<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
Allergan, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------
<PAGE> 2
[ALLERGAN LOGO]
2525 DUPONT DRIVE, IRVINE, CA 92715 (714) 752-4500
March 18, 1996
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders to
be held at the corporate headquarters of Allergan, Inc., 2525 Dupont Drive,
Irvine, California, on Tuesday, April 23, 1996 at 10:00 A.M. We hope you will be
present to hear management's report to stockholders.
The attached notice of meeting and proxy statement describe the matters to
be acted upon. If you plan to attend the meeting in person, please mark the
designated box on the proxy card. We will then send you an admission card, which
you should present upon entering the meeting.
Whether or not you plan to attend personally, and regardless of the number
of shares you own, it is important that your shares be represented at the
meeting. Accordingly, we urge you to complete the enclosed proxy and return it
to our vote tabulators promptly in the postage prepaid envelope provided. If you
do attend the meeting and wish to vote in person, you may withdraw your proxy at
that time.
[SIG]
William C. Shepherd
Chairman, President and
Chief Executive Officer
<PAGE> 3
[ALLERGAN LOGO]
2525 DUPONT DRIVE, IRVINE, CA 92715
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 1996
TO OUR STOCKHOLDERS:
The annual meeting of stockholders of Allergan, Inc., a Delaware
corporation, will be held at the corporate headquarters of Allergan, Inc., 2525
Dupont Drive, Irvine, California, on Tuesday, April 23, 1996 at 10:00 A.M. for
the following purposes:
1. To elect four Class I directors to serve for three-year terms ending in
1999 and until their successors are elected and qualified.
2. To approve the Company's amended and restated 1989 Incentive
Compensation Plan.
3. To approve an amendment to the Company's 1989 Nonemployee Director
Stock Plan.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed March 4, 1996 as the record date for
determining the stockholders entitled to notice of and to vote at the meeting
and, consequently, only stockholders of record at the close of business on March
4, 1996 will be entitled to notice of and to vote at the meeting and any
adjournment thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. Even
though a stockholder may now plan to attend the meeting, he or she is urged to
complete, sign and date the enclosed proxy card and to mail it promptly in the
enclosed postage-paid envelope. Any stockholder present at the meeting may
withdraw his or her proxy and vote personally on each matter brought before the
meeting. Stockholders attending the meeting whose shares are held in the name of
a broker or other nominee should bring with them a proxy or letter from that
firm confirming their ownership of shares.
By Order of the Board of Directors
[SIG]
Francis R. Tunney, Jr.
Secretary
March 18, 1996
<PAGE> 4
[ALLERGAN LOGO]
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 23, 1996
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of Allergan,
Inc. ("Allergan" or the "Company"), 2525 Dupont Drive, Irvine, California 92715
for use at the Annual Meeting of the Company's stockholders to be held on April
23, 1996, and at any adjournment thereof, pursuant to the accompanying Notice of
annual meeting. This proxy statement and the accompanying proxy card are being
mailed to all stockholders on or about March 18, 1996.
The expense of this solicitation will be paid by the Company. In addition
to solicitation by mail, officers and employees of the Company may solicit
proxies by telephone, by facsimile or in person. The Company has retained D.F.
King & Co., a professional soliciting organization, to aid in the solicitation
of proxies to be voted at the Annual Meeting at an estimated cost of $10,500
plus out-of-pocket expenses. The Company will also reimburse brokers, nominees,
fiduciaries and other custodians for reasonable expenses incurred by them in
sending proxy soliciting material to the beneficial owners of Allergan stock.
GENERAL INFORMATION REGARDING
VOTING, CONFIDENTIALITY AND PROXIES
The persons named in the accompanying proxy will vote FOR the election of
the nominees for directors and FOR the other two proposals, unless otherwise
directed in the proxy. The proxy may be revoked by the stockholder at any time
prior to its use by giving notice of such revocation to the independent vote
tabulators. As to any other business which may properly come before the meeting,
the persons named in the accompanying proxy card will vote in accordance with
their best judgment, although the Company does not presently know of any other
business.
Holders of record of the Company's common stock at the close of business on
March 4, 1996 are entitled to vote at the meeting. On that date Allergan had
64,705,757 shares of common stock outstanding. Each stockholder has one vote per
share on all business to be voted upon at the meeting. A majority of the
outstanding shares will constitute a quorum at the meeting. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum for the transaction of business. Abstentions are counted as if they
were "no" votes in tabulations of the votes cast on proposals presented to
stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
It is the Company's policy that all proxies, ballots and voting materials
that identify the particular vote of a stockholder be kept confidential, except
in the following circumstances: (1) to allow the independent election inspectors
to certify the results of the vote; (2) as necessary to meet applicable legal
requirements, including the pursuit or defense of a judicial action; (3) where
the Company concludes in good faith that a bona fide dispute exists as to the
authenticity of one or more proxies, ballots, or votes, or as to the accuracy of
the tabulation of such proxies, ballots, or votes; (4) where a stockholder
expressly requests disclosure or has made a written comment on a proxy card; (5)
where contacting stockholders by the Company is necessary to obtain a quorum,
the names of stockholders who have or have not voted (but not how they voted)
may be disclosed to the Company by the independent election inspectors; (6)
aggregate vote totals may be disclosed to the Company from time to time and
publicly announced at the meeting of stockholders at which they are relevant;
and (7) in the event of any solicitation of proxies or written consents with
respect to any of the securities of the Company by a person other than the
Company of which solicitation the Company has actual notice.
<PAGE> 5
ELECTION OF DIRECTORS
PROPOSAL 1
The Company's Restated Certificate of Incorporation provides for three
classes of directors, each class consisting, as nearly as may be possible, of
one third of the whole number of the Board of Directors. At each annual meeting
the directors elected by stockholders to succeed directors whose terms are
expiring are identified as being of the same class as those directors they
succeed and are elected for a term to expire at the third annual meeting of
stockholders after their election and until their successors are duly elected
and qualified. The Board of Directors elects directors to fill vacancies on the
Board, as they occur, as well as newly created directorships. A director elected
to fill a vacancy is elected to the same class as the director he or she
succeeds, and a director elected to fill a newly created directorship holds
office until the next election by the stockholders of the class to which such
director is elected. The Board of Directors currently consists of 13 directors
and currently four each serve as Class I and Class III directors and five serve
as Class II directors.
UNLESS OTHERWISE DIRECTED IN THE PROXY, THE PERSONS NAMED IN THE
ACCOMPANYING PROXY INTEND TO VOTE THE SHARES REPRESENTED BY THE PROXY FOR THE
ELECTION AS DIRECTORS OF THE FOUR NOMINEES NAMED BELOW, ALL OF WHOM ARE, AT
PRESENT, CLASS I DIRECTORS OF THE COMPANY.
Directors are to be elected by a plurality of the votes cast at the meeting
in person or by proxy by the holders of shares entitled to vote in the election.
The Board of Directors is informed that all the nominees are willing to serve as
directors, but if any of them should decline or be unable to act as a director,
the persons named in the proxy will vote for such substitute nominee or nominees
as may be designated by the Board of Directors unless the Board reduces the
number of directors accordingly.
NOMINEES FOR DIRECTORS
CLASS I -- TERM EXPIRES 1999:
HOWARD E. (TED) GREENE, JR., 53, has been Chairman and Chief Executive
Officer of Amylin Pharmaceuticals, Inc., a biotech company involved in research
and development of medicines for treating diabetes, since 1987. He was a General
Partner of Biovest Partners, a seed venture capital firm specializing in medical
technology companies, from 1986 until 1993, and was Chief Executive Officer of
Hybritech Incorporated, a biotech company that subsequently became a division of
Eli Lilly & Company, from 1979 until 1986. From 1974 until 1979, Mr. Greene was
an executive with Baxter Healthcare, and from 1967 until 1974 he was a
consultant with McKinsey & Company. Mr. Greene is Chairman of the Board of Cytel
Corporation and is also a director of Neurex Corporation and the International
Biotechnology Trust. Mr. Greene was elected to the Board in 1990 and is a member
of the Finance Committee.
RICHARD M. HAUGEN, 43, has been Executive Vice President and Chief
Operating Officer of the Company since 1992 and was Corporate Vice President of
the Company and President, Worldwide Eye Care Marketing, Sales and Operations in
1992. Prior thereto, Mr. Haugen was Corporate Vice President and President,
Americas Region in 1991 and had been President of Allergan Optical and Senior
Vice President of the Company from 1989 to 1991. Mr. Haugen is a director of
O.S.I. Corporation. He serves on the Dean's Advisory Board of the UCI Graduate
School of Management, and is on the Board of Advisors of Habitat for Humanity.
Mr. Haugen first joined the Company in 1976 and was elected to the Board in
1992. He is a member of the Board's Finance Committee.
LESTER J. KAPLAN, PH.D., 45, has been Corporate Vice President, Research
and Development since 1992. Prior thereto, he had been Senior Vice President,
Pharmaceutical Research and Development since 1991 and Senior Vice President,
Research and Development from 1989 to 1991. Dr. Kaplan is an Advisory Board
Member to the Pediatric Cancer Research Foundation (PCRF) and Healthcare
Ventures. He first joined the Company in 1983 and was elected to the Board in
November 1994.
LEONARD D. SCHAEFFER, 50, has been Chairman of the Board of Blue Cross of
California, a health insurance organization, since 1989 and Chief Executive
Officer since 1986. He has also been Chairman of the Board and Chief Executive
Officer of WellPoint Health Networks Inc., a for-profit managed health care
2
<PAGE> 6
company, since 1992. He is also a director of Metra Biosystems, Inc. Mr.
Schaeffer was the Administrator of the U.S. Health Care Financing Administration
(HCFA) from 1978 to 1980. He is Chairman of the Board of the National Health
Foundation and the National Institute for Health Care Management. Mr. Schaeffer
was elected to the Board in 1993 and is a member of the Organization and
Compensation Committee.
DIRECTORS CONTINUING IN OFFICE
CLASS II -- TERM EXPIRES 1997:
HERBERT W. BOYER, PH.D., 59, is a founder of Genentech, Inc., a
biotechnology company, has been a director of Genentech since 1976 and is a
consultant to Genentech. He served as Vice President of Genentech from 1976 to
1991. Dr. Boyer, a Professor of Biochemistry at the University of California at
San Francisco from 1976 to 1991, demonstrated the usefulness of recombinant DNA
technology to produce medicines economically, which laid the groundwork for
Genentech's development. Dr. Boyer received the 1993 Helmut Horten Research
Award. He also received the National Medal of Science from President Bush in
1990, the National Medal of Technology in 1989 and the Albert Lasker Basic
Medical Research Award in 1980. He is an elected member of the National Academy
of Sciences and a Fellow in the American Academy of Arts and Sciences. Dr. Boyer
was elected to the Board in July 1994 and is a member of the Board's Audit
Committee.
TAMARA J. ERICKSON, 41, is a Senior Vice President of Arthur D. Little,
Inc., a management consulting company, and has been Chairman of its subsidiary,
Innovation Associates, since August 1995. Since 1978 Ms. Erickson has held
various positions at Arthur D. Little, Inc. including Managing Director, North
America Management Consulting from 1991 to 1995. She directed the firm's global
health care practice from 1983 to 1991. Ms. Erickson is co-author of "Third
Generation R&D -- Managing the Link to Corporate Strategy," published in 1991.
She is a member of the Board of Directors of EG&G, Inc. and is a member of the
Board of Trustees of Boston Ballet. Ms. Erickson was elected to the Board in
1992 and is Chairman of the Board's Corporate Governance Committee and a member
of the Organization and Compensation Committee.
WILLIAM R. GRANT, 71, is Chairman of Galen Associates, Inc., a venture
capital firm in the health care industry. From 1987 to 1989 he was Chairman of
New York Life International Investment, Inc. Mr. Grant is a director of Fluor
Corporation, Witco Corporation, New York Life Insurance Co., Inc., SmithKline
Beecham p.1.c., Seagull Energy Corporation, Datamedic Corp. and O.S.I.
Corporation. He is a trustee of the Mary Cary Flagler Trust. Mr. Grant was
elected to the Board in 1989 and is Chairman of the Board's Organization and
Compensation Committee and a member of the Audit and Corporate Governance
Committees.
LOUIS T. ROSSO, 62, has been Chief Executive Officer of Beckman
Instruments, Inc., a manufacturer of laboratory instruments, since 1988 and
Chairman of the Board since 1989. He also served as President of Beckman
Instruments, Inc. from 1982 until 1993 and as Vice President of SmithKline
Beckman Corporation from 1982 until 1989. He is a director of American Health
Properties, Inc. and is a member of the Board of Trustees of the St. Jude
Heritage Foundation and Harvey Mudd College. Mr. Rosso was elected to the Board
in 1989 and is Chairman of the Board's Audit Committee and a member of the
Corporate Governance Committee.
WILLIAM C. SHEPHERD, 57, has been Chairman of the Board since January 1,
1996 and has been President and Chief Executive Officer of the Company since
1992. He was President and Chief Operating Officer from 1984 to 1991. Mr.
Shepherd first joined the Company in 1966. He is a director of Ligand
Pharmaceuticals Incorporated, Allergan Ligand Retinoid Therapeutics, Inc. and
Furon Company. Mr. Shepherd also serves on the Board of Directors of the Orange
County Performing Arts Center, and the National Children's Eye Care Foundation.
