<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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 Section240.14a-11(c) or
Section240.14a-12
ALZA CORPORATION
- --------------------------------------------------------------------------------
(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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[ALZA LOGO]
ALZA CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1999 AT 9:00 A.M.
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 6, 1999 at 9:00 a.m., for the following purposes:
1. To elect three Class III directors to hold office for a term ending in 2002
and until their successors are elected;
2. To increase by 5,000,000 shares the number of shares of ALZA Common Stock
reserved for issuance under ALZA's Amended and Restated Stock Plan;
3. To ratify the appointment of Ernst & Young LLP as ALZA's independent
auditors for the fiscal year ended December 31, 1999; 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 29, 1999 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 30, 1999
- --------------------------------------------------------------------------------
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
1999 Annual Meeting of Stockholders (the "Annual Meeting") to be held at 9:00
a.m. on Thursday, May 6, 1999 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 29, 1999 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 100,803,091 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 April 5, 1999. 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 III directors are to be
elected at the 1999 annual meeting, Class I directors are to be elected at the
annual meeting in the year 2000 and Class II directors are to be elected at the
annual meeting in the year 2001.
NOMINEES
Three Class III 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
2002 and until his successor has been elected and qualified, or until his
earlier death, resignation or removal. The current Class III directors are Dr.
I. Craig Henderson, Dr. Ernest Mario and Mr. Isaac Stein.
On March 16, 1999, following ALZA's merger with SEQUUS Pharmaceuticals, Inc.
("SEQUUS"), Dr. I. Craig Henderson, the Chairman of the Board and Chief
Executive Officer of SEQUUS prior to the
1
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acquisition of that company by ALZA, was appointed to the Board as a Class III
director. Immediately prior to Dr. Henderson's appointment, the Board amended
ALZA's Bylaws to increase the number of directors constituting the Board from
eight to nine directors.
The nominees for election at the Annual Meeting are Dr. Henderson, Dr. Mario
and Mr. Stein. 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
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<S> <C>
NOMINEES (CLASS III DIRECTORS)
Dr. I. Craig Henderson.......................................................... 1999
Senior Medical Adviser
Dr. Ernest Mario................................................................ 1993
Chairman and Chief Executive Officer
Isaac Stein..................................................................... 1987
INCUMBENTS
CLASS I DIRECTORS
Dr. William R. Brody............................................................ 1996
William G. Davis................................................................ 1989
Julian N. Stern................................................................. 1982
Secretary
CLASS II DIRECTORS
Dr. Robert J. Glaser............................................................ 1987
Dean O. Morton.................................................................. 1987
Denise M. O'Leary............................................................... 1996
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS
NOMINEES (CLASS III DIRECTORS)
Dr. I. Craig Henderson, 57, became a director of ALZA in March 1999 pursuant
to the Agreement and Plan of Merger between ALZA and SEQUUS, and is the Senior
Medical Adviser of ALZA. Prior to ALZA's acquisition of SEQUUS, Dr. Henderson
was the Chief Executive Officer of SEQUUS from June 1995 to March 1999 and
Chairman of its Board of Directors from July 1995. He served as a director of
SEQUUS from July 1993 to March 1999. Since July 1995, Dr. Henderson has been an
Adjunct Professor of Medicine at the University of California, San Francisco.
From 1992 until July 1995, he served as Professor of Medicine, Chief of Medical
Oncology and Director of Clinical Cancer programs at the University of
California, San Francisco. From 1989 to 1992, he served as a member and, for
most of this time, as Chairman, of the Oncologic Drugs Advisory Committee of the
FDA. From 1974 to 1992, Dr. Henderson held an academic appointment at Harvard
Medical School, most recently as Associate
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Professor of Medicine. Dr. Henderson founded the Breast Evaluation Center at the
Dana-Farber Cancer Institute in 1980 and served as its director until 1992.
Dr. Ernest Mario, 60, 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 Catalytica, Inc., COR Therapeutics,
Inc. and Pharmaceutical Product Development, Inc.
Isaac Stein, 52, 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.
INCUMBENTS
CLASS I DIRECTORS
Dr. William R. Brody, 55, 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 Johns Hopkins University from 1987 to 1994. Dr. Brody is a director of
Medtronic, Inc. and Mercantile Bankshares.
