure has historically been at
the low end of pharmaceutical companies with respect to the salary and bonus
payable to its executive officers generally, and to its Chief Executive
Officer in particular. During 1997, ALZA did not adjust its compensation
policies in any material respect, despite significant changes in the labor
market in the San Francisco Bay Area which have resulted in higher
compensation levels for employees generally. The S&P Drugs Index, the industry
group included for comparison in "Performance Graphs" below, consists of large
national pharmaceutical companies, which have been used as a reference in
setting salaries of ALZA's executives. However, executive salaries at those
companies are generally significantly higher than those of ALZA.
ALZA's compensation policies take into account ALZA's overall performance
during the prior year, as well as the achievements and contributions to ALZA
during the year by each individual executive officer and the operational areas
of the company for which he or she is responsible. In addition, ALZA's
compensation policies recognize the importance of stock ownership by, and
stock option programs for, executives in order to promote identity of long-
term interests between the executives and the stockholders of ALZA.
In determining the compensation to be paid to ALZA's executive officers, the
Committee employs compensation policies designed to align compensation with
ALZA's overall business strategy, values and management initiatives. These
policies are intended to (i) attract and retain executives whose abilities are
critical to the long-term success and competitiveness of ALZA; (ii) reward
executives for long-term strategic management and the enhancement of
stockholder value; (iii) support a performance-oriented environment that
rewards achievement of internal company objectives; and (iv) recognize ALZA's
performance compared to performance levels of comparable companies. As a
result, compensation consists of salary and bonus, which provide current
incentives, and stock options (and, on one recent occasion, a restricted stock
grant), which provide longer term incentives.
The key components of executive officer compensation at ALZA are (i) salary,
which is based on factors such as the individual officer's level of
responsibility for meeting ALZA's financial and strategic objectives and a
comparison to similar positions in ALZA and comparable companies; (ii) cash
bonus awards, which are based on the performance of the executive, the
performance of the operational groups reporting to the executive, and the
performance of ALZA, measured in terms of attainment of ALZA's financial and
strategic objectives set by the Board at the beginning of each year; and (iii)
stock option grants, which are intended to align the executive officer's
interests in ALZA's long-term success with the interests of ALZA's
stockholders, as measured by changes over time in ALZA's stock trading price.
ALZA's executive officers are also entitled to participate in ALZA's Executive
Deferral Plan, which permits them to defer a portion of their compensation on
a pre-tax basis.
Stock options are an integral part of each executive officer's compensation.
The Committee believes that the opportunity for stock appreciation, through
exercise of stock options that vest over time, closely aligns the interests of
the executive officers with those of ALZA's stockholders. The size of
individual awards take into account the executive officer's salary, the number
and vesting schedule of outstanding options held by the officer and past
contributions to ALZA. No one factor is given special weight, but all are part
of an overall assessment.
The compensation to be paid to any individual executive has not been based
on any particular mathematical formula. Rather, the Committee reviews
objectives, accomplishments, performance (including that indicated in ALZA's
peer evaluation process) and compensation as a whole for each executive (and
all executives), as well as the recommendations of the Chief Executive
Officer, and makes appropriate compensation determinations in the exercise of
its business judgment.
8
<PAGE>
RELATIONSHIP OF CORPORATE PERFORMANCE TO COMPENSATION PLANS
ALZA's corporate performance measurements focus on both financial and
strategic objectives. During 1997, ALZA achieved the following strategic
objectives set by the Board:
. increasing ALZA's presence as an emerging commercial pharmaceutical
company;
. increasing ALZA's net sales through the introduction of new products, as
well as increasing sales of existing products;
. extending ALZA's technological leadership position in drug delivery;
. increasing levels of ALZA's product development business with other
pharmaceutical companies as compared with 1996;
. obtaining increased royalties and fees as compared with 1996;
. completing ALZA's activities with Therapeutic Discovery Corporation and
putting in place a method of funding product development activities once
activities with Therapeutic Discovery Corporation were completed; and
. increasing earnings per share over 1996 (before non-recurring items).
Executive officer compensation (both base compensation and cash bonuses)
takes into consideration the achievement by ALZA of the financial and
strategic objectives described above, and the contribution of the individual
(and the operating groups reporting to the individual) toward achieving those
objectives.
OTHER COMPENSATION PLANS
ALZA has adopted certain broad-based employee benefit plans in which the
executive officers may participate on the same basis as other employees who
meet eligibility criteria, subject to legal limitations on the benefits that
may be made available to highly compensated individuals such as executive
officers. During 1997, these plans included (i) an Employee Stock Purchase
Plan qualified under Section 423 of the Internal Revenue Code, under which an
individual could elect to purchase up to $25,000 of ALZA Common Stock at a
price equal to 85 percent of its fair market value; (ii) the contribution by
ALZA for the benefit of each employee (including executive officers) to the
ALZA Retirement Plan (a defined contribution plan) of an amount based on the
employee's base salary and age; and (iii) matching contributions of up to
$1,250 per employee in 1997 under ALZA's Tax Deferral Investment Plan.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Dr. Ernest Mario, ALZA's Chief Executive Officer, did not receive a salary
increase in 1997, based on Dr. Mario's recommendation to the Committee. Dr.