He is a member of the Governing Board of Pharmaceutical Partners for Better
Health Care. Mr. Shepherd has been a director of the Company since 1984 and is a
member of the Board's Finance Committee.
CLASS III -- TERM EXPIRES 1998:
HANDEL E. EVANS, 61, has been Executive Chairman of Walsh International
Inc., an international supplier of market information and communication services
to the pharmaceutical industry, since 1986 and
3
<PAGE> 7
Chairman of the Board of its affiliate, Pharmaceutical Marketing Services Inc.,
a supplier of specialized marketing products and services to pharmaceutical
companies in the United States, Europe and Japan, since 1991. He was elected to
the Board in 1989 and is a member of the Board's Audit Committee and of its
Organization and Compensation Committee.
GAVIN S. HERBERT, 63, is Chairman Emeritus of the Company as of January 1,
1996. He had been Chairman since 1977 and was also Chief Executive Officer from
1977 to 1991. Prior thereto, Mr. Herbert had been President and Chief Executive
Officer of the Company since 1961. He was Executive Vice President of SmithKline
Beckman Corporation from 1986 to 1989 and President of SmithKline Beckman
Corporation's Eye and Skin Care Products Operations from 1981 to 1989. He is
also a director of Beckman Instruments, Inc. Mr. Herbert is a trustee of the
University of Southern California and is also a member of the Board of Directors
of Research to Prevent Blindness and of the California Health Care Institute.
Mr. Herbert co-founded the Company in 1950 and retired as an employee in 1994.
He has been a director of the Company since 1950 and is a member of the Board's
Finance Committee.
LESLIE G. MCCRAW, 61, is Chairman of the Board and Chief Executive Officer
of Fluor Corporation, an international engineering, construction and diversified
services company. Mr. McCraw was Vice Chairman of the Board and Chief Executive
Officer of Fluor from 1990 to 1991. He was President of Fluor from 1988,
President and Chief Executive Officer of Fluor Daniel, Inc. from 1986, and
President and Chief Executive Officer of Daniel International Corporation from
1984. In 1975, Mr. McCraw joined Daniel, which became a wholly-owned subsidiary
of Fluor in 1977. He is also a director of New York Life Insurance Company, Inc.
and serves on the Board of Directors for the National Committee on United
States-China Relations, the U.S.-China Business Council, the Business Committee
for the Arts and the President's Export Council. He is a member of the
Business-Higher Education Forum. Mr. McCraw has been a director of the Company
since 1990 and is a member of the Board's Audit Committee and of its
Organization and Compensation Committee.
HENRY WENDT, 62, is Managing Partner of the Finisterre Fund, a private
equity fund working exclusively in the health care products industry, and is the
owner and President of Quivira Winery. He was Chairman of the Board of
SmithKline Beecham p.1.c., a pharmaceutical company, and its subsidiary,
SmithKline Beecham Corporation from 1989 until his retirement in 1994. He was
Chairman and Chief Executive Officer of SmithKline Beckman Corporation from 1987
to 1989 and was President and Chief Executive Officer from 1982 to 1987. Mr.
Wendt is also a director of Beckman Instruments, Inc., Atlantic Richfield Co.
and Aviall, Inc. He is a trustee of the American Enterprise Institute, the Cold
Spring Harbor Laboratory, and the Trilateral Commission. He is the author of
"Global Embrace," published in 1993. Mr. Wendt has been a director of the
Company since 1989 and is Chairman of the Board's Finance Committee and a member
of the Corporate Governance Committee.
INFORMATION REGARDING THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES
The Board of Directors held six meetings during 1995 and its standing
committees also met from time to time to address issues within their respective
jurisdictions. Average attendance by directors at regular and special Board and
committee meetings was 87% and all directors attended 75% or more of the
meetings of the Board and committees on which they served, except Mr. Schaeffer
and Mr. Wendt who attended 60% and 73% of such meetings, respectively.
Audit Committee -- The Audit Committee, which had four meetings in 1995,
nominates the firm of independent auditors for appointment by the Board and
meets with the independent auditors to discuss the scope and results of their
audit examination and the fees related to such work. It also meets with the
Company's internal auditors and financial management to review the internal
audit department's activities; to discuss the Company's accounting practices and
procedures; to review the adequacy of the Company's accounting and control
systems; and to report to the Board any considerations or recommendations the
Audit Committee may have with respect to such matters. The Committee also
reviews the audit schedule and considers any issues raised by its members, the
independent public accountants retained to audit the books and
4
<PAGE> 8
records of the Company, the internal audit staff, the legal staff or management.
In addition, the Committee monitors the Business Ethics Policy for the Company's
employees, coordinates compliance reviews, and investigates noncompliance
matters. None of the members of the Audit Committee are officers, employees or
former employees of the Company or any of its subsidiaries.
Finance Committee -- The Finance Committee, which had three meetings in
1995, reviews, approves or modifies management recommendations on corporate
financial strategy and policy and, where appropriate, makes recommendations to
the Board of Directors.
Corporate Governance Committee -- The Corporate Governance Committee, which
previously operated as the Nominating Committee, held two meetings in 1995. It
recommends qualified candidates for election as directors of the Company,
including the slate of directors which the Board proposes for election by
stockholders at the Annual Meeting, considers the performance of incumbent
directors, considers and makes recommendations to the Board of Directors
concerning the size and composition of the Board of Directors, develops and
recommends to the Board of Directors guidelines and criteria to determine the
qualifications of directors, considers and reports annually to the Board of
Directors concerning its assessment of the Board's performance, considers, from
time to time, the current Board committee structure and membership, and
recommends changes to the amount and type of compensation of Board members as
appropriate. None of the members of the Corporate Governance Committee are
officers, employees or former employees of the Company or any of its
subsidiaries.
Organization And Compensation Committee -- The Organization and
Compensation Committee, which had four meetings in 1995, reviews and approves
corporate organizational structure; reviews performance of corporate officers;
establishes overall employee compensation policies; and recommends to the Board
of Directors major compensation programs. The Committee also reviews and
approves compensation of corporate officers, including salary and bonus awards,
and administers the 1989 Incentive Compensation Plan. No member of the
Organization and Compensation Committee is a current or former member of
management or eligible for compensation other than as a director. The report of
the Committee begins on page 20.
STOCKHOLDER NOMINATIONS
The Restated Certificate of Incorporation of the Company provides that any
stockholder entitled to vote for the election of directors at a meeting may
nominate persons for election as directors only if timely written notice of such
stockholder's intent to make such nomination is given, either by personal
delivery or United States mail, postage prepaid, to the Secretary, Allergan,
Inc., 2525 Dupont Drive, Irvine, CA 92715. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the address provided not less
than 30 days nor more than 60 days prior to the scheduled annual meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that if less than 40 days' notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the stockholder, to be timely, must be so delivered or received not later
than the close of business on the tenth day following the earlier of the day on
which such notice of the date of the scheduled annual meeting was mailed or the
day on which such public disclosure was made. A stockholder's notice to the
Secretary must set forth: (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of capital stock
of the Company beneficially owned by the person, (iv) any other information
relating to the person that is required to be disclosed in solicitations for
proxies for election of directors pursuant to Rule 14a under the Securities
Exchange Act of 1934, as amended; and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Company's books, of the
stockholder and (ii) the class and number of shares of the Company's stock which
are beneficially owned by the stockholder on the date of such stockholder
notice. The Company may require any proposed nominee to furnish such other
information as may be reasonably required by the Company to determine the
eligibility of such proposed nominee to serve as director of the Company.
5
<PAGE> 9
DIRECTOR COMPENSATION
Of the Board's current 13 members, three are officers of the Company who do
not receive additional compensation for Board or committee service. Except for
Mr. Herbert, the remaining directors received, during 1995, an annual $20,000
retainer plus $1,300 for each Board meeting and $1,000 for each committee
meeting attended by committee members and $1,500 for each committee meeting
attended by the committee chair. Effective January 1996, the annual retainer has
been increased to $25,000.
Mr. Herbert retired as an executive of the Company effective March 31, 1994
but continued as Chairman of the Board throughout 1995. In addition, he provided
ongoing advisory services to Allergan focusing on government affairs and
industry relations. For these advisory services and his services as Chairman,
Mr. Herbert received an annual retainer of $150,000, was paid attendance fees as
described above and was eligible to participate in the 1989 Nonemployee Director
Stock Plan and the Deferred Directors Fee Program, both as described below.
Effective January 1, 1996, Mr. Herbert became Chairman Emeritus. He continues to
provide ongoing advisory services to Allergan focusing on government affairs and
industrial relations. For those advisory services and his services as Chairman
Emeritus, he will receive an annual retainer of $50,000. He is also paid
retainer and attendance fees as described above, is eligible to participate in
the 1989 Nonemployee Director Stock Plan and the Deferred Directors Fee Program,
both as described below.
In 1991, the Company adopted a Deferred Directors Fee Program that permits
directors to defer all or a portion of their retainers and meeting fees until
termination of their status as a director. Deferred amounts are treated as
having been invested in Common Stock of the Company and thus are valued
according to fluctuations in the market price of the Common Stock. Distributions
will be made in cash only. Ms. Erickson and Messrs. Evans, Grant, Greene,
McCraw, Rosso, Schaeffer and Wendt chose to defer all or a portion of their
retainers and meeting fees for the period January 1, 1995 through December 31,
1995.
In accordance with the Company's 1989 Nonemployee Director Stock Plan (the
"Director Plan"), as amended by the stockholders in April 1994, each director
who is not an employee of the Company receives grants of restricted stock upon
(a) initial election to the Board of 500 shares per year for each year,
including a partial year of the term to be served, to a maximum of three years
and (b) reelection to the Board of 500 shares per year for each of the three
years of the new term. If an individual ceases to serve as a director prior to
full vesting of a restricted stock grant for reasons other than death or total
disability, those shares not then vested will be returned to the Company without
payment of any consideration to the director. The Director Plan provides that
the number of shares available for issuance under the Director Plan shall be
adjusted in the event of certain changes in capitalization, such as stock splits
and stock dividends.
The Board has approved an amendment to the Director Plan to increase grants
of restricted stock from 500 shares per year to 600 shares per year, with grants
continuing to be made upon initial election to the Board and upon reelection.
The amendment does not become effective unless approved by the stockholders at
this meeting. The proposed amendment is described in greater detail beginning on
page 31.
STOCK OWNERSHIP GUIDELINES
At its meeting held in January 1996, the Board approved the stock ownership
guidelines for directors recommended by the Corporate Governance Committee. Each
nonemployee director is expected to own stock, including the economic equivalent
number of shares showing on the records of the Company under the Deferred
Directors Fee Program, equal in value to the number of years the director has
served on the Board since 1989 multiplied by the retainer fee for each year
served.
OTHER MATTERS
In June 1992, the Company entered into a joint venture with Ligand
Pharmaceuticals Incorporated ("Ligand") for the research and development and
commercial exploitation of pharmaceutical products based on retinoid technology.
Each company agreed to contribute $15 million to the venture over three years.
Allergan Pharmaceuticals (Ireland) Ltd., Inc. ("Allergan Ireland") also
purchased, in conjunction with the formation of the joint venture and through
1994, equity interests in Ligand for approximately $24 million,
6
<PAGE> 10
including the exercise of warrants in 1993. William C. Shepherd, Chairman,
President and Chief Executive Officer of the Company, became a director of
Ligand shortly after the formation of the joint venture.
In June 1995, Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT")
succeeded to the operations of the joint venture. Mr. Shepherd is a director of
ALRT and Dwight J. Yoder, Controller and Principal Accounting Officer of the
Company is the Chief Financial Officer of ALRT. ALRT was funded by capital
contributions of $50 million from the Company, $17.5 million from Ligand, and
$32.5 million gross proceeds from a subscription offering to the stockholders of
the Company and Ligand (the "Subscription Offering"). The Company and Ligand
have various options to purchase stock or assets of ALRT. In connection with the
completion of the Subscription Offering and the funding of ALRT, Allergan
Ireland purchased $6 million of the common stock of Ligand. As of December 31,
1995, Allergan Ireland owned, approximately, a 12% equity interest in Ligand.
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the SEC and the New York Stock Exchange. Executive
officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations that no other reports were required during
the fiscal year ended December 31, 1995, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with.
7
<PAGE> 11
CORPORATE GOVERNANCE
GUIDELINES ON SIGNIFICANT CORPORATE GOVERNANCE ISSUES
In 1995, the Board approved the "Board Guidelines on Significant Corporate
Governance Issues" listed below. Following adoption, the existing Nominating
Committee assumed additional responsibilities and was renamed the Corporate
Governance Committee. These guidelines are being published in this Proxy
Statement to inform stockholders of the Board's current thinking with respect to
selected corporate governance issues considered to be of significance to
stockholders. The guidelines are only guidelines, not rigid rules. Nor is it
intended that publication of these guidelines be interpreted as a representation
that they will be followed in each instance. The Board will continue to assess
the appropriateness and efficacy of the guidelines and it is likely that changes
to the guidelines will be considered from time to time.