William G. Davis, 67, 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 Radiance Medical Systems Inc. and Collagen Aesthetics Inc. Mr. Davis
has advised ALZA that he intends to resign as a director of ALZA at the time of
the annual stockholders' meeting. The Board has amended ALZA's Bylaws, effective
upon such resignation, to decrease the number of directors constituting the
Board from nine to eight directors.
Julian N. Stern, 74, 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.
CLASS II DIRECTORS
Dr. Robert J. Glaser, 80, 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, 67, 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, 41, 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
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<PAGE>
Partner with that company from 1987 to 1996. Ms. O'Leary is a director of Del
Monte Foods Company and America West Holdings Corporation.
MEETINGS AND COMMITTEES OF THE BOARD
There were ten meetings of the full Board during fiscal 1998. 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 1998, 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 1998, 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.
The Nominating Committee, the members of which are Mr. Stein (Chairman), Mr.
Davis, Dr. Glaser and Mr. Morton, identifies and recommends qualified persons to
serve as directors of ALZA. The Nominating Committee met once during fiscal
1998. Under ALZA's Bylaws, for the 1999 annual meeting 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.
During 1998, each director other than Mr. Davis attended at least 75% of the
meetings of the full Board and the committees of the Board on which he or she
served. Mr. Davis attended 66 2/3% of the meetings of the full Board and the
committees of the Board on which he 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. Under that plan, each new non-employee director
receives a nonqualified stock option to purchase 20,000 shares of Common Stock,
vesting in five equal annual installments beginning one year after the date of
his or her first Board meeting, with an exercise price equal to the fair market
value of the Common Stock on the date of the grant. Each non-employee director
receives an additional option to purchase 10,000 shares on each fifth
anniversary of his or her first Board meeting, also vesting in five equal annual
installments beginning one year after the date of the grant.
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<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 five most highly compensated executive officers who were serving as
executive officers as of December 31, 1998 (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................................ 1998 $ 634,170 $ 350,000 $ 981,555 75,000 $ 288,982
Chairman and 1997 599,999 180,000 -- 75,000 160,689
Chief Executive Officer 1996 595,835 100,000 -- 75,000 103,820
Dr. Samuel R. Saks.............................. 1998 343,465 150,000 -- 13,750 22,306
Senior Vice President, 1997 333,337 100,000 759,125 40,000 7,849
Medical Affairs 1996 311,668 75,000 -- -- 6,949
Dr. James W. Young.............................. 1998 321,192 150,000 503,860 30,000 45,866
Senior Vice President, 1997 277,920 125,000 -- 30,000 16,375
Research and Development 1996 249,569 50,000 -- -- 14,323
Bruce C. Cozadd................................. 1998 294,872 140,000 503,860 20,000 22,660
Senior Vice President and 1997 287,504 120,000 -- 40,000 8,890
Chief Financial Officer 1996 247,509 75,000 -- -- 6,585
James R. Butler................................. 1998 292,372 140,000 503,860 30,000 48,700
Senior Vice President, 1997 267,338 100,000 30,000 25,159
Sales and Marketing 1996 251,669 40,000 -- 22,469
Peter D. Staple................................. 1998 292,372 140,000 503,860 20,000 33,562
Senior Vice President and 1997 270,838 120,000 -- 40,000 13,285
General Counsel 1996 247,507 75,000 -- -- 10,918
</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.
(2) Dr. Mario was awarded 27,273 shares, and each of Dr. Young, Mr. Cozadd, Mr.
Butler and Mr. Staple was awarded 14,000 shares, of restricted stock in
August 1998. The restrictions on all of these shares lapse in August 2002.
Dr. Saks was awarded 25,000 shares of restricted stock in June 1997.
Restrictions on his 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 the holder's employment with ALZA. For the
employees other than Dr. Saks, the restrictions on forfeiture will
automatically lapse upon a "change of control" of ALZA. For Dr. Saks, 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. The value of each award at the time of grant (based on the closing
sales price of ALZA common stock on the date of the award) less the price
paid for the shares, is set forth in the table. Each employee paid ALZA $.01
per share for the shares of restricted stock. Dividends, if any, paid in
cash or in ALZA Common Stock with respect to the shares of restricted stock
will be paid in
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<PAGE>
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
aggregate number of shares of restricted stock granted by ALZA outstanding
at the end of 1998 was 285,773 shares. The value of restricted stock awarded
in 1998, based on the closing sales price on December 31, 1998 (less the
amounts paid to ALZA for the shares), is $1,424,742 for Dr. Mario, and
$731,360 for each of Dr. Young, Mr. Cozadd, Mr. Butler and Mr. Staple.