Mario believed that increases in his salary should be tied, in part, to the
increase in value in ALZA's shares, and the trading price of shares did not
increase significantly from 1996 to 1997. During 1997, Dr. Mario was granted a
nonstatutory option to purchase 75,000 shares of ALZA Common Stock, vesting
after three years and expiring in 2007. The exercise price of the option is
$29.0625 per share, the fair market value of ALZA Common Stock on the date the
option was granted. The Committee believes that Dr. Mario's salary continues
to be on the low end of salaries for chief executive officers of other
technology-based companies of similar size and in the same geographic region
as ALZA, as well as for chief executives of pharmaceutical companies on a
nationwide basis. Increases in Dr. Mario's salary have generally been limited
to inflation adjustments during his tenure with ALZA. In 1997, Dr. Mario
provided strong leadership to ALZA in its achievement of ALZA's key strategic
and financial objectives and in progressing toward meeting ALZA's long-term
objective of becoming a fully integrated pharmaceutical company. Dr. Mario's
bonus of $180,000 for 1997 reflects his important contributions to ALZA's
success in 1997, the increase in ALZA's stock price during the year, and the
achievement by ALZA of its comprehensive 1997 objectives.
9
<PAGE>
POLICY ON DEDUCTIBILITY OF EXECUTIVE OFFICER COMPENSATION
Section 162(m) of the Internal Revenue Code generally places a $1 million
per person limit on the deduction a publicly held corporation may take for
compensation paid to its chief executive officer and its four other highest
paid executive officers unless, in general, the compensation is exempt as
"performance based." For stock compensation to be "performance based," Section
162(m) requires a limit to be set on the number of options that may be granted
to employees subject to the deduction cap. The Board has approved a limit of
200,000 as the maximum number of shares as to which options may be granted to
any employee, consultant or director under ALZA's Amended and Restated Stock
Plan in any one-year period, and a limit of 750,000 as the maximum number of
shares as to which options may be granted in connection with an offer of
employment. These limitations allow gains realized upon exercise of options to
qualify as "performance based" and, therefore, to be excluded from
compensation subject to the $1 million deductibility limit. ALZA believes that
all of its compensation paid to date meets the requirements for deductibility.
In general, the Committee will consider the deductibility limits of Section
162(m) in determining executive compensation.
COMPENSATION AND BENEFITS COMMITTEE
Dr. Robert J. Glaser, Chairman
Dean O. Morton
Denise M. O'Leary
Isaac Stein
10
<PAGE>
PERFORMANCE GRAPHS
FIVE-YEAR TOTAL RETURN
The rules of the SEC require that ALZA include in this Proxy Statement a
line-graph presentation comparing cumulative stockholder returns on ALZA
Common Stock with the S&P 500 Index and either a published industry or
line-of-business standard index or an index of peer companies selected by ALZA
for the five years ending December 31, 1997. ALZA has elected to use the S&P
Drugs Index for purposes of the performance comparison which appears below.
The graph has been prepared to give effect to the distribution to ALZA
stockholders on June 11, 1993 of units (the "Units"), each Unit consisting of
one share of Class A Common Stock of Therapeutic Discovery Corporation ("TDC")
and one warrant to purchase one-eighth of one share of ALZA Common Stock at a
price of $65 per share, exercisable at any time commencing on June 11, 1996
and expiring on December 31, 1999. Each holder of Common Stock of ALZA
received one Unit for every ten shares of Common Stock held on May 28, 1993,
the record date for the distribution. The graph below assumes that the one-
tenth of one Unit received in respect of one share of ALZA Common Stock was
sold on the distribution date (June 11, 1993) at the closing sales price of
the Units on such date ($6.25 per full Unit) and the proceeds thereof
immediately applied toward the purchase of 0.0239 shares of ALZA Common Stock
at a price based on the closing sales price of the Common Stock on such date
($26.125). In addition, the graph has been prepared to give effect to the
distribution to ALZA stockholders and holders of convertible debentures of
record on September 18, 1997 of one share of Class A Common Stock of Crescendo
Pharmaceuticals Corporation ("Crescendo") for every 20 shares of Common Stock
held on such date. The graph below assumes that each share of Crescendo Class
A Common Stock was sold on the distribution date (September 30, 1997) at the
closing sales price of Crescendo Class A Common Stock on such date ($11.50 per
share) and the proceeds thereof immediately applied toward the purchase of
0.0198 shares of ALZA Common Stock at a price based on the closing sales price
of the Common Stock on such date ($29.00). The past performance of ALZA Common
Stock is no indication of future performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ALZA, S&P DRUGS INDEX AND S&P 500
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period S&P
(Fiscal Year Covered) ALZA DRUGS S&P 500
- ------------------- ---- ----- -------
<S> <C> <C> <C>
Measurement Pt- 1992 $100.00 $100.00 $100.00
FYE 1993 $ 61.54 $ 91.51 $110.08
FYE 1994 $ 39.21 $106.54 $111.53
FYE 1995 $ 53.37 $182.70 $153.45
FYE 1996 $ 56.37 $227.73 $188.68
FYE 1997 $ 70.53 $362.84 $251.59
</TABLE>
11
<PAGE>
TEN-YEAR TOTAL RETURN
The following graph compares the cumulative stockholder returns on ALZA
Common Stock with the cumulative total return of the S&P 500 Index and the S&P
Drugs Index for the ten years ending December 31, 1997. ALZA has presented ten-
year data to provide a longer term perspective which is consistent with the
time frame for ALZA's business of developing, manufacturing and commercializing
pharmaceutical products. The graph below has been prepared in accordance with
the same assumptions used for the five-year graph above. In addition, the ten-
year graph below has been prepared to give effect to a subscription offering,
completed in 1988, to ALZA stockholders. Each ALZA stockholder of record on
November 18, 1988 received one right for each share of ALZA Common Stock held.
The graph below assumes that one subscription right was sold on the first day
of such offering (November 22, 1988) at the price of the rights on such date
($0.50), and the proceeds thereof immediately applied toward the purchase of
0.0423 shares of ALZA Common Stock at a price based on the closing sales price
of ALZA Common Stock on such date ($11.81). The past performance of ALZA Common
Stock is no indication of future performance.