1. SELECTION OF CHAIRMAN AND CEO
The Board should be free to make this choice any way that seems best for
the Company at a given point in time.
Therefore, the Board does not have a policy, one way or the other, on
whether or not the role of the Chief Executive Officer and Chairman should
be separate and, if it is to be separate, whether the Chairman should be
selected from the nonemployee directors or be an employee.
2. EXECUTIVE SESSIONS OF OUTSIDE DIRECTORS
The outside directors of the Board will meet in Executive Session at a
regularly scheduled meeting at least once each year. The format of these
meetings will include a discussion with the Chief Executive Officer on each
occasion. These meetings should be scheduled in conjunction with a regular
Board meeting.
The Board adopted a policy that it have a director selected by the outside
directors who will assume the responsibility of chairing Executive Sessions
or other responsibilities which the outside directors as a whole might
designate from time to time.
3. NUMBER OF COMMITTEES
The current committee structure of the Company seems appropriate. There
will, from time to time, be occasions in which the Board may want to form a
new committee or disband a current committee depending upon the
circumstances. The current four Committees are Audit, Finance, Organization
& Compensation, and Corporate Governance. The Audit, Corporate Governance
and Organization & Compensation Committees will consist entirely of outside
directors.
4. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS
The Corporate Governance Committee is responsible, after consultation with
the Chief Executive Officer and with consideration of the desires of
individual Board members, for the assignment of Board members to various
committees.
It is the sense of the Board that consideration should be given to rotating
committee members periodically at about a three- to four-year interval, but
the Board does not feel that such a rotation should be mandated as policy
since there may be reasons at a given point in time to maintain an
individual director's committee membership for a longer period.
5. FREQUENCY AND LENGTH OF COMMITTEE MEETINGS
The Committee chairman, in consultation with Committee members, will
determine the frequency and length of the meetings of the Committee.
Meetings will normally be held around Board meetings.
8
<PAGE> 12
6. COMMITTEE AGENDA
The chairman of the Committee, in consultation with the appropriate members
of management and staff, will develop the Committee's agenda.
Each Committee will issue a schedule of agenda subjects to be discussed for
the ensuing year at the beginning of each year (to the degree these can be
foreseen). This forward agenda will also be shared with the Board. Key
functional managers (i.e., CFO, CVP Human Resources) will have direct
contact with the appropriate Committee chairperson.
7. SELECTION OF AGENDA ITEMS FOR BOARD MEETINGS
The Chairman of the Board and the Chief Executive Officer (if the Chairman
is not the Chief Executive Officer) will establish the agenda for each
Board meeting.
At the beginning of the year the Chairman will establish a schedule of
agenda subjects to be discussed during the next three years.
Each Board member is free to suggest the inclusion of item(s) on the
agenda. The CEO will be proactive in encouraging Board members to submit
agenda items.
8. BOARD MATERIALS DISTRIBUTED IN ADVANCE
It is the sense of the Board that information and data that is important to
the Board's understanding of the business to be conducted at that meeting
be distributed in writing to the Board before the Board meets. The
management will make every attempt to see that this material is as brief as
possible while still providing the desired information.
9. PRESENTATIONS
As a general rule, presentations on specific subjects should be sent to the
Board members in advance so that Board meeting time may be conserved and
discussion time focused on questions that the Board has about the subject.
When there is no prior distribution of a presentation on a sensitive
subject, it is the sense of the Board that each member be advised by
telephone in advance of the meeting of the subject and the principal issues
the Board will need to consider.
10. REGULAR ATTENDANCE OF NON-DIRECTORS AT BOARD MEETINGS
The Board supports the regular attendance at each Board Meeting of
non-Board members who are members of senior management.
Should the Chief Executive Officer want to add additional people as
attendees on a regular basis, it is expected that this suggestion would be
made to the Board for its concurrence.
11. BOARD ACCESS TO SENIOR MANAGEMENT
Board members have complete access to Allergan's Management.
It is assumed that Board members will use judgment to be sure that this
contact is not distracting to the business operation of the Company and
that such contact, if in writing, be copied to the Chief Executive Officer
and/or the Chairman.
Furthermore, the Board encourages the senior management to, from time to
time, bring other managers into Board meetings who: (a) can provide
additional insight into the items being discussed because of personal
involvement in these areas, and/or (b) represent managers with future
potential that the Senior Management believes should be given exposure to
the Board.
9
<PAGE> 13
12. BOARD COMPENSATION REVIEW
It is appropriate for the staff of the Company to report once every other
year to the Corporate Governance Committee the status of Allergan Board
compensation in relation to other U.S. companies.
Changes in Board compensation, if any, should come at the suggestion of the
Corporate Governance Committee, but with full discussion and concurrence by
the Board. The Corporate Governance Committee will make Board compensation
change recommendations after it has reviewed the information it considers
appropriate from the Chief Executive Officer, the Human Resources
department and outside consultants.
13. SIZE OF THE BOARD
The Board presently has 13 members. It is the sense of the Board that a
size of 12 to 14 is about right. However, the Board would be willing to go
to a somewhat larger size in order to accommodate the availability of an
outstanding candidate(s).
14. MIX OF INSIDE AND OUTSIDE DIRECTORS
The Board believes that as a matter of policy there should be a majority of
Independent Directors on the Allergan Board. A maximum ratio should be 1/4
management directors to 3/4 Independent Directors.
But the Board believes that management should encourage senior managers to
understand that Board membership is not necessary or a prerequisite to any
higher management position in the Company. Managers other than the Chief
Executive Officer currently attend Board meetings on a regular basis even
though they are not members of the Board.
15. BOARD DEFINITION OF WHAT CONSTITUTES INDEPENDENCE FOR OUTSIDE DIRECTORS
Allergan's Bylaw defining independent directors was approved by the Board
in July 1995. The Board believes there is no current relationship between
any outside director and Allergan that would be construed in any way to
compromise any Board member being designated independent. Compliance with
the Bylaw is reviewed annually by the Corporate Governance Committee.
16. FORMER CHIEF EXECUTIVE OFFICER'S BOARD MEMBERSHIP
The Board believes this is a matter to be decided in each individual
instance. It is assumed that when the Chief Executive Officer resigns from
that position, he/she should offer his/her resignation from the Board at
the same time. Whether the individual continues to serve on the Board is a
matter for discussion at that time with the new Chief Executive Officer and
the Board.
A former Chief Executive Officer serving on the Board will be considered an
inside director for purposes of corporate governance.
17. BOARD MEMBERSHIP CRITERIA
The Corporate Governance Committee is responsible for reviewing with the
Board on an annual basis the appropriate skills and characteristics
required of Board members in the context of the current make-up of the
Board. This assessment should include issues of diversity, age, skills such
as understanding of manufacturing technologies, international background,
etc. -- all in the context of an assessment of the perceived needs of the
Board at that point in time.
18. SELECTION OF NEW DIRECTOR CANDIDATES
The Board itself should be responsible, in fact as well as procedure, for
selecting its own members. The Board delegates the screening process
involved to the Corporate Governance Committee with the direct input from
the Chairman of the Board as well as the Chief Executive Officer and the
other members of the Board. There should be a full discussion at a Board
meeting before the decision to invite someone to join the Board is made.
10
<PAGE> 14
19. EXTENDING THE INVITATION TO A NEW POTENTIAL DIRECTOR TO JOIN THE BOARD
The invitation to join the Board should be extended by the Chairman of the
Corporate Governance Committee on behalf of the Board. The new director
will receive an orientation about the Company and its Corporate Governance
philosophy.
20. ASSESSING THE BOARD'S PERFORMANCE
The Corporate Governance Committee is responsible to report annually to the
Board an assessment of the Board's performance. This will be discussed with
the full Board. This should be done following the end of each fiscal year
and at the same time as the report on Board membership criteria.
This assessment should be the Board's contribution as a whole and
specifically review areas in which the Board and/or the Management believes
a better contribution could be made. Its purpose is to increase the
effectiveness of the Board, not to target individual Board members.
21. DIRECTORS WHO CHANGE THEIR PRESENT JOB RESPONSIBILITY
It is the sense of the Board that individual directors who change the
responsibility they held when they were elected to the Board should
volunteer to resign from the Board.
It is not the sense of the Board that the directors who retire or change
from the position they held when they came on the Board should necessarily
leave the Board. There should, however, be an opportunity for the Board,
via the Corporate Governance Committee, to review the continued
appropriateness of Board membership under these circumstances.
22. TERM LIMITS
The Board does not believe it should establish term limits. While term
limits could help ensure that there are fresh ideas and viewpoints
available to the Board, they hold the disadvantage of losing the
contribution of directors who have been able to develop, over a period of
time, increasing insight into the Company and its operations and,
therefore, provide an increasing contribution to the Board as a whole.
As an alternative to term limits, the Corporate Governance Committee, in
consultation with the Chief Executive Officer and the Chairman of the
Board, will review each director's continuation on the Board every year.
This will also allow each director the opportunity to conveniently confirm
his/her desire to continue as a member of the Board.
23. RETIREMENT AGE
It is the sense of the Board that the current retirement age of 70 is
appropriate.
24. FORMAL EVALUATION OF THE CHIEF EXECUTIVE OFFICER
The Organization and Compensation Committee should make this evaluation
annually, and it should be communicated to the Chief Executive Officer by
the Chairman of the Organization and Compensation Committee.
The evaluation should be based on objective criteria including performance
of the business, accomplishment of long-term strategic objectives,
development of management, etc.
The evaluation will be used by the Organization and Compensation Committee
in the course of its deliberations when considering the compensation of the
Chief Executive Officer.
25. SUCCESSION PLANNING
There should be an annual report by the Chief Executive Officer to the
Board on succession planning.
There should also be available, on a continuing basis, the Chief Executive
Officer's recommendation as to his successor should he/she be unexpectedly
disabled.
11
<PAGE> 15
26. MANAGEMENT DEVELOPMENT
There will be an annual report to the Board by the Chief Executive Officer
on the Company's program for management development, described in detail.
This report should be given to the Board at the same time as the succession
planning report noted above.
27. BOARD INTERACTION WITH INSTITUTIONAL INVESTORS, THE PRESS, CUSTOMERS, ETC.
The Board believes that the management speaks for Allergan. Individual
Board members may, from time to time, meet or otherwise communicate with
various constituencies that are involved with Allergan. But, it is expected
that board members would do this with the knowledge of the management and,
in most instances, at the request of management.
BOARD ASSESSMENT
The newly constituted Corporate Governance Committee conducted its first
assessment of Board performance in January 1996. All directors were asked to
complete a Board Evaluation and Feedback Form. On the Form, each director
entered a number grade from 1 to 5, and was encouraged to provide written
comments as to how well the Board performs against each of the following 18
standards:
1. The Board knows and understands the Company's vision, strategic plan
and operating plan.
2. The Board reflects its understanding of the Company's vision,
strategic plan and operating plan in the quality of its discussions
and actions on key issues throughout the year.
3. Board meetings are conducted in a manner which ensures open
communication, meaningful participation, and timely resolution of
issues.
4. The Board functions in a manner that enables each member to
participate fully in accordance with each member's particular
strengths. Board committees are staffed in ways that utilize each
member's strengths.
5. Advance Board materials contain the right information and are received
sufficiently in advance of meetings.
6. Board members are diligent in preparing for meetings.
7. The Board regularly monitors key performance measures throughout the
year. The Board regularly monitors the Company's income statement,
balance sheet and cash flow.
8. The Board places appropriate emphasis around the Company's long term
Research and Development commitments and regularly monitors
performance.
9. In tracking Company performance, the Board regularly considers the
performance of peer companies.
10. Board membership reflects the right mix of experience, skills,
perspectives and diversity.
11. The Board appropriately reviews the performance of the CEO.
12. The Organization and Compensation Committee (the "OCC") regularly
reviews the performance of the senior officers.
12
<PAGE> 16
13. The Audit Committee regularly reviews the ethics of the conduct of the
senior officers.
14. The OCC monitors performance and assures that correlation between
executive pay and Company performance is regularly considered by the
Board and/or the OCC.
15. The OCC reviews succession plans for the CEO and senior management and
insures adequate channels of commitment through the executive session
of the Board.
16. The OCC is appropriately involved in senior management selection.
17. The trigger level for Board or committee involvement in major business
policies and decisions is meaningful and appropriate.
18. Taking everything into consideration involving the Board's
performance, the Board's performance is appropriate for the Company
considering its size and industry.
The Corporate Governance Committee analyzed the numerical ratings, looking
at both average and median scores, as well as the specific and overall comments
provided, and then brought their findings to the meeting of outside directors
held in January 1996. At that meeting the outside directors discussed ways in
which Board performance could be improved in order to provide a greater benefit
to the Company and its stockholders. It is anticipated that specific plans will
be developed at future meetings.