(3) Amounts shown for the fiscal year ended December 31, 1998 consist of: (i)
amounts contributed by ALZA to the employees' accounts under the ALZA
Retirement Plan as follows: $16,803 for Dr. Mario, $7,983 for Dr. Saks,
$15,704 for Dr. Young, $4,342 for Mr. Cozadd, $16,803 for Mr. Butler and
$9,780 for Mr. Staple; (ii) amounts contributed by ALZA to the employees'
accounts under the Supplemental ALZA Retirement Plan adopted in 1998 as
follows: $87,606 for Dr. Mario, $14,143 for Dr. Saks, $28,162 for Dr. Young,
$8,410 for Mr. Cozadd, $24,481 for Mr. Butler and $16,387 for Mr. Staple;
(iii) 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 $184,573
for Dr. Mario, $180 for Dr. Saks, $7,908 for Mr. Cozadd, $7,416 for Mr.
Butler and $5,395 for Mr. Staple; and (iv) amounts contributed by ALZA to
employees' accounts under ALZA's Tax Deferral Investment Plan as follows:
$2,000 for each of Dr. Young, Mr. Cozadd, and Mr. Staple.
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<PAGE>
1998 OPTION GRANTS
The following table sets forth information relating to options granted in
1998 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>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED
-----------------------------------------------------
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION TERM(1)
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 3.23% $ 46.6875 5/7/2008 -- $ 2,202,114 $ 5,580,589
Dr. Samuel R. Saks................ 13,750 0.61 46.6875 5/7/2008 -- 403,721 1,023,108
Dr. James W. Young................ 30,000 1.33 46.6875 5/7/2008 -- 880,846 2,232,236
Bruce C. Cozadd................... 20,000 0.89 46.6875 5/7/2008 -- 587,230 1,488,157
James R. Butler................... 30,000 1.33 46.6875 5/7/2008 -- 880,846 2,232,236
Peter D. Staple................... 20,000 0.89 46.6875 5/7/2008 -- 587,230 1,488,157
</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 options granted to Dr. Mario, Dr.
Saks, Mr. Cozadd and Mr. Staple are fully exercisable on May 7, 2001. The
options granted to Dr. Young and Mr. Butler are fully exercisable in three
annual installments of 5,000, 5,000 and 20,000 shares, respectively,
beginning on May 7, 1999. 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 on the date of the grant, which is the average of the high
and low price reported on the New York Stock Exchange on that date.
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<PAGE>
1998 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 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR 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............. 20,000 $ 542,500 704,000 350,000 $ 22,245,500 $ 8,190,625
Dr. Samuel R. Saks........... 15,000 375,938 115,000 53,750 2,670,000 1,003,984
Dr. James W. Young........... 10,000 275,000 70,000 60,000 2,197,500 862,500
Bruce C. Cozadd.............. 10,000 265,625 73,600 60,000 1,907,800 1,038,750
James R. Butler.............. 10,000 287,500 50,000 60,000 1,543,750 862,500
Peter D. Staple.............. 15,000 398,438 75,000 60,000 2,141,250 1,038,750
</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, 1998 ($52.25)
minus the exercise price of "in-the-money" options.
CERTAIN EXECUTIVE AGREEMENTS
ALZA has entered into agreements (each, an "Executive Agreement") with each
of 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 Securities and Exchange Commission ("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, 1998 through December 31, 1998 its
8
<PAGE>
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
Vice President, Human Resources. In 1998, the Committee engaged Hewitt
Associates, a national consulting firm specializing in executive compensation
and benefits, to provide the Committee with a report concerning ALZA's executive
compensation. Set forth below is the report of the Committee with respect to
ALZA's compensation policies during 1998 as they affected ALZA's Chief Executive
Officer and other executive officers.
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 the range of compensation paid by major pharmaceutical companies
to executive officers generally, and to the Chief Executive Officer in
particular. This was confirmed by the report of Hewitt Associates, which the
Committee engaged to assist the Committee in a review of ALZA's compensation
policies for its executives. As a result of this review, the Company adopted a
Supplemental ALZA Retirement Plan ("SARP") for its senior executives and vice
presidents, adopted an executive estate protection plan being implemented in
1999, and awarded restricted stock to the Company's senior executives and vice
presidents. The S&P Drugs Index and the AMEX Pharmaceutical Index, the industry
groups included for comparison in "Performance Graphs" below, consist of large
national pharmaceutical companies, which have been used as a reference in
determining 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 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 in
1997 and 1998, restricted stock awards), which provide longer term incentives.