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG ALZA, S&P DRUGS INDEX AND S&P 500
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period S&P DRUGS
(Fiscal Year Covered) ALZA INDEX S&P 500
- ------------------- ---- -------- -------
<S> <C> <C> <C>
Measurement Pt- 1987 $100.00 $100.00 $100.00
FYE 1988 $ 86.78 $116.40 $116.61
FYE 1989 $170.17 $174.31 $153.56
FYE 1990 $197.32 $199.24 $148.79
FYE 1991 $381.06 $328.30 $194.12
FYE 1992 $364.57 $263.17 $208.92
FYE 1993 $224.16 $240.83 $229.97
FYE 1994 $142.83 $280.38 $233.01
FYE 1995 $194.40 $480.80 $320.58
FYE 1996 $205.32 $599.33 $391.18
FYE 1997 $256.85 $954.87 $525.61
</TABLE>
12
<PAGE>
BENEFICIAL STOCK OWNERSHIP
The following table sets forth beneficial ownership of ALZA Common Stock as
of March 2, 1998, except as otherwise noted, (i) by each person, entity or
"group" of persons or entities known by ALZA to be beneficial owners of more
than 5% of ALZA's Common Stock, (ii) by each director, including nominees, and
each of the Named Executive Officers, and (iii) by all executive officers and
directors as a group. Except as described below, each person has sole voting
and dispositive power with respect to the Common Stock described in the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1)(2) CLASS(3)
- ---- ----------------- ----------
<S> <C> <C>
J. P. Morgan & Co. Incorporated
and its subsidiaries............................. 12,499,366 14.5%
60 Wall Street
New York, NY (4)
Brinson Partners, Inc.
and affiliated entities.......................... 7,410,373 8.6
209 South LaSalle Street
Chicago, IL (5)
Lincoln Capital Management Company................ 4,416,700 5.1
200 South Wacker Drive, Suite 2100
Chicago, IL (6)
Dr. William R. Brody.............................. 4,000 --
Bruce C. Cozadd................................... 56,842 --
William G. Davis.................................. 50,000 --
Dr. Robert J. Glaser.............................. 22,884 --
Dr. Ernest Mario.................................. 577,000 --
Dean O. Morton.................................... 22,000 --
Denise M. O'Leary................................. 4,000 --
Dr. Samuel R. Saks (7)............................ 85,000 --
Isaac Stein....................................... 19,608 --
Julian N. Stern................................... 135,679 --
Dr. Felix Theeuwes................................ 301,632 --
Dr. James W. Young................................ 43,116 --
All executive officers and directors as a group
(17 persons)..................................... 1,610,311 1.8
</TABLE>
- --------
(1) Includes outstanding stock options, exercisable on or before April 30,
1998, to purchase the number of shares of ALZA Common Stock as follows:
4,000 for Dr. Brody; 53,600 for Mr. Cozadd; 48,000 for Mr. Davis; 12,000
for Dr. Glaser; 524,000 for Dr. Mario; 12,000 for Mr. Morton; 4,000 for
Ms. O'Leary; 85,000 for Dr. Saks; 8,000 for Mr. Stein; 28,000 for Mr.
Stern; 166,000 for Dr. Theeuwes; 40,000 for Dr. Young; and 1,158,695 for
all executive officers and directors as a group.
(2) Excludes shares covered by outstanding warrants, each to purchase one-
eighth of one share of ALZA Common Stock at a price of $65 per share,
exercisable at any time and expiring on December 31, 1999.
(3) Percentages are not shown if holdings total less than 1% of total
outstanding shares.
(4) Information is as provided by the holder in Amendment No. 24 to its
Schedule 13G filed with the SEC as of February 13, 1998. As to such
shares, the holder has provided the following information: sole voting
power -- 8,266,623 shares; shared voting power -- 45,897 shares; sole
dispositive power --12,376,163 shares; and shared dispositive power --
110,803 shares.
(5) Information is as provided by the holders in Amendment No. 2 to their
Schedule 13G filed with the SEC as of February 10, 1998. The holders have
shared voting and dispositive power with respect to all shares.
(6) Information is as provided by the holder in Amendment No. 1 to its
Schedule 13G filed with the SEC as of February 26, 1998. The holder
disclaims beneficial ownership of all of the shares. The holder has sole
voting power with respect to 2,018,500 shares and sole dispositive power
with respect to all shares.
(7) Excludes 25,000 shares of restricted stock. For a description of the
material terms of the restricted stock, see footnote 2 of the Summary
Compensation Table.
13
<PAGE>
CERTAIN TRANSACTIONS
In September 1995, ALZA made a loan to Bruce C. Cozadd, its Senior Vice
President and Chief Financial Officer, in the principal amount of $86,000, in
connection with the purchase of his principal residence. The loan bears
interest at a rate of 6.04% per annum and is payable in full in September
2000. On December 31, 1997, the outstanding principal and accrued interest on
the loan totaled $98,446. Repayment of the loan is secured by a second deed of
trust on Mr. Cozadd's residence.
In July 1995, ALZA made a loan to Peter D. Staple, its Senior Vice President
and General Counsel, in the principal amount of $88,000, in connection with
the purchase of his principal residence. The loan bears interest at a rate of
6.28% per annum and is payable in full in July 2000. On December 31, 1997, the
outstanding principal on the loan totaled $88,000 and all accrued interest had
been paid. Repayment of the loan is secured by a second deed of trust on Mr.
Staple's residence. In addition, ALZA agreed to provide Mr. Staple with
mortgage differential payments for five years. The payment for 1997 was
$23,120.