13
<PAGE> 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BY MANAGEMENT
The following table sets forth information as of January 31, 1996 regarding
the beneficial ownership of the Common Stock of the Company by each nominee,
present directors of the Company, each of the executive officers named in the
Summary Compensation Table and all of the directors and executive officers of
the Company as a group. Except as described in footnotes 5 and 6 below, no
officer or director of the Company owns beneficially 1% or more of the common
stock outstanding.
<TABLE>
<CAPTION>
SHARES OF RIGHTS TO
COMMON STOCK ACQUIRE
BENEFICIALLY BENEFICIAL
BENEFICIAL OWNER OWNED(1)(2) OWNERSHIP(3) TOTAL
---------------- ------------ ------------ ---------
<S> <C> <C> <C>
CLASS I DIRECTOR NOMINEES:
Howard E. Greene, Jr..................... 2,560 -- 2,560
Richard M. Haugen........................ 42,584 130,964 173,548
Lester J. Kaplan, Ph.D................... 15,071 67,657 82,728
Leonard D. Schaeffer..................... 1,500 -- 1,500
CLASS II DIRECTORS:
Herbert W. Boyer, Ph.D................... 1,500 -- 1,500
Tamara J. Erickson....................... 2,140 -- 2,140
William R. Grant......................... 15,811 -- 15,811
Louis T. Rosso........................... 46,293 -- 46,293
William C. Shepherd...................... 97,031 250,746 347,777
CLASS III DIRECTORS:
Handel E. Evans.......................... 5,983 -- 5,983
Gavin S. Herbert......................... 342,044(4) 314,892 656,936(5)
Leslie G. McCraw......................... 3,996 -- 3,996
Henry Wendt.............................. 53,103 -- 53,103
OTHER NAMED EXECUTIVE OFFICERS
Francis R. Tunney, Jr.................... 12,888 79,136 92,024
Michael J. Donohoe....................... 8,524 74,959 83,483
All current directors and executive
officers
(22 persons, including those named
above)................................ 700,569 1,124,590 1,825,159(6)
</TABLE>
- ---------------
(1) In addition to shares held in the individual's sole name, this column
includes shares held by the spouse and other members of the named person's
immediate household who share that household with the named person, and
shares held in family trusts. This column also includes, for employees,
shares held in trust for the benefit of the named party or group in the
Company's Savings and Investment Plan and the Employee Stock Ownership Plan
as of December 31, 1995.
(2) In addition to the beneficial ownership amounts described in the preceding
footnote, the Directors listed below elected to defer all or a portion of
their annual retainer and meeting fees, with such deferred amounts treated
as having been invested in Common Stock of the Company. As of January 31,
1996, such amounts constitute the economic equivalent of the following
numbers of shares of Common stock:
<TABLE>
<CAPTION>
ECONOMIC EQUIVALENT
NUMBER OF SHARES
-------------------
<S> <C>
Tamara J. Erickson................................. 3,256
Handel E. Evans.................................... 7,403
William R. Grant................................... 7,820
Howard E. Greene, Jr............................... 3,675
Leslie G. McCraw................................... 6,443
Louis T. Rosso..................................... 4,764
Leonard D. Schaeffer............................... 2,766
Henry Wendt........................................ 6,996
</TABLE>
14
<PAGE> 18
(3) Shares which the party or group has the right to acquire within 60 days
after January 31, 1996 upon the exercise of stock options.
(4) Includes 97,540 shares held in two trusts for which Mr. Herbert serves as
co-trustee and in which he or his sister has a beneficial interest.
(5) Represents 1.0% of the shares outstanding as of January 31, 1996.
(6) Represents 2.8% of the shares outstanding as of January 31, 1996.
BY OTHERS
Management of the Company knows of no person, except as set forth below,
who is the beneficial owner of more than 5% of the Company's issued and
outstanding Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES PERCENT
BENEFICIAL OWNERS BENEFICIALLY OWNED OF CLASS
------------------- ------------------ --------
<S> <C> <C>
Certain Fidelity funds............................. 7,608,520(1) 11.8%
82 Devonshire Street
Boston, MA 02109-3614
Brinson Partners, Inc.............................. 5,289,645(2) 8.2%
209 South LaSalle Street
Chicago, Illinois 60604-1295
Mellon Bank Corporation............................ 5,030,329(3) 7.8%
One Mellon Bank Center
Pittsburgh, PA 15258-0001
State Farm Mutual
Automobile Insurance Company..................... 4,543,900(4) 7.0%
One State Farm Plaza
Bloomington, Illinois 61710
INVESCO Capital Management, Inc., 3,609,700(5) 5.6%
a subsidiary of INVESCO plc......................
11 Devonshire Square
London EC2M 4YR
England
</TABLE>
- ---------------
(1) Based on a Schedule 13G, dated February 14, 1996, filed with the Securities
and Exchange Commission by FMR Corp. on behalf of itself and related
entities.
(2) Based on a Schedule 13G, dated February 9, 1996, filed with the Securities
and Exchange Commission by the named beneficial owner on behalf of itself
and related entities.
(3) Based on a Schedule 13G, dated January 22, 1996, filed with the Securities
and Exchange Commission by the named beneficial owner on behalf of itself
and related entities. Includes shares held as trustee for certain of the
Company's employee benefit plans.
(4) Based on a Schedule 13G, dated January 22, 1996, filed with the Securities
and Exchange Commission by the named beneficial owner on behalf of itself
and related entities.
(5) Based on a Schedule 13G, dated February 2, 1996, filed with the Securities
and Exchange Commission by the named beneficial owner on behalf of itself
and related entities.
15
<PAGE> 19
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the compensation for the Company's Chief
Executive Officer and the four most highly paid executive officers other than
the CEO for services rendered in all capacities to the Company and its
subsidiaries for the years ended December 31, 1993, 1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL ------------------------
COMPENSATION RESTRICTED
--------------------------- STOCK ALL OTHER
SALARY BONUS OTHER AWARD(S) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($) ($)(3) OPTIONS(#) ($)(4)
- -------------------------------- ---- ------- ------- ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William C. Shepherd,............ 1995 605,000 160,000 65,000 18,798
Chairman of the Board, 1994 546,010 420,000 61,000 23,609
President & CEO 1993 494,348 320,000 61,000 23,235
Richard M. Haugen,.............. 1995 428,924 130,000 36,300 18,212
Executive Vice 1994 389,930 274,000 34,300 20,496
President & COO 1993 351,796 200,000 34,300 15,905
Lester J. Kaplan, Ph.D.,........ 1995 249,916 80,000 24,000 13,991
Corporate Vice 1994 235,608 136,000 16,000 13,236
President, R&D 1993 219,625 106,900 16,000 17,576
Francis R. Tunney, Jr........... 1995 243,582 80,000 16,000 7,844
Corporate Vice President, 1994 225,660 137,000 16,000 9,300
General Counsel and 1993 209,848 107,000 16,000 12,313
Secretary
Michael J. Donohoe,............. 1995 254,025 50,000 (5) 24,000 14,078
Corporate Vice President & 1994 235,407 136,000 (5) 24,000 8,644
President, Europe Region 1993 218,938 106,800 (5) 24,000 13,463
</TABLE>
- ---------------
(1) The amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers.
(2) The amounts shown represent bonus performance awards which were paid in
February of the following year under the Company's Management Bonus Plan for
services rendered during the fiscal year indicated.
(3) All shares of restricted stock vest, in whole, in three years or more and
receive non-preferential dividends. The amounts shown in the table represent
the value of the restricted stock awards on the date of grant. The following
number of restricted shares (and the value based on the closing price of the
stock on December 31, 1995) were held by each of the named executives as of
December 31, 1995: Dr. Kaplan, 5,000 ($162,500).
16
<PAGE> 20
(4) The total amounts shown in this column for the 1995 fiscal year consist of
Company contributions to the Allergan, Inc. Savings and Investment Plan
("SIP") and the Allergan, Inc. Employee Stock Ownership Plan ("ESOP"), the
cost of term life insurance and term executive post-retirement life
insurance premiums ("Ins") and payment in lieu of vacation ("Vac"), as
follows:
<TABLE>
<CAPTION>
SIP ESOP INS VAC
------- ------- -------- -------
<S> <C> <C> <C> <C>
Mr. Shepherd......................... $3,300 $3,900 $11,598 $ --
Mr. Haugen........................... 3,300 3,900 2,700 8,312
Dr. Kaplan........................... 3,750 3,900 1,512 4,829
Mr. Tunney........................... 2,310 3,900 1,634 --
Mr. Donohoe.......................... 3,558 3,900 1,705 4,915
</TABLE>
(5) Mr. Donohoe temporarily relocated to the United Kingdom in 1992 in
connection with his election as President, Europe Region. As a U.S.-based
employee assigned abroad, Mr. Donohoe is entitled to certain payments that
are made available generally to employees as part of the assignment. These
amounts, which typically are associated with the expenses of maintaining two
households, home visits, tax equalization and additional education costs for
such employees' children, have not been included in this table.
STOCK OPTIONS
The following table shows information regarding stock options granted to
the named executive officers during 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL 1995 PER SHARE DATE VALUE($)(2)
---- ------------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
William C. Shepherd........... 65,000 8.5% $27.63 4/24/05 $732,550
Richard M. Haugen............. 36,300 4.7% $27.63 4/24/05 409,101
Lester J. Kaplan, Ph.D........ 24,000 3.1% $27.63 4/24/05 270,480
Francis R. Tunney, Jr......... 16,000 2.1% $27.63 4/24/05 180,320
Michael J. Donohoe............ 24,000 3.1% $27.63 4/24/02 228,720
</TABLE>
- ---------------
(1) All options disclosed above were granted pursuant to the 1989 Incentive
Compensation Plan (the "Incentive Plan") on April 24, 1995 and become
exercisable 25% per year beginning April 24, 1996. The exercise price and
the tax withholding obligations related to exercise may be paid by delivery
of already-owned shares. The Incentive Plan grants broad discretion to
change material terms, including the acceleration of vesting upon a "Change
in Control." See "Change in Control Arrangements" on page 19.
(2) Based on the Black-Scholes model of option valuation to determine grant date
present value. The actual value, if any, an executive may realize will
depend on the excess of the stock price over the exercise price on the date
the option is exercised, so that there is no assurance the value realized by
an executive will be at or near the value estimated by the Black-Scholes
model. With respect to the 1995 option grants, the following assumptions
were used in the Black-Scholes model: market price of stock, $27.63;
exercise price of option, $27.63; stock volatility, .275 (based on two-year
volatility and dividend yield); annualized risk-free interest rate, 7.24%;
option term, ten years (except for Mr. Donohoe, for whom a seven-year term
was assumed); dividend yield, 1.63; risk of termination per year of vesting,
3%.
17
<PAGE> 21
OPTION EXERCISES AND HOLDINGS
The following table shows stock option exercises by the named executive
officers during 1995, including the aggregate value of gains on the date of
exercise. In addition, this table includes the number of shares covered by both
exercisable and non-exercisable stock options as of December 31, 1995. Also
reported are the values for "in-the-money" options which represent the positive
spread between the exercise price of any such existing stock options and the
year-end price of Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT 12/31/95(#)(1) AT 12/31/95($)(2)
ACQUIRED ON VALUE --------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Shepherd........ -- $ -- 250,746 156,500 $2,881,171 $1,283,573
Richard M. Haugen.......... 834 9,195 130,964 88,300 1,499,038 726,444
Lester J. Kaplan, Ph.D..... -- -- 67,657 47,325 783,300 363,304
Francis R. Tunney, Jr...... -- -- 79,136 41,750 911,932 350,373
Michael J. Donohoe......... -- -- 74,959 60,200 804,328 499,490
</TABLE>
- ---------------
(1) In accordance with the agreement entered into between the Company and SKB
governing the Spinoff Distribution, each employee or former employee of the
Company who as of the date of the Spinoff Distribution held an SKB stock
option was granted a nonqualified stock option under the Incentive Plan in
substitution of the SKB option. The exercise prices of the Company options
were set by the Company's Incentive Compensation Plan Committee, then in
existence, in a manner designed to preserve the gain in the SKB option at
the time of substitution. The numbers shown include the value of options
accumulated, and not yet exercised, over a ten-year period, including the
period when the Company was a subsidiary of SKB.
(2) Based on the closing price of $32.50 on the New York Stock Exchange of the
Company's Common Stock.
DEFINED BENEFIT PENSION PLANS
The Company has established a defined benefit retirement plan as a
successor to the pension benefit obligations of the retirement plan of its
former parent company, SmithKline Beckman Corporation ("SKB") with respect to
Allergan employees. Allergan became an independent, publicly-held company as a
result of a spinoff distribution by SKB in 1989 (the "Spinoff Distribution").
The Allergan plan, into which certain assets of the SKB plan were transferred in
conjunction with the Spinoff Distribution, provides pension benefits to
employees, including officers, based upon the average of the highest 60
consecutive months of eligible earnings ("Final Average Pay") and years of
service integrated with covered compensation as defined by the Social Security
Administration.
Allergan has also established two supplemental retirement plans ("SRP") for
employees, including officers. These plans pay benefits directly to a
participant to the extent benefits under the Pension Plan are limited by certain
Internal Revenue Code provisions.