9
<PAGE>
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 (and in 1997 and 1998, restricted stock awards) 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 Plans, which permit them to defer a
portion of their compensation on a pre-tax basis and, beginning in 1998, the
SARP, to which the company makes contributions based on participating employees'
earnings.
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 1998 awards of
restricted stock, which generally are subject to forfeiture if the employee
leaves the company during the four year period after the award, serve this
purpose as well. 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.
RELATIONSHIP OF CORPORATE PERFORMANCE TO COMPENSATION PLANS
ALZA's corporate performance measurements focus on both financial and
strategic objectives. The Committee determined that during 1998, ALZA achieved
the following strategic objectives set by the Board:
- advancing the transition to being a research-based pharmaceutical products
company;
- increasing ALZA's net sales through the introduction of new products, as
well as increasing sales of existing products;
- maintaining ALZA's technological leadership position in drug delivery;
- obtaining approval to market the Ditropan-Registered Trademark- XL
product;
- obtaining increased royalties and fees as compared with 1997;
- furthering the development of products in the pipeline with Crescendo
Pharmaceuticals Corporation; and
- increasing earnings per share over 1997.
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.
10
<PAGE>
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 1998, 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 ALZA Common Stock at a price equal to 85 percent of its fair
market value on the enrollment date or the purchase date, whichever is lower;
(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 $2,000 per employee in 1998 under ALZA's Tax Deferral
Investment Plan.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Dr. Ernest Mario, ALZA's Chief Executive Officer, received a salary increase
of 5.7% during 1998. Increases in Dr. Mario's salary have generally been limited
to inflation adjustments during his tenure with ALZA. 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. During 1998, Dr. Mario was
granted a nonstatutory option to purchase 75,000 shares of ALZA Common Stock,
vesting after three years and expiring in 2008. He also received a grant of
27,273 shares of restricted stock, vesting four years after the date of the
grant. The exercise price of the option is $46.6875 per share, the fair market
value of ALZA Common Stock on the date the option was granted. In 1998, Dr.
Mario provided strong leadership to ALZA in its achievement of ALZA's key
strategic and financial objectives and Dr. Mario's bonus for 1998 reflects his
important contributions to ALZA's success in 1998, the achievement by ALZA of
its 1998 objectives, and the transition of ALZA to being a research-based
pharmaceutical company marketing its own products.
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 considers 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
11
<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, 1998. ALZA has elected to use the AMEX Pharmaceutical Index
(consisting of a group of 15 mid-sized to large pharmaceutical companies,
including ALZA) for purposes of the performance comparison which appears below.
In prior years, ALZA has used the S&P Drugs Index (consisting of a group of five
very large pharmaceutical companies) for the performance comparison, therefore,
such index is also included for comparison purposes this year.
The graph below has been prepared to give effect to the distribution to ALZA
stockholders 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 received in the distribution 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 0.397 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, AMEX PHARMACEUTICAL INDEX, S&P DRUGS INDEX AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ALZA AMEX PHARMA S&P DRUGS S&P 500
<S> <C> <C> <C> <C>
12/31/93 $100.00 $100.00 $100.00 $100.00
12/31/94 $63.72 $108.72 $112.32 $98.46
12/31/95 $86.73 $168.18 $184.45 $132.05
12/31/96 $91.59 $204.27 $235.45 $158.80
12/31/97 $114.84 $303.31 $355.16 $208.05
12/31/98 $188.62 $443.09 $535.96 $263.53
</TABLE>
12
<PAGE>
BENEFICIAL STOCK OWNERSHIP
The following table sets forth the beneficial ownership of ALZA Common Stock
as of March 8, 1999, 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
investment power with respect to the Common Stock described in the table. The
percentage of class column for the institutional investors named below is taken
from the holders' filings with the SEC. The table does not reflect the issuance
of ALZA shares in connection with ALZA's acquisition of SEQUUS on March 16,
1999.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP(1)(2) CLASS(3)
- ---------------------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
J. P. Morgan & Co. Incorporated and its subsidiaries.............................. 12,302,571 13.9%
60 Wall Street
New York, NY 10260 (4)