In connection with his employment with ALZA, ALZA agreed to provide Mr.
James Butler, ALZA's Senior Vice President, Sales and Marketing, with mortgage
differential payments for five years. The payment for 1997 was $18,490.
Mr. Stern is the sole employee of a professional corporation that is a
member of the law firm of Heller Ehrman White & McAuliffe, which provides
legal services to ALZA.
APPROVAL OF INCREASE IN THE NUMBER OF SHARES
RESERVED FOR ISSUANCE UNDER THE
ALZA CORPORATION AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN BY 950,000 SHARES
BACKGROUND
The Amended and Restated Employee Stock Purchase Plan (the "Purchase Plan")
was originally adopted by the Board on July 18, 1984 and approved by the
stockholders in 1985, and was amended and restated by the stockholders in
1995. The purpose of the Purchase Plan is to enhance relations with employees,
to encourage and assist employees of ALZA to acquire stock in ALZA at a
discount through payroll deductions and to help such employees provide for
their future financial security.
Since the beginning of 1996, 604,593 shares of ALZA Common Stock have been
purchased by employees pursuant to the Purchase Plan. If the number of shares
purchased on the next two purchase dates (July 31, 1998 and January 31, 1999)
continues at a similar rate, there may be an insufficient number of shares
available in the Purchase Plan for the January 31, 1999 purchase.
PROPOSAL
Subject to stockholder approval, the Board has approved an amendment to the
Purchase Plan to increase the number of shares reserved for issuance under the
Purchase Plan by 950,000 shares of ALZA Common Stock. As of March 1, 1998,
277,959 shares remained available for issuance under the Purchase Plan. It is
possible that, under recent enrollment and participation patterns in the
Purchase Plan, the remaining shares could be exhausted prior to the annual
meeting of stockholders to be held in 1999 and that there could be an
insufficient number of shares available for purchase on the January 31, 1999
purchase date for all employees participating in the Purchase Plan. The
increase would provide shares for purchase under the Purchase Plan for several
years.
14
<PAGE>
DESCRIPTION OF THE PURCHASE PLAN
The following is a general summary of the principal provisions of the
Purchase Plan. Any stockholder who desires to review the text of the Purchase
Plan may obtain a copy by writing to ALZA's Corporate and Investor Relations
department.
All employees, including officers and directors who are employees, who are
customarily employed at least 20 hours per week and five months or more each
year by ALZA or any of its subsidiaries (other than ALZA International, Inc.),
are eligible to participate in the Purchase Plan on the first enrollment date
following employment. The enrollment dates are August 1 and February 1 of each
year (or if any such day is not a trading day, then the trading day
immediately following such day). The plan period with respect to the
enrollment of any employee ends on the day before the second anniversary of
the applicable enrollment date, with automatic re-enrollment unless the
employee notifies ALZA of his or her desire not to be re-enrolled. In
addition, participating employees are automatically re-enrolled in the
Purchase Plan for a new two-year enrollment period on any enrollment date on
which the fair market value of ALZA Common Stock would result in the employee
paying a lower purchase price than the purchase price he or she would have
paid based on the employee's original enrollment date.
Participants elect to make contributions by payroll deductions not exceeding
15% of "monthly gross pay" (excluding overtime, bonuses and incentive
payments, but including contributions to deferred compensation plans). No
participant may purchase stock under the Purchase Plan to the extent that the
purchase would cause shares under that plan and all other "employee stock
purchase plans" of ALZA to accrue at a rate which exceeds $25,000 of the fair
market value of such shares for any calendar year, measured on the enrollment
date. Any employee who would hold 5% or more of the total combined voting
power or value of all classes of stock of ALZA immediately after shares are
purchased under the Purchase Plan is prohibited from participating in the
Purchase Plan.
On July 31 and January 31 of each year (or if any such day is not a trading
day, on the trading day immediately prior to such date), ALZA will apply the
funds then in each participant's account to the purchase of shares of ALZA
Common Stock. The purchase price is 85% of the lower of the fair market value
of the shares on such date or on the enrollment date for the applicable
enrollment period. (The market value of ALZA Common Stock based on the closing
sales price as reported on the composite tape on March 2, 1998 was $37.3125
per share.)
The number of shares reserved under the Purchase Plan may be adjusted in the
event of a stock split, stock dividend, recapitalization or other change in
the capital stock of ALZA.
The Purchase Plan is administered by a committee of ALZA employees selected
by the Board. The Purchase Plan may be amended, altered or terminated by ALZA
at any time in its sole discretion; provided that any amendment which would
increase the number of shares reserved for purchase under the Purchase Plan,
materially increase the benefits to participants or materially modify the
requirements for participation requires stockholder approval. The benefits or
amounts that will be received by or allocated to the Named Executive Officers,
all current executive officers and all other employees under the Purchase Plan
will not change as a result of the proposed amendments and are not
determinable, because all such amounts are based on the amount each employee,
in his or her sole discretion, elects to contribute to the Purchase Plan. Non-
employee directors are not entitled to participate in the Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code. Participants will not
have taxable income for federal income tax purposes either upon the grant of
the right to purchase shares under the Purchase Plan or when the shares are
purchased. If shares purchased under the Purchase Plan are held for more than
two years from the enrollment date for the plan period
15
<PAGE>
in which they were purchased and for more than one year from the date on which
they were purchased, any gain realized on a sale of such shares in an amount
equal to the lesser of (i) the excess of the sale price over the amount paid
for the shares, or (ii) 15% of the fair market value of the shares on the
applicable enrollment date, is taxable as ordinary income. Any gain in
addition to such amount is taxable as mid- or long-term capital gain. However,
if the shares are sold within either the one- or two-year period described
above, the participant will have taxable ordinary income to the extent that
the fair market value of the shares on the date of purchase is greater than
the purchase price. The difference, if any, between the sale price and the
fair market value of the shares on the date of purchase will be long-, mid- or
short-term capital gain or loss, depending on the amount of time the shares
have been held. To the extent a participant has taxable ordinary income on a
disposition of the shares purchased under the Purchase Plan by failing to meet
either of the holding period requirements, ALZA generally will be entitled to
a deduction for federal income tax purposes.