18
<PAGE> 22
The following table illustrates the annual combined retirement benefits
payable under the retirement plans based on an age 62 retirement. If an employee
elects a benefit for his or her surviving spouse, the retirement benefit for the
employee is reduced to reflect this additional coverage.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL ---------------------------------------------------------------------------------------
AVERAGE PAY 15 20 25 30 35 40 45
- ------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$200,000 $ 49,500 $ 65,900 $ 82,400 $ 98,900 $115,400 $120,400 $125,400
250,000 62,400 83,200 104,100 124,900 145,700 151,900 158,200
300,000 75,400 100,500 125,700 150,800 176,000 183,500 191,000
350,000 88,400 117,800 147,300 176,800 206,200 215,000 223,700
400,000 101,400 135,100 168,900 202,700 236,500 246,500 256,500
500,000 127,300 169,700 212,200 254,600 297,100 309,600 322,100
600,000 153,300 204,300 255,400 306,500 357,600 372,600 387,600
700,000 179,200 238,900 298,700 358,400 418,200 435,700 453,200
800,000 205,200 273,500 341,900 410,300 478,700 498,700 518,700
900,000 231,100 308,100 385,200 462,200 539,300 561,800 584,300
</TABLE>
Eligible earnings include basic salary and bonuses earned during the year.
Unreduced benefits are payable at age 62, but employees may continue employment
beyond then and earn additional retirement benefits. Credited years of service
at normal retirement for the individuals named in the compensation table would
be as follows: Mr. Shepherd, 34 years; Mr. Haugen, 35 years; Dr. Kaplan, 29
years; Mr. Tunney, 30 years; and Mr. Donohoe, 18 years.
CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into agreements with each of its executive officers
and certain other officers which provide certain benefits in the event of a
change in control of the Company. A "change in control" of the Company is
defined as, in general, the acquisition by any person of beneficial ownership of
20% or more of the voting stock of the Company, certain business combinations
involving the Company or a change in a majority of the incumbent members of the
Board of Directors, except for changes in the majority of such members approved
by such members. If, within two years after a change in control, the Company or,
in certain circumstances, the executive, terminates his or her employment, the
executive is entitled to a severance payment equal to one, two or three
(depending on the executive in question) times (i) such executive's highest
annual salary within the five-year period preceding termination plus (ii) a
bonus increment equal to the average of the two highest of the last five bonuses
paid to such executive under the Company's Management Bonus Plan. In addition,
the executive is entitled to the continuation of all employment benefits for a
one-, two- or three-year period (depending on the executive in question), the
vesting of all stock options and certain other benefits, including payment of an
amount sufficient to offset any "excess parachute payment" excise tax payable by
the executive pursuant to the provisions of the Internal Revenue Code or any
comparable provision of state law. The multiple of salary and bonus (as
calculated above) and the number of years of continued coverage of other
benefits are as follows: Messrs. Shepherd and Haugen -- three years; Messrs.
Kaplan, Tunney and Donohoe, and the other six executive officers -- two years;
other covered officers (24 persons) -- one year.
In addition, the Company's SRP, Incentive Plan, Savings and Investment
Plan, Employee Stock Ownership Plan and Nonemployee Director Stock Plan each
contain provisions for the accelerated vesting of benefits under such plans upon
a change in control of the Company. For such purposes a change in control is
deemed to occur upon the acquisition by any person of 50% or more of the
combined voting power of the Company's then outstanding voting securities, a
change in composition of a majority of the Board of Directors unless approved by
incumbent directors, and certain other acquisition related events.
19
<PAGE> 23
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE
As members of the Organization and Compensation Committee, it is our duty,
pursuant to our charter to: administer the Company's Management Bonus Plan and
the 1989 Incentive Compensation Plan; review and adjust base compensation
levels; evaluate performance; and consider and approve management succession for
corporate officers.
Allergan's executive compensation programs are designed to attract,
motivate, and retain the executive talent needed to optimize shareholder value
in a competitive environment. The programs support the goal of increasing
shareholder value of the Company by achieving specific financial and strategic
objectives.
Allergan's executive compensation programs are designed to provide:
- levels of base compensation that are competitive with comparable
pharmaceutical and diversified health care companies;
- annual incentive compensation that varies in a consistent and
predictable manner with achievement of the financial performance
objectives of the Company; and
- long-term incentive compensation that focuses executive efforts on
building shareholder value through meeting longer-term financial and
strategic goals.
In designing and administering its executive compensation program, the
Company attempts to strike an appropriate balance among these various elements,
each of which is discussed in greater detail below.
BASE SALARY
Base salary, as well as bonus, is targeted at the 50th percentile level,
consistent with comparable pharmaceutical and diversified health care companies.
The Company's Compensation Department, in an effort to obtain a broad base of
data, participates in a number of salary surveys and obtains commercially
available surveys. In conducting its analysis, the Company attempts, when data
is available, to include data from companies included in the S&P Health Care
(Diversified) Index and other S&P Health Care indices, as well as from companies
subjectively considered comparable based on such factors as size, product lines,
employment levels and market capitalization. For 1995, the executive salary
structure adjustment and merit increase guidelines were based on commercially
available surveys from the pharmaceutical and health care industries. Allergan's
salary increase program is designed to reward individual performance consistent
with the Company's overall financial performance in the context of competitive
practice. Annual performance reviews and formal merit increase guidelines
determine individual salary increases.
THE MANAGEMENT BONUS PLAN
The Management Bonus Plan is designed to reward management-level employees
for their contributions to corporate and individual objectives. Each eligible
employee's award is expressed as a percentage of the participant's year end base
salary. Bonus targets begin at 10% for managers and range from 30% to 60% for
executive officers, it being the Committee's compensation philosophy that
increasing portions of compensation should be "at risk" for those employees with
greater influence on shareholder value. Individual performance is measured
against objectives that reflect what executives must do in order for Allergan to
meet its short- and long-term business goals. A participant's individual bonus
target award may be modified from 0% to 150%. In general, each eligible employee
sets for himself or herself (subject to his or her supervisor's review and
approval or modification) a number of objectives for the coming year and then
submits a self-assessment of performance against these objectives as a part of
the year-end compensation review process. The individual objectives vary
considerably in detail and subject matter. Examples of objectives identified by
executive officers for 1995 included identifying and pursuing new business
opportunities, updating the 1995-99 Strategic Plan which allocates resources,
sets priorities and delivers focus to a stated objective that is understood and
endorsed by all of management, introduction of new products into designated
markets, and increasing the Company's presence in a number of geographic areas,
particularly emerging markets in Asia. This information
20
<PAGE> 24
(or summaries thereof) is generally considered by the Committee in a subjective
evaluation of overall performance of the executive officers for purposes of
determining the actual bonus.
Organizational objectives are measured in terms related to Allergan's
increase in shareholder value: cash flow return on investment (CFROI), sales
growth over the prior year, and earnings per share objectives. The Committee
believes that these measures are primary determinants with the highest
historical correlation with share price. Targets based on organizational
objectives are established as part of the annual operating plan process which
includes a review of peer group company performance.
The bonus target is set at 100% when 100% of operating plan objectives for
CFROI, sales growth, and earnings per share are achieved. The bonus award
guideline is leveraged with the possible percentage ranging from 0% to 135%, and
is linked to company performance against the three measures.
For 1995, results in CFROI and sales growth were below planned levels,
yielding no regular bonus. The Committee, however, was of the view that the
performance of the Company was excellent in several areas, primarily in the
acquisition of new businesses and products as well as the achievement of
earnings per share at the planned level, thus providing shareholders with good
value and establishing the groundwork for future growth. Therefore, the
Committee established a discretionary bonus pool to be distributed among plan
participants, using the individual bonus modifiers as a guide but eliminating
the 150% maximum individual modifier.
The following illustrates the bonus determination process used for 1995:
<TABLE>
<CAPTION>
EMPLOYEE'S ORGANIZATIONAL INDIVIDUAL INDIVIDUAL
BONUS OBJECTIVE PERFORMANCE BONUS
TARGET ACHIEVEMENT ACHIEVEMENT PERCENTAGE
---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
X X =
e.g. 25% 30% 180% 13.5%
</TABLE>
For bonus year 1995, the Committee approved a total bonus fund of
approximately $3 million for approximately 445 participating employees.
TOTAL ANNUAL CASH COMPENSATION (BASE SALARY PLUS BONUS)
Total cash compensation is set competitively at the 50th percentile, as
described in the section titled Base Salary above, when annual operating plans
and targets are achieved. Top-quartile cash compensation can be attained only if
business results significantly exceed the operating plan.
INCENTIVE COMPENSATION PLAN
The 1989 Incentive Compensation Plan (the "Incentive Plan") authorizes the
granting of various stock-based incentive awards to officers and key employees
of the Company and its subsidiaries. The plan has been designed to:
- link management's financial success to that of the shareholders via
broad-based participation of Allergan management employees
(approximately 365 managers received grants in 1995);
- focus attention on building shareholder value through meeting
longer-term financial and strategic goals;
- balance long-term with short-term decision making; and
- encourage and create ownership and retention of the Company's stock.
21
<PAGE> 25
COMMITTEE ACTIVITIES
In 1995, the Committee had four formal meetings as well as many interim
discussions. The following summarizes the Committee's major activities:
- Approved the 1995 Executive Salary Plans. These plans set the salary
grades, ranges, and target bonus percentages based on competitive
information from comparable pharmaceutical and diversified health care
companies.
- Reviewed and determined 1995 salary increases for each corporate officer
based on their performance.
- Determined 1994 management bonus awards for corporate officers based on
assessment of their performance against objectives. Approved the 1995
Management Bonus Plan's corporate financial objectives.
- Reviewed and recommended 1995 stock awards for executive officers as
well as for other participants, totalling approximately 365.
- Recommended the election of 1995 corporate officers and the designation
of executive officers covered under Section 16 of the Securities
Exchange Act of 1934.
- Reviewed and revised executive stock ownership guidelines. The Chairman,
President and Chief Executive Officer is expected to hold five times his
salary in Company stock; the guideline for the Executive Vice President
and Chief Operating Officer is three times his salary; and the guideline
for corporate vice presidents is two times salary.
- Reviewed Pension Plan, Employee Stock Ownership Plan and Savings and
Investment Plan funding levels.
- Reviewed management development and succession planning efforts.
- Reviewed and proposed an amendment to the 1989 Incentive Compensation
Plan to utilize the exemption from nondeductible compensation under
Internal Revenue Service Code Section 162(m); reviewed the Management
Bonus Plan for the same issue.
The Company, with the approval of the Committee, has retained the services
of Towers Perrin, a Human Resources consulting firm, since 1989 to provide
advice and review the reasonableness of compensation paid to executive officers
of the Company. As part of its services, Towers Perrin reviewed and, as
appropriate, provided recommendations with respect to the 1995 Executive Salary
Plan and Stock Award Guidelines.
SALARY INCREASES
The CEO received an increase of 6.5% effective February 1, 1996, reflecting
the Committee's assessment of Mr. Shepherd's 1995 performance. As to specifics,
the Committee noted the record number of acquisitions and strategic investments,
five each, completed during the year, the business restructurings, the growth of
the business in Japan, the establishment of the business in China, and the
number of new product filings for marketing approval. Specifically, the
Committee noted that the CEO was positively impacting the corporate forces that
would enhance shareholder value in the coming years. The Committee, in setting
Mr. Shepherd's increase, also took into consideration the fact that Mr.
Shepherd's salary was below the going market rate for CEO's of companies of
comparable size and complexity.
The other named executive officers received an average increase of 4.4%
effective February 1, 1996 to reflect performance that was generally above
average, thus enabling the Company to achieve very good results considering
market conditions and the short term impact of acquisition activities.
MANAGEMENT BONUS PLAN AWARDS
At the January 1996 meeting, the Committee approved bonus awards for
executive officers, as described above.
22
<PAGE> 26
The CEO received a Management Bonus Plan award of $160,000, based on the
Committee's assessment of Allergan's 1995 corporate results in relation to Mr.
Shepherd's objectives for the year. For purposes of compensation decisions, the
Company's performance is generally measured under Management Bonus Plan targets
established prior to the start of the fiscal year.
In the case of Mr. Shepherd, the Committee was influenced by the same
business factors discussed in connection with his salary increase as well as the
overall performance of the Company in its sales growth and its CFROI relative to
goals established for the year. In the case of each of the other named
executives, the Committee was influenced by financial results, the achievement
of strategic goals, as well as their individual performance.
LONG-TERM INCENTIVE GRANTS
At the April 1995 meeting, the Committee considered long-term incentive
grants for each of the executive officers of the Company. The guidelines for
each grade level are set periodically based upon a comparison of Allergan to
survey data for over 200 companies prepared and analyzed by Towers Perrin in
order to approximate the 75th percentile level compensation if the Company is
successful and that success results in increased stock prices. Although
information with respect to previous grants is considered by the Committee,
awards made in 1995 to executive officers were not affected in any significant
way by awards made in previous years.
The CEO received 65,000 non-qualified stock options, which was slightly
above the guideline amount previously set for the position. The Committee was
influenced by, among other things, Mr. Shepherd's leadership and the Company's
success in expanding its core business through acquisitions.