Brinson Partners, Inc............................................................. 8,659,815 9.6
209 South LaSalle Street
Chicago, IL 60604 (5)
Lincoln Capital Management Company................................................ 5,607,000 6.4
200 South Wacker Drive, Suite 2100
Chicago, IL 60606 (6)
Janus Capital Corporation and Thomas H. Bailey.................................... 5,488,413 6.2
100 Fillmore Street
Denver, CO 80206 (7)
American Express Company.......................................................... 5,040,647 5.8
American Express Tower
200 Vesey Street
New York, NY 10285 (8)
Dresdner RCM Global Investors LLC................................................. 4,791,900 5.5
4 Embarcadero Center, Suite 3000
San Francisco, CA 94111 (9)
Dr. William R. Brody.............................................................. 4,000 --
James R. Butler (10).............................................................. 72,521 --
Bruce C. Cozadd (10).............................................................. 97,636 --
William G. Davis.................................................................. 52,000 --
Dr. Robert J. Glaser.............................................................. 24,884 --
Dr. I. Craig Henderson (11)....................................................... -- --
Dr. Ernest Mario (10)............................................................. 793,495 --
Dean O. Morton.................................................................... 24,000 --
Denise M. O'Leary................................................................. 8,000 --
Dr. Samuel R. Saks (10)........................................................... 135,000 --
Peter D. Staple (10).............................................................. 97,355 --
Isaac Stein....................................................................... 21,608 --
Julian N. Stern................................................................... 101,575 --
Dr. James W. Young (10)........................................................... 94,304 --
All executive officers and directors as a group (17 persons)...................... 1,826,856 2.1
</TABLE>
- ------------------------
(1) Includes outstanding stock options, exercisable on or before May 7, 1999,
to purchase the number of shares of ALZA Common Stock as follows: 4,000 for
Dr. Brody; 70,000 for Mr. Butler; 93,600 for Mr. Cozadd; 50,000 for Mr.
Davis; 14,000 for Dr. Glaser; 704,000 for Dr. Mario; 14,000 for
13
<PAGE>
Mr. Morton; 8,000 for Ms. O'Leary; 135,000 for Dr. Saks; 95,000 for Mr.
Staple; 10,000 for Mr. Stein; 10,000 for Mr. Stern; 90,000 for Dr. Young;
and 1,488,195 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 its Schedule 13G/A filed with
the SEC as of February 22, 1999. As to such shares the holder has provided
the following information: sole voting power-- 8,892,274 shares; shared
voting power--46,227 shares; sole dispositive power--12,159,357 shares;
shared dispositive power--119,713 shares.
(5) Information is as provided by the holder in its Schedule 13G/A filed with
the SEC as of February 18, 1999. The Schedule 13G also includes UBS AG. As
to such shares (i) Brinson Partners, Inc. has provided the following
information: shared voting and dispositive power--5,502,260 shares; and
(ii) UBS AG has provided the following information: shared voting and
dispositive power--all of the shares.
(6) Information is as provided by the holder in its Schedule 13G/A filed with
the SEC as of February 11, 1999. The holder disclaims beneficial ownership
of all of the shares. The holder has sole voting power with respect to
2,473,100 shares.
(7) Information is as provided by the holder in its Schedule 13G filed with the
SEC as of February 12, 1999. As to such shares, the holder has provided the
following information: (i) shared voting and dispositive power--5,488,413
shares and (ii) the number of shares reported includes 15,155 bonds
convertible into common stock at 26.184 shares per bond.
(8) Information is as provided by the holders in their Schedule 13G filed with
the SEC as of January 22, 1999. The Schedule 13G also includes American
Express Financial Corporation. As to such shares, the holders have provided
the following information: sole voting power--0 shares; shared voting
power--3,029,347 shares; sole dispositive power--0 shares; shared
dispositive power--5,040,647 shares.
(9) Information is as provided by the holder in its Schedule 13G filed with the
SEC as of February 16, 1999. Other entities included in such Schedule 13G
include Dresdner RCM Global Investors US Holdings LLC and Dresdner Bank AG.
As to such shares, (i) each of Dresdner RCM Global Investors LLC and
Dresdner RCM Global Investors US Holdings LLC has provided the following
information: sole voting power--3,806,665 shares; shared voting power--0
shares; sole dispositive power--4,691,900 shares; shared dispositive
power--100,000 shares; and (ii) Dresdner Bank AG has provided the following
information: sole voting power--3,929,565 shares; shared voting power--0
shares; sole dispositive power--4,814,800 shares; shared dispositive
power--100,000 shares.