BOARD RECOMMENDATION AND VOTE REQUIRED
The Board believes that approval of the proposal to amend the Purchase Plan
to increase the number of shares reserved for issuance under the Purchase Plan
by 950,000 shares will allow ALZA to continue to provide to its employees
opportunities to invest in ALZA and will provide greater flexibility to
employees and management in a changing economic environment. ACCORDINGLY, THE
BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT TO THE
PURCHASE PLAN. The affirmative vote of a majority of the shares of Common
Stock present or represented and entitled to vote at the meeting is required
to approve the proposal.
RATIFICATION OF INDEPENDENT AUDITORS
The Board recommends that the stockholders ratify the appointment of Ernst &
Young LLP as independent auditors to audit the financial statements of ALZA
for the year ending December 31, 1998. Ernst & Young LLP (and its predecessor
partnership) has acted as ALZA's independent auditors since ALZA's inception.
A representative of Ernst & Young LLP will be present at the Annual Meeting,
will have an opportunity to make a statement if he or she desires to do so,
and will be available to respond to appropriate questions. A favorable vote of
a majority of the shares of Common Stock present or represented and entitled
to vote at the meeting is required to ratify the appointment of Ernst & Young
LLP.
ANNUAL REPORT TO STOCKHOLDERS
ALZA's Annual Report to Stockholders for the year ended December 31, 1997,
containing the audited consolidated balance sheets as of December 31, 1997 and
1996 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the past three fiscal years, is being mailed
with this Proxy Statement to stockholders entitled to notice of the Annual
Meeting.
STOCKHOLDER PROPOSALS
ALZA will, in future proxy statements of the Board, include stockholder
proposals complying with the applicable rules of the SEC and the procedures
set forth in ALZA's Bylaws. In order for a proposal by a stockholder to be
included in the proxy statement of the Board relating to the annual meeting of
stockholders to be held in the spring of 1999, that proposal must be received
in writing by the Secretary of ALZA no later than November 20, 1998.
16
<PAGE>
OTHER MATTERS
The Board knows of no other matters that will be presented at the Annual
Meeting. If, however, any other matter is properly presented at the Annual
Meeting, the proxy solicited hereby will be voted in accordance with the
judgment of the proxyholders.
By Order of the Board of Directors,
JULIAN N. STERN
Secretary
Palo Alto, California
March 27, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND RETURN THE
ACCOMPANYING PROXY CARD AS SOON AS POSSIBLE IN THE ACCOMPANYING POSTPAID
ENVELOPE. YOUR DOING SO MAY SAVE ALZA THE EXPENSE OF A SECOND MAILING.
17
<PAGE>
LOGO
RECYCLED PAPER
<PAGE>
APPENDIX
--------
ALZA CORPORATION
AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The ALZA Corporation Amended and Restated Employee Stock
Purchase Plan (the "Plan") is designed to foster continued cordial employee
relations, to encourage and assist employees of ALZA Corporation (the
"Company") and its subsidiaries to acquire stock in the Company and to help
them provide for their future financial security.
2. SHARES SUBJECT TO PLAN
(a) Number of Shares: The Company has reserved for purchase under the Plan a
total of 2,050,000 shares of its Common Stock (the "Shares"). Shares sold
under the Plan may be newly or previously issued shares, but all shares issued
under the Plan, regardless of source, shall be counted against the 2,050,000
share limitation. If at any time the available Shares are oversubscribed,
subscriptions shall be reduced proportionately to eliminate the
oversubscription. Any funds credited to a member that cannot be applied to the
purchase of Shares due to oversubscription shall be promptly refunded to the
member.
(b) Adjustments: In the event of any reorganization, recapitalization, stock
split, reserve stock split, stock dividend, combination of shares, merger,
consolidation, offering of rights or other similar change in the structure of
the capital stock of the Company, the Company may make such adjustment, if
any, as it may deem appropriate in the number, kind and subscription price of
the securities available for purchase under the Plan and in the maximum number
of securities that a member is entitled to purchase. The Company may make any
further adjustments it deems necessary to insure the qualification of the Plan
under Section 423 or any successor provision of the Internal Revenue Code of
1986, as amended (the "Code").
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by such
officers and employees of the Company or other persons as the Board of
Directors of the Company from time to time may select (the "Plan Committee").
All costs and expenses incurred in administering the Plan shall be paid by the
Company, provided that any taxes applicable to a member's participation in the
Plan may be charged to the member by the Company.
The Plan Committee may make such rules and regulations as it deems necessary
to administer the Plan and to interpret the provisions of the Plan. Any
determination, decision or action of the Plan Committee in connection with the
construction, interpretation, administration or application of the Plan or any
right granted under the Plan shall be final, conclusive and binding upon all
persons. No member of the Plan Committee shall be liable for any
determination, decision or action made.
4. ELIGIBILITY. Any employee who is customarily employed by the Company or a
subsidiary for 20 hours per week or more and five months or more in any
calendar year (except any employee who would own, directly or indirectly, five
percent or more of the total combined voting power or value of all classes of
stock of the Company or any of its subsidiaries immediately after Shares are
purchased under the Plan) shall be eligible to become a member of and to
participate in the Plan beginning on the first Enrollment Date following his
or her employment with the Company or a subsidiary.