In the case of each of the other named executives, the stock award was
within the Company's guideline and reflects the assessment of individual
performance as well as the performance of the Company as discussed in the
previous paragraph. In determining the specific award to the CEO and each of the
other named executives, the Committee considers a mix of individual and
corporate performance achievements, without attributing relative weights to the
various factors considered.
Organization and Compensation
Committee,
Mr. William R. Grant, Chairman
Ms. Tamara J. Erickson
Mr. Handel E. Evans
Mr. Leslie G. McCraw
Mr. Leonard D. Schaeffer
23
<PAGE> 27
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Company's Organization and Compensation Committee is a
current or former officer or employee of the Company or any of its subsidiaries.
There are no compensation committee interlocks between the Company and other
entities involving Allergan executive officers and Allergan Board members who
serve as executive officers of such other entities.
Walsh International Inc. and Pharmaceutical Marketing Services Inc., of
which Handel E. Evans, a director of the Company and a member of the
Organization and Compensation Committee, is the Chairman, provided
pharmaceutical marketing research data during 1995 for which the Company paid
approximately $78,000.
Blue Cross of California, of which Leonard D. Schaeffer, a director of the
Company and a member of the Organization and Compensation Committee, is the
Executive Chairman, provided administrative services for certain of the
Company's health plans during 1995 for which the Company paid approximately
$324,000.
Effective as of October 31, 1992, the Company sold its contact lens
business in North and South America to a privately-held company, O.S.I.
Corporation ("OSI"), in a transaction in which the Company received a
combination of secured and subordinated debt of OSI, a minority equity position
in OSI and cash. In addition, OSI and the Company entered into certain licensing
and product manufacturing arrangements pursuant to which OSI pays the Company
certain royalties and product manufacturing fees. The terms of the sale and
licensing and manufacturing arrangements were determined by arms' length
negotiations between the Company and the controlling shareholder of OSI. OSI
received a portion of its funding in connection with the transaction from two
venture capital funds, Galen Partners, L.P. and Galen Partners International,
L.P. (collectively, the "Galen Funds"). The Galen Funds hold approximately 19.6%
of the outstanding capital stock of OSI (assuming full exercise and conversion
of all options, warrants and convertible securities). William R. Grant, a
director of the Company and chairman of the Board's Organization and
Compensation Committee, is a general partner of the firm which manages the Galen
Funds. Mr. Grant did not participate in the deliberations of the Company's Board
of Directors concerning the OSI transaction and abstained from voting on the
matter when it was approved by the Company's Board of Directors. During 1995,
the Company received from OSI approximately $1,932,000 in interest payments with
respect to the transaction debt, approximately $1,421,000 in royalty fees and
approximately $227,000 in dividend payments on cumulative preferred stock. Also
in 1995, Mr. Richard M. Haugen, Executive Vice President and Chief Operating
Officer of the Company and a member of the Board of Directors, became a director
of OSI.
24
<PAGE> 28
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock with the
cumulative total return of the S&P 500 Stock Index and the S&P Health Care
(Diversified) Index for the period beginning December 31, 1990 and ending
December 31, 1995. The graph assumes that all dividends have been reinvested.
<TABLE>
<CAPTION>
S&P Health
Measurement Period Care Diversi-
(Fiscal Year Covered) AGN S&P 500 fied
--------------------- --- ------- -------------
<S> <C> <C> <C>
12/90 100 100 100
12/91 142 130 147
12/92 153 140 126
12/93 135 154 120
12/94 171 156 139
12/95 200 213 205
</TABLE>
APPROVAL OF THE AMENDED AND RESTATED
1989 INCENTIVE COMPENSATION PLAN
PROPOSAL 2
GENERAL
The Company's Board of Directors has approved an amendment to the 1989
Incentive Compensation Plan ("Incentive Plan"), subject to approval by the
Company's stockholders. The Incentive Plan was adopted in 1989 and was amended
with stockholder approval in 1992. The proposed amendment will modify the
Incentive Plan to limit the maximum number of shares with respect to which
options may be granted to an executive officer in any given calendar year to
200,000. The Incentive Plan does not currently contain any such limitation. The
purpose of the amendment is to conform portions of the Incentive Plan to the
deductibility requirements of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code").
The following is a summary of the principal features of the Incentive Plan,
as proposed to be amended and is qualified by and subject to the actual
provisions of the form of amended and restated Incentive Plan attached to this
Proxy Statement as Exhibit A.
25
<PAGE> 29
PURPOSE AND ELIGIBILITY
The purpose of the Incentive Plan is to advance the interests of the
Company and its stockholders by affording to key management and any other
employees of the Company and its subsidiaries an opportunity to acquire or
increase a proprietary interest in the Company or to otherwise benefit from the
success of the Company through the grant of stock options, restricted stock,
stock appreciation rights, stock payments, performance awards or other awards
granted or sold under the Incentive Plan ("Incentive Award"). The Company
thereby seeks to attract, retain and motivate those highly competent individuals
upon whose judgment, initiative, leadership and continued efforts the success of
the Company in large measure depends.
All regular, full-time employees of the Company who are key employees of
the Company, as determined by the Committee, are eligible to receive an
Incentive Award under the Incentive Plan. Currently, it is estimated that
approximately 350 persons are eligible for selection.
ADMINISTRATION, AMENDMENT AND TERMINATION
The Incentive Plan is administered by a committee of three or more persons
appointed by the Company's Board of Directors ("Committee"). The Committee has
the authority to interpret the Incentive Plan, determine the terms and
conditions of Incentive Awards and make all other determinations necessary
and/or advisable for the administration of the Incentive Plan. The Committee
may, with the consent of a participant, amend the terms of any existing
Incentive Award previously granted to such participant. The Committee also has
authority to prescribe, amend and rescind rules and regulations relating to the
Incentive Plan. The Board of Directors has designated the Organization and
Compensation Committee as the Committee.
The Board of Directors may alter, amend, suspend or terminate the Incentive
Plan at any time. However, no such action may increase the maximum number of
shares that may be sold or issued under the Incentive Plan or alter the class of
eligible participants without the approval of the stockholders. No amendment,
suspension or termination of the Incentive Plan will, without the consent of the
participant or except as otherwise provided in the Incentive Plan or in the
statement evidencing the grant of the Incentive Award, alter, terminate, impair
or adversely affect any right or obligation under any Incentive Award previously
granted. No Incentive Award may be granted under the Incentive Plan after the
date of termination of the Incentive Plan, but such termination shall not affect
any Incentive Award previously granted.
DIVIDEND EQUIVALENTS
At the discretion of the Committee, and at no additional cost, an amount
payable in cash, Common Stock or a combination thereof may be granted to a
holder of a stock option, Stock Appreciation Right or other Incentive Award
denominated in shares of Common Stock that is equivalent to the amount of
dividends paid to stockholders with respect to a number of shares of Common
Stock equal to the number of shares upon which such Incentive Award is based.
OPTIONS
Stock options granted under the Incentive Plan may be incentive stock
options intended to qualify under the provisions of Code Section 422 ("ISO") or
nonqualified stock options which do not so qualify. The exercise price of Common
Stock that is subject to an option will be determined by the Committee at the
date such option is granted. The exercise price may be less than the fair market
value on the date of grant of the Common Stock subject to an option; however,
the exercise price for an ISO shall not be less than the fair market value on
the date of grant of the Common Stock subject to such ISO. Options may be
exercised as determined by the Committee provided that an ISO may not be
exercised after ten years from the date of grant.
26
<PAGE> 30
PERFORMANCE AWARDS
Awards, payable in cash, Common Stock or a combination thereof, the terms
and conditions of which may be determined by the Committee at the time of grant
("Performance Awards") may be granted under the Incentive Plan. The Committee
shall determine the performance criteria to be utilized to calculate the value
of the Performance Awards, the term of such Performance Awards, the event or
events giving rise to the right to payment of a Performance Award, and the form
(cash and/or Common Stock) and time of payment of Performance Awards.
RESTRICTED STOCK
An award of Common Stock which is the subject of an Incentive Award and
which is nontransferable and subject to a substantial risk of forfeiture until
specific conditions are met as set forth in the Incentive Plan and in any
statement evidencing the grant of such Incentive Award ("Restricted Stock") may
be granted by the Committee. The Committee shall determine the purchase price
(if any), terms of payment of the purchase price, restrictions upon the
Restricted Stock and when such restriction shall lapse.
The following restrictions, among others which may be imposed upon
Restricted Stock by the Committee, will lapse in accordance with the schedule or
other conditions as are determined by the Committee: a restriction on
transferability; a requirement that certificates representing Restricted Stock
remain in the physical custody of an escrow holder or the Company; and a
requirement that each certificate representing Restricted Stock contain a
restrictive legend.
STOCK APPRECIATION RIGHTS
The Committee may approve the grant of a right to receive a number of
shares of Common Stock or, in the discretion of the Committee, an amount in cash
or a combination of shares and cash, based on the increase in the fair market
value of the shares subject to the right during such period as is specified by
the Committee ("SAR"). The Committee may approve the grant of SARs related or
unrelated to stock options. Upon exercise of an SAR granted in connection with a
stock option granted under the Incentive Plan, the holder of the related option
will surrender such option (or any portion thereof to the extent unexercised)
with respect to the number of shares as to which such SAR is exercised and will
receive payment of an amount computed pursuant to the Incentive Plan.
Subject to any conditions on the exercise of the SAR that may be imposed by
the Committee at the time such SAR is granted, an SAR granted in connection with
a stock option will be exercisable at such time or times, and only to the extent
that, the related stock option is exercisable, and will not be transferable
except to the extent that such related option may be transferable.
STOCK PAYMENTS
The Committee may approve payments in shares of the Company's Common Stock
to replace all or any portion of the compensation (other than base salary) that
would otherwise become payable to any regular, full-time employee of the Company
in cash.
TERMINATION OF EMPLOYMENT
Except as otherwise provided in a written agreement between the Company and
the participant, options and SARs expire (i) at the date of termination if the
participant's employment with the Company is terminated for cause; (ii) three
months following termination of employment (but in no event later than the date
of expiration of the option or SAR in accordance with its terms) in the event of
termination for any reason other than for cause, death, disability or
retirement; (iii) twelve months following termination of employment in the event
of termination for death or disability; and (iv) three years following
termination of employment (but in no event later than the date of expiration of
the option or SAR in accordance with its terms) in the event of termination for
retirement. The Committee has the authority to designate longer, and in
27
<PAGE> 31
certain circumstances, shorter periods to exercise options or SARs following a
participant's termination of employment and may accelerate the vesting of all or
any portion of any option and/or right that is unexercisable on or prior to the
date of the participant's termination from employment.
With respect to Performance Awards, if a participant's employment with the
Company is terminated for any reason other than retirement, death or disability
prior to the event or events giving rise to the right to payment of a
Performance Award, all of the participant's rights under the Performance Award
shall expire and terminate unless otherwise determined by the Committee. The
Committee may determine what portions, if any, of a Performance Award should be
paid to a participant whose employment has been terminated by reason of death,
disability or retirement.
With respect to Restricted Stock, unless otherwise determined by the
Committee, upon a participant's termination of employment for any reason, all of
the participant's Restricted Stock remaining subject to restrictions on the date
of termination of employment shall be repurchased by the Company at the purchase
price, if any, paid by the participant for the Restricted Stock.
SECURITIES SUBJECT TO INCENTIVE PLAN
The aggregate number of shares of Common Stock issuable under the Incentive
Plan during any calendar year shall be up to 1.5% of the number of shares of
Common Stock outstanding on December 31 of the year preceding the applicable
year, plus any unused shares from prior years. Shares subject to the unexercised
portion of any Incentive Award that expire, terminate or are canceled and shares
issued pursuant to an Incentive Award that are reacquired by the Company will
again become available for the grant of further Incentive Awards under the
Incentive Plan. ISOs will be subject to the lesser of the maximum annual
percentage limitation for all Incentive Awards and a maximum cumulative
limitation of 5,000,000 shares.
The Incentive Plan, as proposed to be amended, provides that the maximum
number of shares with respect to which options may be granted under the
Incentive Plan to an executive officer in any given calendar year shall not
exceed 200,000 shares.
The Common Stock to be issued under the Incentive Plan will be made
available, at the discretion of the Board or the Committee, either from
authorized but unissued shares of Common Stock or from previously issued shares
of Common Stock reacquired by the Company, including shares purchased on the
open market.
The maximum number of shares issuable under the Incentive Plan during any
calendar year, the number and kind of shares or other securities subject to then
outstanding Incentive Awards, and the price for each share or other unit of any
other securities subject to then outstanding Incentive Awards, will be
appropriately and proportionately adjusted to reflect mergers, consolidations,
sales or exchanges of all or substantially all of the properties of the Company,
reorganizations, recapitalizations, reclassifications, stock dividends, stock
splits, reverse stock splits, spin-offs or other distributions with respect to
such shares of Common Stock (or any stock or securities received with respect to
such Common Stock) or a reduction in the value of the outstanding shares of
Common Stock by reason of an extraordinary cash dividend.