(10) Excludes 27,273 shares of restricted stock for Dr. Mario, 25,000 shares of
restricted stock for Dr. Saks and 14,000 shares of restricted stock for
each of Dr. Young, Mr. Cozadd, Mr. Butler and Mr. Staple. For a
description of the material terms of the restricted stock, see footnote 2
of the Summary Compensation Table.
(11) Excludes options to purchase 192,998 shares as a result of ALZA's
acquisition of SEQUUS.
14
<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, 1998, the outstanding principal and accrued interest on the loan
totaled $104,393. 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, 1998, the
outstanding principal and accrued interest on the loan totaled $88,309.
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 1998 was $12,523.
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 STOCK PLAN BY 5,000,000 SHARES
BACKGROUND
Since its inception, ALZA has granted options to employees to purchase
shares of its Common Stock. ALZA considers its option program to be an important
tool to help ALZA attract, retain and motivate employees, directors and
consultants. The program also generates cash for ALZA when options are exercised
and, in the case of nonstatutory stock options ("NSOs") or disqualifying
dispositions of incentive stock options ("ISOs"), tax deductions and possible
tax credits. ALZA's Amended and Restated Stock Plan (the "Plan"), which provides
for the grant of options and restricted stock, was first approved by the
stockholders in May 1992 to replace all then-existing stock option plans. Since
the inception of the Plan, a total of 9,000,000 shares have been authorized for
issuance under the Plan. As of March 8, 1999, employees, directors and
consultants of ALZA held a total of unexercised options (granted under the Plan
and all predecessor stock option plans) covering 6,803,056 shares of Common
Stock, with an exercise price per share ranging from $13.00 to $52.8125. Options
granted under the plan totaled 913,755 in 1996, 1,654,270 in 1997, and 2,305,620
in 1998. In addition, awards of a total of 285,773 shares of restricted stock
were made under the Plan in 1997 and 1998 to executives of ALZA. As of March 8,
1999, a total of 431,090 shares remained available for grants under the Plan.
PROPOSAL
Subject to stockholder approval, the Board has approved an amendment to the
Plan to increase the number of shares available for issuance under the Plan by
5,000,000 shares of ALZA Common Stock. As of March 8, 1999, only 431,090 shares
remained available for the grant of options under the Plan. This number is
insufficient to cover future grants to current or new ALZA employees. ALZA uses
its stock option program as a critical tool in motivating and retaining
employees by aligning their long term interests with those of ALZA's
stockholders. Virtually all employees become eligible to receive option grants
after one year of employment. Options generally are granted annually, each grant
generally vesting from one to three years after the date of grant. Having
sufficient shares available for issuance under the Plan will ensure the
continuity of ALZA's option program to help ALZA attract, retain and motivate
employees, directors and consultants.
15
<PAGE>
DESCRIPTION OF THE PLAN
The following is a general summary of the principal provisions of the Plan.
Any stockholder who desires to review the text of the Plan may obtain a copy by
writing to ALZA, attention: Corporate and Investor Relations.
Under the Plan, options and restricted stock may be granted to employees
(including employees who are officers and directors) or consultants of ALZA and
its subsidiaries, as recommended from time to time by ALZA's Chief Executive
Officer or Chief Operating Officer and approved by the Board or a committee of
the Board to which administration of the Plan has been delegated. The Board has
delegated administration of the Plan to the Compensation and Benefits Committee.
The Compensation and Benefits Committee has delegated to ALZA's Chief Executive
Officer the authority to grant options to persons other than directors and
executive officers from an overall grant approved by that Committee. In
addition, options are periodically granted to non-employee directors pursuant to
the automatic grant provisions of the Plan described below. Employees may be
granted either ISOs, NSOs or restricted stock. Non-employee directors and
consultants may be granted only NSOs or restricted stock.
A typical option would provide its holder with an opportunity to purchase a
specified number of shares of Common Stock within a ten-year period at a price
not less than the fair market value of the stock on the date the option was
granted. In addition, NSOs may be granted at an exercise price of not less than
85% of the fair market value of the stock on the date of grant, but all NSOs
granted to date under the Plan have had a price of 100% of fair market value.