For purposes of the Plan, "employee" shall mean any individual who performs
services for the Company or a subsidiary pursuant to an employment
relationship described in Treasury Regulations Section 31.3401(c)-1; and
"subsidiary" shall mean any corporation in an unbroken chain of corporations
beginning with the Company if, as of a given Enrollment Date, each of the
corporations other than the last corporation in the chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
A-1
<PAGE>
5. PARTICIPATION
(a) Enrollment: Any eligible employee may enroll or re-enroll in the Plan as
of any February 1 or August 1 (or if either such date is not a trading date,
as of the trading date immediately following such date) (each an "Enrollment
Date") for a period of 24 months (an "Offering Period") commencing on the
applicable Enrollment Date and ending on the fourth Purchase Date following
the applicable Enrollment Date. In order to enroll, an eligible employee must
deliver to the Company a completed and signed "Employee Stock Purchase Plan
Subscription Agreement" indicating the employee's acceptance of the Plan and
agreement to participate in the Plan. Forms must be received by the Company no
later than an Enrollment Date and shall be effective as of such Enrollment
Date. Participation in the Plan is entirely voluntary.
(b) Re-Enrollment Upon Expiration of Offering Period: At the end of a
member's then-current Offering Period, the member automatically shall be
enrolled in the next succeeding Offering Period (a "Re-enrollment") unless, in
a manner and at a time specified by the Company, but in no event later than
the day before the first day of such succeeding Offering Period, the member
notifies the Company in writing of the member's desire not to be so enrolled.
Re-enrollment shall be at the same percentage of contributions as the member's
prior participation unless the member by timely written notice changes the
percentage of contribution. No member shall be automatically re-enrolled whose
participation terminates by operation of Section 9 or who, during the
preceding Offering Period, has reduced his or her percentage of contribution
to 0% or has notified the Company in writing of the member's withdrawal from
participation in the Plan.
(c) Automatic Re-Enrollment on Lower Price Enrollment Date: In the event
that the fair market value of the Company's Common Stock is lower on any
Enrollment Date (the "Lower Price Enrollment Date") than it was on the
Enrollment Date on which a participating member last enrolled in the Plan,
such member shall be deemed to have re-enrolled in the Plan on such Lower
Price Enrollment Date for the next succeeding Offering Period. A participant
may elect not to re-enroll on a Lower Price Enrollment Date by filing a
written statement declaring such election with the Company prior to such Lower
Price Enrollment Date.
6. MEMBER'S CONTRIBUTIONS. Each member shall make contributions by payroll
deduction of any whole percentage up to 15% of the member's monthly gross pay,
as designated by the member. "Monthly gross pay" shall include total salary
and wages before any tax reduction plan decreases and shall exclude overtime
pay, moving allowances, participation in clinical studies, bonus payments
(including PACE awards), income arising from stock options, imputed income due
to fringe benefits and similar items. Contributions shall not be made other
than in accordance with this Section 6.
At any time, a member may elect in writing to decrease the member's rate of
contribution. An election to decrease the rate of contribution or to stop
contributing totally will take effect on the soonest practicable payroll date
following receipt by the Company of the written election. Any election by a
member to decrease his or her payroll deductions to 0% shall be deemed to be
an election to withdraw from the Plan effective immediately following the
purchase of Shares on the next Purchase Date. Such member's participation in
the Offering Period shall continue until the next Purchase Date; thereafter,
the member may enroll on any subsequent Enrollment Date for a new Offering
Period.
A written election to increase the rate of contribution received by the
Company from a member during the first eighteen months of the then current
Offering Period will become effective on the soonest practicable payroll date
following the Company's receipt of such election and will not constitute a new
enrollment. An election to increase the rate of contribution received by the
Company from a member during the last six months of the current Offering
Period will become effective on the Enrollment Date immediately following the
Company's receipt of such election and will constitute a new enrollment.
Notwithstanding any other provision of the Plan, no member may receive a
right to acquire Shares under the Plan (and all other employee stock purchase
plans of the Company and its subsidiaries that are qualified or intended to be
qualified under Section 423 or any successor provision of the Code) that
accrues at a rate in excess of $25,000 of fair market value of such Shares for
any calendar year (determined as of the Enrollment Date).
A-2
<PAGE>
Employee contributions may be commingled with other Company funds free of
any obligation of the Company to pay interest on such funds but shall be
credited to each member as soon as practicable after each withholding.
7. PURCHASE RIGHTS
(a) Grant Of Purchase Rights. Enrollment by a member in the Plan on an
Enrollment Date will constitute the grant by the Company to the Member of
rights to purchase Shares under the Plan. Upon enrollment, unless otherwise
determined by the Plan Committee, a member will become eligible for the grant
of purchase rights for the number of Shares equal to $75,000 divided by the
fair market value of a Share determined at the grant date of such purchase
right. Any member whose purchase rights expire and who has not withdrawn from
the Plan will automatically be re-enrolled in the Plan and granted new
purchase rights (equal in number to the number of expiring purchase rights) on
the Enrollment Date immediately following the Purchase Date on which the
Member's then current purchase rights expire. Any member who is deemed to have
re-enrolled on a Lower Price Enrollment Date will be granted new purchase
rights for the number of Shares equal to $75,000 divided by the fair market
value of a Share on the Lower Price Enrollment Date.