Except as otherwise expressly provided in the statement evidencing the
grant of an Incentive Award, upon the occurrence of a "change in control" of the
Company, any outstanding Incentive Award not theretofore exercisable, payable or
free from restrictions as the case may be, shall immediately become exercisable,
payable or free from restrictions, as the case may be, in their entirety and any
shares of Common Stock acquired pursuant to an Incentive Award which are not
fully vested shall immediately become fully vested. A "change in control" for
this purpose occurs if: (i) any person or group becomes the beneficial owner of
50% or more of the Company's outstanding voting securities; (ii) a change occurs
in the majority of the incumbent directors (except for changes approved by such
members); (iii) a merger or other business combination involving the Company is
approved by stockholders (other than a merger or other transaction in which (A)
the Company's stockholders immediately prior to such transaction would continue
to own 50% or more of the outstanding voting securities of the Company or
successor after the transaction is consummated and (B) no person or group
becomes a 50% or more beneficial owner of Company voting securities); or (iv) a
28
<PAGE> 32
plan of complete liquidation or the sale of all or substantially all of the
Company's assets is approved by stockholders.
On February 13, 1996, the market price of the Company's Common Stock was
$37.00 per share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax treatment
which will generally apply to Incentive Awards made under the Incentive Plan,
based on federal income tax laws in effect on the date hereof. The exact federal
income tax treatment of an Incentive Award will depend on the specific nature of
the Incentive Award. Such an Incentive Award may, depending on the conditions
applicable to the Incentive Award, be taxable as an option, as restricted or
unrestricted stock, as a cash payment, or otherwise. Because the following is
only a brief summary of the general federal income tax rules, recipients of
Incentive Awards should not rely thereon for individual tax advice, as each
taxpayer's situation and the consequences of any particular transaction will
vary depending upon the specific facts and circumstances involved. Each taxpayer
is advised to consult with his or her own tax advisor for particular federal, as
well as state and local, income and any other tax advice.
Incentive Stock Options. Pursuant to the Incentive Plan, employees may be
granted options which are intended to qualify as ISOs under the provisions of
Section 422 of the Code. Generally, the optionee is not taxed and the Company is
not entitled to a deduction on the grant or the exercise of an ISO. However, if
the optionee sells the shares acquired upon the exercise of an ISO ("ISO
Shares") at any time within (a) one year after the date of transfer of ISO
Shares to the optionee pursuant to the exercise of such ISO or (b) two years
after the date of grant of such ISO, then (1) the optionee will recognize
capital gain equal to the excess, if any, of the sales price over the fair
market value of the ISO Shares on the date of exercise, (2) the optionee will
recognize ordinary income equal to the excess, if any, of the lesser of the
sales price or the fair market value of the ISO Shares on the date of exercise,
over the exercise price of such ISO, (3) the optionee will recognize capital
loss equal to the excess, if any, of the exercise price of such ISO over the
sales price of the ISO Shares, and (4) the Company will generally be entitled to
a deduction equal to the amount of ordinary income recognized by the optionee.
If the optionee sells the ISO Shares at any time after the optionee has held the
ISO Shares for at least (i) one year after the date of transfer of the ISO
Shares to the optionee pursuant to the exercise of the ISO and (ii) two years
after the date of grant of the ISO, then the optionee will recognize capital
gain or loss equal to the difference between the sales price and the exercise
price of such ISO, and the Company will not be entitled to any deduction.
The amount by which the fair market value of the ISO Shares received upon
exercise of an ISO exceeds the exercise price will be included as a positive
adjustment in the calculation of an optionee's "alternative minimum taxable
income" ("AMTI") in the year of exercise. The "alternative minimum tax" imposed
on individual taxpayers is generally equal to the amount by which 28% (26% of
AMTI below certain amounts) of the individual's AMTI (reduced by certain
exemption amounts) exceeds his or her regular income tax liability for the year.
Nonqualified Options. The grant of an option or other similar right to
acquire stock which does not qualify for treatment as an ISO (a "Nonqualified
Option") is generally not a taxable event for the optionee. Upon exercise of the
option, the optionee will generally recognize ordinary income in an amount equal
to the excess of the fair market value of the stock acquired upon exercise
(determined as of the date of the exercise) over the exercise price of such
option, and the Company will be entitled to a tax deduction equal to such
amount. See "Special Rules for Incentive Awards Granted to Insiders," below.
Special Rules for Incentive Awards Granted to Insiders. If an optionee is
a director, officer or shareholder subject to Section 16 of the Securities
Exchange Act of 1934 (an "Insider") and exercises an option within six months of
the date of grant, the timing of the recognition of any ordinary income should
be deferred until (and the amount of ordinary income should be determined based
on the fair market value (or sales price in the case of a disposition) of the
shares of Common Stock upon) the earlier of the following two dates (the "16(b)
Date"): (i) six months after the date of grant or (ii) a disposition of the
shares of Common
29
<PAGE> 33
Stock, unless the Insider makes an election under Section 83(b) of the Code (an
"83(b) Election") within 30 days after exercise to recognize ordinary income
based on the value of the Common Stock on the date of exercise. In addition,
special rules apply to an Insider who exercises an option having an exercise
price greater than the fair market value of the underlying shares on the date of
exercise. Insiders should consult their tax advisors to determine the tax
consequences to them of exercising options granted to them pursuant to the
Incentive Plan.
Restricted Stock. Incentive Awards under the Incentive Plan may also
include the grant of Restricted Stock. Unless the recipient makes an 83(b)
Election as discussed above within 30 days after the receipt of the Restricted
Stock, the recipient generally will not be taxed on the receipt of Restricted
Stock until the restrictions on such stock expire or are removed. When the
restrictions expire or are removed, the recipient will recognize ordinary income
(and the Company will be entitled to a deduction) in an amount equal to the
excess of the fair market value of the stock at that time over the purchase
price. However, if the recipient makes an 83(b) Election within 30 days of the
receipt of Restricted Stock, he or she will recognize ordinary income (and the
Company will be entitled to a deduction) equal to the excess of the fair market
value of the stock on the date of receipt (determined without regard to vesting
restrictions) over the purchase price. In the case of an Insider (as defined
above), the timing of income recognition (including the date used to compute the
fair market value of stock) with respect to Restricted Stock may be deferred
until the 16(b) Date, as described in "Special Rules for Incentive Awards
Granted to Insiders" above, unless the Insider makes a valid 83(b) Election.
Stock Appreciation Rights. Recipients of SARs generally do not recognize
income upon the grant of such rights. When a participant elects to receive
payment of an SAR, the participant recognizes ordinary income in an amount equal
to the cash and fair market value of shares of Common Stock received, and the
Company is entitled to a deduction equal to such amount.
Performance Awards, Dividends, and Dividend Equivalents. A payment made
under a Performance Award (e.g., stock and cash bonuses), dividends, and
dividend equivalent payments are taxable as ordinary income when actually or
constructively received by the recipient. As to any Performance Award paid in
Common Stock, the amount taxable as ordinary income is the aggregate fair market
value of the Common Stock determined as of the date received. The Company is
entitled to deduct the amount of a Performance Award, dividends, and dividend
equivalent payments when such amounts are taxable as compensation to the
recipient.
Miscellaneous Tax Issues. Incentive Awards may be granted under the
Incentive Plan which do not fall clearly into the categories described above.
The federal income tax treatment of these Incentive Awards will depend upon the
specific terms of such awards. Generally, the Company will be required to make
arrangements for withholding applicable taxes with respect to any ordinary
income recognized by a participant in connection with Incentive Awards made
under the Incentive Plan.
With certain exceptions, an individual may not deduct investment-related
interest to the extent such interest exceeds the individual's net investment
income for the year. Investment interest generally includes interest paid on
indebtedness incurred to purchase shares of Common Stock. Interest disallowed
under this rule may be carried forward to and deducted in later years, subject
to the same limitations.
A holder's tax basis in Common Stock acquired pursuant to the Incentive
Plan generally will equal the amount paid for the Common Stock plus any amount
recognized as ordinary income with respect to such stock. Other than ordinary
income recognized with respect to the Common Stock and included in basis, any
subsequent gain or loss upon the disposition of such stock generally will be
capital gain or loss (long-term or short-term, depending on the holder's holding
period).
Special rules will apply in cases where a recipient of an Incentive Award
pays the exercise or purchase price of the Incentive Award or applicable
withholding tax obligations under the Incentive Plan by delivering previously
owned shares of Common Stock or by reducing the amount of shares otherwise
issuable pursuant to
30
<PAGE> 34
the Incentive Award. The surrender or withholding of such shares will in certain
circumstances result in the recognition of income with respect to such shares or
a carryover basis in the shares acquired.
The terms of the agreements pursuant to which specific Incentive Awards are
made to employees under the Incentive Plan may provide for accelerated vesting
or payment of an Incentive Award in connection with a change in ownership or
control of the Company. In that event and depending upon the individual
circumstances of the recipient, certain amounts with respect to such awards may
constitute "excess parachute payments" under the "golden parachute" provisions
of the Code. Pursuant to these provisions, a recipient will be subject to a 20%
excise tax on any "excess parachute payments" and the Company will be denied any
deduction with respect to such payment. Recipients of Incentive Awards should
consult their tax advisors as to whether accelerated vesting of an Incentive
Award in connection with a change of ownership or control of the Company would
give rise to an excess parachute payment.
The Company generally obtains a deduction equal to the ordinary income
recognized by the recipient of an Incentive Award. The Company's deduction for
such amounts (including amounts attributable to the ordinary income recognized
with respect to options, Restricted Stock, SARs, and Performance Awards) may be
limited under Code Section 162(m) to $1 million (per person) annually. The $1
million annual limit generally only applies to non-performance based
compensation paid to the Company's CEO and its other four most highly
compensated officers.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting of Stockholders and
entitled to vote is required for approval of the proposed amendment and
restatement of the Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSED
AMENDMENT AND RESTATEMENT OF THE 1989 INCENTIVE COMPENSATION PLAN.
APPROVAL OF THE AMENDMENT TO THE
1989 NONEMPLOYEE DIRECTOR STOCK PLAN
PROPOSAL 3
GENERAL
The Company's Board of Directors has approved an amendment to the Company's
1989 Nonemployee Director Stock Plan ("Director Plan"), subject to approval by
the Company's stockholders. The Director Plan was adopted in 1989 and was
amended with stockholder approval in 1994. The proposed amendment will increase
the number of shares of restricted stock which will be awarded to each
nonemployee director upon initial election or appointment as well as upon each
subsequent re-election and will change the number of shares of stock which will
vest as of the date of each subsequent regular meeting of stockholders at which
any directors are to be elected.
Currently, the Director Plan provides for an award to each nonemployee
director upon initial election or appointment as well as upon each subsequent
re-election of 500 shares multiplied by the number of years, including any
partial year as a full year for this purpose, of the applicable term of office
to be served. Grants of restricted stock made on and after such annual meeting
vest in equal installments of 500 shares as of the date of each subsequent
regular annual meeting of stockholders at which any directors are to be elected.
The proposed amendment, if approved, will implement the following changes: (i)
increase the number of shares of restricted stock which will be awarded to each
nonemployee director upon initial election or appointment as well as upon each
subsequent re-election to 600 shares multiplied by the number of years,
including any partial year as a full year for this purpose, of the applicable
term of office to be served; and (ii) modify the vesting schedule to provide
that grants of restricted stock made on and after such annual meeting will vest
in equal
31
<PAGE> 35
installments of 600 shares as of the date of each subsequent regular Annual
Meeting of Stockholders at which any directors are to be elected.
The primary purpose of the proposed amendments to the Director Plan is to
increase the number of shares included in the automatic grants to nonemployee
directors in order to keep the total package of nonemployee director
compensation competitive with comparable publicly-traded companies.
A description of the principal features of the Director Plan, as proposed
to be amended, is set forth below.
PURPOSE AND ELIGIBILITY
The purpose of the Director Plan is to enable the Company to attract and
retain the services of experienced and knowledgeable nonemployee directors and
to align further their interests with those of the stockholders of the Company
by providing for or increasing the proprietary interests of the nonemployee
directors in the Company.
Only members of the Board of Directors of the Company who are not employees
of the Company or of a parent or subsidiary corporation of the Company are
eligible to receive awards under the Director Plan. The Company currently has
ten nonemployee directors.
ADMINISTRATION, AMENDMENT AND TERMINATION
The Director Plan is administered by the Board of Directors ("Board"). The
Board, in its absolute discretion, may at any time and from time to time
delegate to a committee of three or more persons appointed by the Board, all or
any part of the authority, powers and discretion of the Board under the Director
Plan.
The Board may at any time amend, suspend, or terminate the Director Plan,
provided that (i) no such action shall deprive the holder of a restricted stock
award under the Director Plan of such award without the consent of such holder;
(ii) the nondiscretionary manner in which restricted stock awards are made to
nonemployee directors under the Director Plan shall not be modified or amended
(provided that the number of shares to be included in each automatic grant may
be changed with approval of the stockholders); and (iii) stockholder approval is
required for certain modifications including modifications to increase the
maximum number of shares authorized under the Director Plan, to accelerate
certain vesting schedules, to extend the duration of the Director Plan, to
materially modify the eligibility requirements, or to materially increase the
benefits accruing to recipients of awards under the Director Plan. Unless
previously terminated, as to authority to grant new awards, the Director Plan
shall terminate on December 31, 1999.