(The market value of ALZA Common Stock based on the closing sales price as
reported on the composite tape on March 8, 1999 was $53.5625 per share.) No
consideration is received by ALZA for the granting of options. Generally,
options would not be exercisable at grant, but become exercisable either in one
installment several years after the grant or in cumulative increments over time.
In recent years, options granted to employees generally have vested one to three
years after the date of grant. An optionee may pay the exercise price in cash,
by check, by surrender of shares of ALZA Common Stock (but not more frequently
than once every six months), by payment in accordance with a permitted cashless
exercise program or by any other forms of consideration approved by the
Compensation and Benefits Committee.
Options normally are exercisable for three months after the optionee's
employment or other service with ALZA terminates and for one year after the
optionee's death or permanent and total disability (to the extent exercisable at
the time of termination, death or disability), but in neither case beyond the
term of the option. Options may be exercised only by the optionee during the
optionee's lifetime and may be transferred only by will, by the laws of descent
and distribution, or by a qualified domestic relations order, except as
otherwise determined by the Compensation and Benefits Committee. After the
adoption by the SEC of changes to the rules under Section 16 of the Securities
Exchange Act of 1934, the Board passed a resolution permitting the Compensation
and Benefits Committee to permit currently outstanding NSOs held by directors
and executive officers, and NSOs granted in the future to directors and
executive officers, to be transferred to family members and family trusts and
partnerships, subject to certain restrictions. The Plan limits to $100,000 the
value of option stock (measured at the time of the option grant) with respect to
which ISOs granted to any one employee may vest in any calendar year. In
addition, options covering not more than 200,000 shares (750,000 shares in
connection with an offer of employment) may be granted to any one participant in
any one year under the Plan.
The Plan provides for the one-time grant of a NSO to purchase 20,000 shares
of Common Stock, at fair market value, to each new non-employee director at the
time of an offer of directorship (contingent upon the person becoming a
director). Each such option vests in five equal annual installments beginning on
the first anniversary of the date on which the director first attends a Board
meeting following his or her election as a director. The Plan also provides for
the additional grant of a NSO to purchase 10,000 shares of Common Stock, at fair
market value, on each fifth anniversary of the date the director first attends a
Board meeting during the director's tenure as a non-employee director, also
vesting in five equal annual installments beginning one year after the date of
such additional grant.
16
<PAGE>
The Plan also provides for awards of restricted stock. A restricted stock
award is an award of shares of Common Stock which are subject to restrictions on
transfer for a period specified by the Compensation and Benefits Committee,
unless otherwise determined by the Compensation and Benefits Committee. The
holder must pay at least par value ($.01 per share) for all restricted stock
granted. In the event the holder of restricted stock issued under the Plan
ceases to be employed by (or to act as a director of or consultant to) ALZA
prior to the end of the restriction period, all shares still subject to
restriction may be purchased by ALZA for the price paid by the holder. Before
the restriction period expires, unless otherwise determined by the Compensation
and Benefits Committee, cash dividends (if any) with respect to shares of
restricted stock will be automatically reinvested in additional restricted
stock, and dividends payable in stock will be paid in the form of restricted
stock. Awards of restricted stock were made under the Plan in 1997 and 1998 to
ALZA executives.
The Plan has a ten year term. The Board may terminate or amend the Plan at
any time, except that the Plan requires stockholder approval of any increase in
the number of shares as to which options or restricted stock may be granted. If
not terminated earlier, the Plan would terminate on May 3, 2002. The Plan
requires adjustments to options (including adjustments in the number and type of
securities covered by options and the exercise price) and in restricted stock
awards in the event of a stock split, stock dividend, recapitalization or
similar event. The Plan also provides for the automatic acceleration of the
vesting of outstanding options (and the lapse of restrictions in the case of
restricted stock) if ALZA undergoes certain fundamental changes in its corporate
structure. However, options granted in October 1995 to certain employees,
including executive officers, and the award of restricted stock in 1997, provide
that they will not automatically vest (or have restrictions lapse, in the case
of restricted stock) in the event of a change in control.
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 Plan will not change as a result of the proposed amendments, except that
additional shares will be available for issuance under the Plan. Such benefits
or amounts are not determinable because all awards are made at the discretion of
the Compensation and Benefits Committee. The benefits or amounts that will be
received by or allocated to ALZA's non-employee directors under the Plan will
not change as a result of the proposed amendments and remain fixed and
non-discretionary, as described above.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
The following is a general summary of the typical federal income tax
consequences of the issuance and exercise of options under the Plan. It does not
describe state or other tax consequences of the issuance and exercise of options
or the tax consequences of a grant of restricted stock.