(b) Terms and Conditions of Purchase Rights. Each purchase right granted
under the Plan shall have the following terms:
(i) whether or not Shares have been purchased thereunder, the purchase
right will expire on the earliest to occur of (A) the completion of the
purchase of Shares on the last Purchase Date occurring within 24 months of
the Enrollment Date on which such purchase right was granted, or such
shorter period as may be established by the Board of Directors from time to
time prior to an Enrollment Date for all purchase rights to be granted on
such Enrollment Date, or (B) the date on which participation of such member
in the Plan terminates for any reason;
(ii) payment for Shares purchased under the purchase rights will be made
only through payroll deduction in accordance with Section 6;
(iii) purchase of Shares upon exercise of the purchase rights will be
accomplished only in installments in accordance with Section 8;
(iv) the purchase price per Share under the purchase rights will be
determined as provided in Section 8; and
(v) the purchase rights will in all respects be subject to the terms and
conditions of the Plan, as interpreted by the Plan Committee from time to
time.
8. ISSUANCE OF SHARES. On each January 31 and July 31 (or if either such
date is not a trading date, on the last trading date immediately prior to such
date) during an Offering Period (each a "Purchase Date"), so long as the Plan
shall remain in effect, the Company shall apply the funds then credited to
each member's account to the purchase of whole Shares. The cost or charge to
each member's account shall be 85% of the fair market value of one share of
ALZA Common Stock on the applicable Enrollment Date or on the Purchase Date,
whichever is lower, as determined in good faith by the Plan Committee,
multiplied by the number of Shares purchased.
After the purchase of Shares on a Purchase Date, any funds credited to a
member equaling less than the sum required to purchase a whole Share shall be
held for purchases on the next succeeding Purchase Date. Upon the effective
date of a member's written election to withdraw from participation in the Plan
for the then-current Offering Period, any funds then credited to the member
shall, for purposes of this Section 7, cease to be credited to such member and
shall be refunded to the member. The Company shall, promptly after each
Purchase Date so long as the Plan is in effect, issue to the member entitled
thereto the Shares purchased by the member under the Plan. No member shall
have rights as a stockholder of the Company until such Shares are issued.
A-3
<PAGE>
9. TERMINATION OF MEMBERSHIP. A member's participation in the Plan shall
terminate, and no Shares may thereafter be purchased by such member under the
Plan, (a) when the member ceases to be employed by the Company and its
subsidiaries for any reason whatsoever, (b) when the member dies, or (c) 90
days after the member ceases to receive any compensation from the Company and
its subsidiaries unless, in the case of (c) above, (i) such cessation is due
to a leave of absence in accordance with policies of the Company or approved
by the person or persons appointed by the Company to administer the Plan and
(ii) the member's right to reemployment is guaranteed by statute or contract.
10. WITHDRAWAL OF FUNDS. A member may withdraw all or part of the funds
contributed by such member to the Plan at any time prior to the use of the
funds for the purchase of Shares. A member may make only one withdrawal of
funds per calendar quarter. The member may not, after any withdrawal, return
any such funds to the Company and require the Company to apply the funds to
the purchase of Shares.
11. BENEFICIARY. Each member may designate in writing one or more
beneficiaries and may, in such member's sole discretion, change such
designation from time to time. Any such designation shall be effective only
after receipt by the Company and shall be controlling over any disposition by
will or otherwise.
Upon the death of a member, amounts remaining credited to the member shall
be paid in cash to the beneficiary or beneficiaries designated by the member
or, in the absence of such designation, to the executor, administrator or
other legal representative of the member's estate. Such payment shall relieve
the Company of further liability under the Plan on account of the member. If
more than one beneficiary is designated, each beneficiary shall receive an
equal portion of the account unless the member gave contrary instructions in
such designation.
12. MODIFICATION, TERMINATION. The Company expects to continue the Plan
until such time as all of the Shares reserved for purchase under the Plan have
been purchased. However, the Company reserves the right to amend, alter or
terminate this Plan at any time. No amendment shall be effective unless,
within one year after it is adopted by the Company's Board of Directors, it is
approved by the holders of a majority of the voting power of the Company's
outstanding shares, if such amendment would:
(i) increase the number of Shares reserved for purchase under the Plan;
(ii) materially increase the benefits to participants; or
(iii) materially modify the requirements for participation.
The Board of Directors may elect to terminate any or all outstanding
enrollments at any time. In the event the Plan is terminated, the Board may
also elect either to terminate enrollments upon completion of the purchase of
Shares on the next Purchase Date, or to permit enrollments to expire in
accordance with their terms (and participation to continue through such
expiration dates). If the enrollments are terminated prior to expiration, any
funds contributed to the Plan that have not been used to purchase Shares shall
be returned to the members as soon as administratively feasible.
If at any time the Shares available under the Plan are over-enrolled,
enrollments shall be reduced proportionately to eliminate the over-enrollment.
Any funds that cannot be applied to the purchase of Shares due to over-
enrollment shall be refunded to members as soon as administratively feasible.
13. ASSIGNABILITY OF RIGHTS; CREATION OF LIENS. No rights of any member
under the Plan shall be assignable by the member, by operation of law or
otherwise, and no person may create a lien on any funds, securities or any
other property, except to the extent that there has been a designation of a
beneficiary or beneficiaries in accordance with the Plan, and except to the
extent permitted by the laws of descent and distribution if such beneficiary
is not designated. Prior to the purchase of any Shares under the Plan, each
member shall be required to sign a statement to the foregoing effect. A
member's right to purchase Shares under the Plan shall be exercisable only
during the member's lifetime and only by the member.
A-4
<PAGE>
14. PARTICIPATION IN OTHER PLANS. Except as provided in Section 6, nothing
in the Plan shall affect an employee's right to participate in and receive
benefits under the then-current provisions of any pension, insurance or other
employee benefit plan or program of the Company or a subsidiary.
15. REPORTS. The Company shall make available to members copies of all
communications with holders of Common Stock, including annual and interim
reports. In connection with the issuance of Shares under the Plan, the Company
shall provide each member with a summary of such member's total contributions
during the preceding Offering Period, and the number of Shares purchased,
purchase price and the balance of funds, if any, in the member's account.
16. EQUAL RIGHTS AND PRIVILEGES. All members shall have equal rights and
privileges with respect to the Plan to the extent necessary to cause the Plan
to qualify as an "employee stock purchase plan" within the meaning of Section
423 or any successor provision of the Code and the regulations promulgated
thereunder. This Section 16 shall take precedence over all other provisions of
the Plan.
17. APPLICABLE LAW. The interpretation, performance and enforcement of the
Plan shall be governed by the laws of the State of California.
18. EFFECTIVE DATE; TRANSITION PROVISIONS. The Plan amendments embodied in
this Amended and Restated Employee Stock Purchase Plan are effective July 2,
1995, provided, however, that notwithstanding Sections 5(a) and 8, (a) no
enrollment date will occur on August 1, 1995; (b) the two Offering Periods
existing on the effective date of these amendments (i.e., the Offering Periods
commencing July 1, 1994 and July 1, 1995) will each continue for 25 months (to
July 31, 1996 and July 31, 1997, respectively) and (c) since no Purchase Date
occurred in January of 1995 with respect only to the Offering Period
commencing July 1, 1994 and ending on July 31, 1996, only three Purchase Dates
(June 30, 1995, January 31, 1996 and July 31, 1996) will occur during such
Offering Period.
19. APPROVAL. The Plan was originally approved by the Company's Board of
Directors on July 18, 1984 and by holders of the majority of the voting power
of all outstanding shares of the Company on April 25, 1985. This Amended and
Restated Plan was approved by the Company's Board of Directors on February 16,
1995 and by the Company's stockholders on May 11, 1995.
A-5
<PAGE>
AMENDMENT NO. 1
TO THE ALZA CORPORATION
AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN
THIS AMENDMENT NO. 1 to the ALZA Corporation Amended and Restated Employee
Stock Purchase Plan (the "Plan") hereby amends the Plan as follows:
1. Paragraph 2(b) is hereby deleted in its entirety and replaced with the
following:
(b) Adjustments: In the event of any reorganization, recapitalization,
stock split, reverse stock split, stock dividend, combination of shares,
merger, consolidation, offering of rights or other similar change in the
structure of the capital stock of the Company, the Company may make such
adjustment, if any, as it may deem appropriate in the number, kind and
subscription price of the securities available for purchase under the Plan
and in the maximum number of securities that a member is entitled to
purchase.
2. Section 5(a) of the Plan is amended to include at the end thereof the
following:
In the event that the Company fails to offer enrollment in the Plan to
every person who is entitled to participate therein, such action (or
inaction) shall not affect the enrollment, or eligibility to enroll or re-
enroll, of any other eligible employee.
3. All other provisions of the Plan shall remain in full force and effect,
without modification.
To record the adoption of this Amendment No. 1, the Company has caused this
instrument to be executed by a duly authorized officer as of the 23rd day of
December, 1996.
ALZA Corporation
/s/ Ernest Mario
-------------------------------------
Ernest Mario
Chief Executive Officer
A-6
<PAGE>
AMENDMENT NO. 2
TO THE ALZA CORPORATION
AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN
THIS AMENDMENT NO. 2 to the ALZA Corporation Amended and Restated Employee
Stock Purchase Plan (the "Plan") hereby amends the Plan as follows:
1. Paragraph 4 is hereby amended by adding the following at the end thereof:
"Notwithstanding the foregoing, employees of the Company's subsidiary ALZA
International, Inc. are not eligible to participate in the Plan."
2. All other provisions of the Plan shall remain in full force and effect,
without modification.
To record the adoption of this Amendment No. 2, the Company has caused this
instrument to be executed by a duly authorized officer as of the 18th day of
December, 1997.
ALZA Corporation
/s/ Ernest Mario
-------------------------------------
Ernest Mario
Chief Executive Officer
A-7
<PAGE>
PROXY
ALZA CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) ERNEST MARIO, JULIAN N. STERN and BRUCE
C. COZADD, or any of them, each with full power of substitution, the lawful
attorneys and proxies of the undersigned to attend the Annual Meeting of
Stockholders of ALZA CORPORATION to be held on May 7, 1998 and any
adjournments or postponements thereof, to vote the number of shares the
undersigned would be entitled to vote if personally present, and to vote in
their discretion upon any other business that may properly come before the
meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" PROPOSALS 1, 2 AND 3. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR
TO THE TIME IT IS VOTED BY ANY MEANS DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT.
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
Please mark
[X] votes as in
this example.
THE BOARD OF DIRECTORS OF ALZA CORPORATION UNANIMOUSLY RECOMMENDS A VOTE "FOR"
PROPOSALS 1, 2 AND 3.
1. To elect as Class II Directors:
NOMINEES: Dr. Robert J. Glaser, Dean O. Morton and Denise O'Leary
FOR WITHHELD
ALL [_] FROM ALL [_]
NOMINEES NOMINEES
[_]
---------------------------------------------
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. To increase by 950,000 shares the number [_] [_] [_]
of shares of Common Stock reserved
for issuance under ALZA's Amended and
Restated Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
3. To ratify the appointment of Ernst & [_] [_] [_]
Young LLP as ALZA's independent auditors
for fiscal 1998.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Please date and sign exactly as name(s) appear(s) hereon. If shares are held
jointly, each holder should sign. Please give full title and capacity in which
signing if not signing as an individual stockholder.
Signature:_______________ Date:_______ Signature:_____________ Date:________