The grant of an ISO has no federal income tax effect on the optionee. Upon
exercise, the optionee does not recognize income for "regular" tax purposes.
However, the excess of the fair market value of the stock subject to an option
over the exercise price of such option (the "option spread") is includable in
the optionee's "Alternative Minimum Taxable Income" for purposes of the
Alternative Minimum Tax. If the optionee does not dispose of the stock acquired
upon exercise of an ISO until more than two years after the option grant date
and more than one year after exercise of the option, any gain upon sale of the
shares will be a long-term capital gain. If shares are sold or otherwise
disposed of before both of these periods have expired (a "disqualifying
disposition"), the option spread at the time of exercise of the option (but not
more than the amount of the gain on the sale or other disposition) is ordinary
income in the year of such sale or other disposition. If gain on a disqualifying
disposition exceeds the amount treated as ordinary income, the excess is taxable
as capital gain (which will be long-term capital gain if the shares have been
held more than one year after the date of exercise of the option). ALZA is not
entitled to a federal income tax deduction in connection with ISOs, except to
the extent that the optionee has taxable ordinary income on a disqualifying
disposition.
The grant of a NSO has no federal income tax effect on the optionee. Upon
the exercise of a NSO, the optionee has taxable ordinary income (and ALZA is
entitled to a corresponding deduction) equal to the
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option spread on the date of exercise. Upon the disposition of stock acquired
upon exercise of a NSO, the optionee recognizes either long-term or short-term
capital gain or loss, depending on how long such stock was held.
In the case of both ISOs and NSOs, special federal income tax rules apply if
ALZA Common Stock is used to pay all or part of the option price. Special rules
may also apply when a transferable option is transferred.
BOARD RECOMMENDATION AND VOTE REQUIRED
The Board believes that approval of the proposal to amend the Plan will
allow ALZA to continue to provide incentives to attract, retain and motivate
personnel through the grant of stock options. ACCORDINGLY, THE BOARD RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENT OF THE 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, 1999. 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, 1998,
containing the audited consolidated balance sheets as of December 31, 1998 and
1997 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 distributed by ALZA, 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 distributed by ALZA relating to the annual
meeting of stockholders to be held in the spring of 2000, that proposal must be
received in writing by the Secretary of ALZA no later than December 6, 1999.
Separate from the requirements described above concerning the notice
required for a propsal to be included in the proxy statement distributed by
ALZA, ALZA's Bylaws also provide for certain advance notice of nominations by
stockholders for election of stockholder nominees as directors at an annual
meeting, and proposals for the inclusion of other business at an annual meeting
of stockholders, even if such nominations or proposals are not to be included in
the ALZA proxy statement. In addition to meeting other requirements specified in
the Bylaws, the required notice by the stockholder for the annual meeting in the
year 2000 must be received in writing by the Secretary of ALZA no later than
January 16, 2000; provided, however, that if the date of the annual meeting to
be held in the year 2000 is advanced more than 30 days prior to, or delayed by
more then 30 days after, the anniversary of the 1999 annual meeting, the
stockholder's notice must be received no later than the close of business on the
later of (i) the 90th day prior to such annual meeting or (ii) the 10th day
following the day on which public announcement of the meeting is first made.
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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 30, 1999
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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.
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[RECYCLED LOGO]
PRINTED ON RECYCLED PAPER
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ALZA CORPORATION
c/o EquiServe
P.O. Box 8040
Boston, MA 02266-8040
DETACH HERE
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.
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1. To elect as Class III Directors;
NOMINEES; Dr. I. Craig Henderson, Dr. Ernest Mario,
Mr. Isaac Stein
FOR WITHHELD
ALL / / / / FROM ALL
NOMINEES NOMINEES
/ /
---------------------------------------
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. To increase by 5,000,000 shares the
number of shares of Common Stock reserved / / / / / /
for issuance under ALZA's Amended and
Restated Stock Plan.
FOR AGAINST ABSTAIN
3. To ratify the appointment of Ernst &
Young LLP as ALZA's independent / / / / / /
auditors for fiscal 1999.
- -------------------------------------------------------------------------------
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:
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Signature: Date:
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