RESTRICTED STOCK AWARDS
Under the Director Plan, as proposed to be amended, upon election,
re-election or appointment of a nonemployee director to the Board, such
nonemployee director shall automatically be granted an award consisting of 600
shares of restricted stock multiplied by the number of years, including any
partial year as a full year, which remain in the term of the person so elected,
re-elected or appointed.
Participants under the Director Plan are not required to pay any purchase
price for the shares of Common Stock to be acquired pursuant to a restricted
stock award, unless otherwise required under applicable law or regulations.
Recipients of restricted stock are entitled to vote and to receive dividends on
the shares subject to the award from the original date through the vesting date
(at which time the recipient receives unrestricted ownership of the shares).
The shares awarded under the Director Plan are subject to: restrictions on
transferability; a vesting schedule; and a requirement that the certificates
representing such shares must contain a restrictive legend. The Director Plan,
as proposed to be amended, provides that, as of the date of each annual meeting
of stockholders following the date of a restricted stock award, the vesting
restrictions shall lapse and be removed with respect to 600 of the shares
covered by such restricted stock award. In the event that a recipient of a
restricted stock award under the Director Plan ceases to be a director for any
reason other than death or total
32
<PAGE> 36
disability, all unvested shares acquired under the Director Plan by such
recipient shall be returned to the Company. If a recipient of a restricted stock
award under the Director Plan ceases to be a director because of death or total
disability, the vesting restrictions shall lapse and be removed with respect to
all shares acquired by such recipient under restricted stock awards pursuant to
the Director Plan. In the event of a "change in control" the vesting
restrictions shall lapse and be removed with respect to all shares acquired
under restricted stock awards pursuant to the Director Plan. A "change in
control" for this purpose occurs if: (i) any person or group becomes the
beneficial owner of 50% or more of the Company's outstanding voting securities;
(ii) a change occurs in the majority of the incumbent directors (except for
changes approved by such members); (iii) a merger or other business combination
involving the Company is approved by stockholders (other than a merger or other
transaction in which (A) the Company's stockholders immediately prior to such
transaction would continue to own 50% or more of the outstanding voting
securities of the Company or successor after the transaction is consummated and
(B) no person or group becomes a 50% or more beneficial owner of Company voting
securities); or (iv) a plan of complete liquidation or the sale of all or
substantially all of the Company's assets is approved by stockholders.
SECURITIES SUBJECT TO DIRECTOR PLAN
The shares of Common Stock to be delivered under the Director Plan shall be
made available, at the discretion of the Board, either from authorized but
unissued shares of Common Stock or from shares of Common Stock held by the
Company as treasury shares, including shares purchased in the open market. Under
the Director Plan, the total number of shares of Common Stock which may be
issued or transferred pursuant to an award of restricted stock under the
Director Plan shall not exceed 50,000 shares. In addition, if, on or before
termination of the Director Plan, any shares of Common Stock subject to an award
of restricted stock shall not be issued or transferred and shall cease to be
issuable or transferable for any reason, or if such shares shall have been
reacquired by the Company pursuant to the restrictions imposed on such shares,
the shares not so issued or transferred and shares so reacquired shall no longer
be charged against such 50,000 share limit.
The maximum number of shares issuable under the Director Plan, the number
of shares to be included in each grant of restricted stock under the Director
Plan, the number and kind of shares then subject to restrictions, and the
repurchase price, if any, for each share of Common Stock subject to
restrictions, will be appropriately and proportionately adjusted to reflect
mergers, consolidations, sales or exchanges of all or substantially all of the
properties of the Company, reorganizations, recapitalizations,
reclassifications, stock dividends, stock splits, reverse stock splits,
spin-offs or other distributions with respect to such shares of Common Stock (or
any stock or securities received with respect to such Common Stock).
On February 13, 1996, the market price of the Company's Common Stock was
$37.00 per share.
FEDERAL INCOME TAX CONSEQUENCES
Under existing federal income tax provisions, a director who receives
shares of restricted stock under the Director Plan which are subject to
restrictions which create a "substantial risk of forfeiture" (within the meaning
of Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"))
will not normally realize any income, nor will the Company normally receive any
deduction for federal income tax purposes, in the year of the grant or award.
Such director will normally realize taxable income on the date the shares become
transferable or no longer subject to substantial risk of forfeiture or on the
date of their earlier disposition. The amount of such taxable income will be
equal to the amount by which the fair market value of the shares of Common Stock
on the date of such restrictions lapse (or the earlier date on which the shares
become transferable or are disposed of) exceeds their purchase price, if any. A
director may elect, however, to include in income in the year of grant the
excess of the fair market value of the shares of Common Stock (without regard to
any restrictions) on the date of grant. If this election is made, the director
will ordinarily not be entitled to recognize any loss thereafter attributable to
the shares as a result of forfeiture. This summary does not purport to be a
complete statement of the law and does not cover tax consequences under foreign,
33
<PAGE> 37
state or local laws. In addition, unless an insider makes a valid election under
Section 83(b) of the Code, special rules may apply to insiders under Section
16(b) of the Securities Exchange Act of 1934.
The table below summarizes certain information with respect to restricted
stock awards under the Director Plan:
NEW PLAN BENEFITS
ALLERGAN 1989 NONEMPLOYEE DIRECTOR STOCK PLAN
<TABLE>
<CAPTION>
DOLLAR VALUE AT
NAME 12/31/95 NUMBER OF SHARES
---- --------------- ----------------
<S> <C> <C>
Nonemployee Directors Scheduled to Receive Grants in
1996.................................................. $117,000(1) 3,600(2)
</TABLE>
- ---------------
(1) Based on the closing price of $32.50 on the New York Stock Exchange of the
Company's Common Stock on December 31, 1995.
(2) Represents only the aggregate number of restricted shares which will
automatically be awarded under the Director Plan to the two nonemployee
directors who are Class I nominees for election at the 1996 Annual Meeting
of Stockholders.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting of Stockholders and
entitled to vote is required for approval of the amendments to the Director
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE PROPOSED AMENDMENTS TO THE 1989 NONEMPLOYEE DIRECTOR STOCK PLAN.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, independent auditors, audited the consolidated
financial statements of the Company for the fiscal year ended December 31, 1995.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
stockholders' meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
Independent public accountants for the fiscal year ending December 31, 1996 will
be selected by the Board of Directors after a review and recommendation to the
Board by the Audit Committee.
ANNUAL REPORT
The Annual Report to Shareholders, including consolidated financial
statements for the year ended December 31, 1995, accompanies the proxy material
being mailed to all stockholders. The Annual Report is not a part of the proxy
solicitation material.
DEADLINE FOR STOCKHOLDER PROPOSALS
Any stockholder of the Company wishing to have a proposal considered for
inclusion in the Company's 1997 proxy solicitation materials must, in addition
to other applicable requirements, set forth such proposal in writing and send
the proposal to the Secretary of the Company so that it is received on or before
November 15, 1996.
34
<PAGE> 38
OTHER BUSINESS
PRESENTED BY MANAGEMENT
As of the date of this Proxy Statement, management knows of no other
matters to be brought before the stockholders at the Annual Meeting. Should any
other matters properly come before the meeting, action may be taken thereon
pursuant to the proxies in the form enclosed, which confer discretionary
authority on the persons named therein or their substitutes with respect to such
matters.
PRESENTED BY STOCKHOLDERS
Pursuant to the Company's Restated Certificate of Incorporation only such
business shall be conducted at an annual meeting of stockholders as is properly
brought before the meeting. For business to be properly brought before an annual
meeting by a stockholder, in addition to any other applicable requirements,
timely notice of the matter must be first given to the Secretary of the Company.
To be timely, written notice must be received by the Secretary no less than 30
days nor more than 60 days prior to the meeting. If less than 40 days' notice or
prior public disclosure of the meeting has been given to stockholders, then
notice of the proposed business matter must be received by the Secretary not
later than ten days after the mailing of notice of the meeting or such public
disclosure. Any notice to the Secretary must include as to each matter the
stockholder proposes to bring before the meeting: (a) a brief description of the
proposal desired to be brought before the meeting and the reason for conducting
such business at the annual meeting; (b) the name and record address of the
stockholder proposing such business and any other stockholders known by such
stockholder to be supporting such proposal; (c) the class and number of shares
of the Company which are beneficially owned by the stockholder on the date of
such stockholder notice and by other stockholders known by such stockholder to
be supporting such proposal on the date of such stockholder notice; and (d) any
material interest of the stockholder in such business.
By Order of the Board of Directors
[SIG]
Francis R. Tunney, Jr.
Secretary
March 18, 1996
Irvine, California
35
<PAGE> 39
EXHIBIT A
ALLERGAN, INC.
1989 INCENTIVE COMPENSATION PLAN
(AS AMENDED AND RESTATED)
I. GENERAL PROVISIONS
1.1 PURPOSES OF THE PLAN
Allergan, Inc. ("Allergan") has adopted this 1989 Incentive Compensation
Plan (the "Plan") to advance the interests of Allergan and its stockholders by
affording to key management and other Employees of Allergan and its subsidiaries
an opportunity to acquire or increase a proprietary interest in the Company or
to otherwise benefit from the success of the Company through the grant to such
Employees of Incentive Awards under the terms and conditions set forth herein.
By thus encouraging such Employees to become owners of Allergan's shares and by
granting such Employees other incentive compensation that is measured by the
increased market value of Allergan's shares or another appropriate measure of
the success and profitability of the Company, the Company seeks to attract,
retain and motivate those highly competent individuals upon whose judgment,
initiative, leadership and continued efforts the success of the Company in large
measure depends.
1.2 DEFINITIONS
As used herein the following terms shall have the meanings set forth below:
(a) "Allergan" means Allergan, Inc., a Delaware corporation, or any
successor thereto.
(b) "Board" means the Board of Directors of Allergan.
(c) "Cause" means, with respect to the discharge by the Company of any
Participant, any conduct that under Company policies as set forth from time to
time in the Allergan Supervisors Manual (or any successor thereto) would be
considered to constitute "serious misconduct" that would justify immediate
termination without benefit of a counseling review or severance pay.
(d) "Change in Control" means the following and shall be deemed to occur if
any of the following events occur:
(i) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
Allergan representing 50% or more of the combined voting power of
Allergan's then outstanding voting securities;
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board"), cease for any reason to constitute at least a majority
of the Board, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by Allergan's
stockholders, is approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election of the
directors of Allergan, as such terms are used Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall, for the purposes of this Plan,
be considered as though such person were a member of the Incumbent Board;
(iii) The stockholders of Allergan approve a merger or consolidation
with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of Allergan outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of another entity) more than 50% of the combined
voting
A-1
<PAGE> 40
power of the voting securities of Allergan or such other entity
outstanding immediately after such merger or consolidation, and
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person acquires 50% or more of the combined voting power of Allergan's
then outstanding voting securities; or
(iv) The stockholders of Allergan approve a plan of complete
liquidation of the Company or an agreement for the sale or other
disposition by the Company of all or substantially all of the Company's
assets.
Notwithstanding the preceding provisions of this Paragraph (d), a Change in
Control shall not be deemed to have occurred (1) if the "person" described in
the preceding provisions of this Paragraph is an underwriter or underwriting
syndicate that has acquired the ownership of 50% or more of the combined voting
power of Allergan's then outstanding voting securities solely in connection with
a public offering of Allergan's securities or (2) if the "person" described in
the preceding provisions of this Paragraph is an employee stock ownership plan
or other employee benefit plan maintained by the Company that is qualified under
the provisions of the Employee Retirement Income Security Act of 1974, as
amended.
(e) "Code" means the Internal Revenue Code of 1986, as amended. Where the
context so requires, a reference to a particular Code section shall also refer
to any successor provision of the Code to such section.
(f) "Committee" means the committee appointed by the Board to administer
the Plan. The Committee shall be composed entirely of members who meet the
requirements of Section 1.4(a) hereof.
(g) "Common Stock" means the common stock of Allergan, $0.01 par value.
(h) "Company" means Allergan and any present or future parent or subsidiary
corporations (as defined in Section 425 of the Code) with respect to Allergan,
or any successors to such corporations.
(i) "Dividend Equivalent" means an amount payable in cash, Common Stock or
a combination thereof to a holder of a Stock Option, Stock Appreciation Right or
other Incentive Award denominated in shares of Common Stock that is equivalent
to the amount of dividends paid to stockholders with respect to a number of
shares of Common Stock equal to the number of shares upon which such Incentive
Award is based.
(j) "Employee" means any regular, full-time employee of the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
Where the context so requires, a reference to a particular section of the
Exchange Act shall also refer to any successor provision to such section.
(l) "Fair Market Value" means the fair market value of a share of Common
Stock as determined by the Committee on the basis of such factors as it may deem
appropriate.
(m) "Incentive Award" means any Stock Option, Restricted Stock, Stock
Appreciation Right, Stock Payment, Performance Award or other award granted or
sold under the Plan.
(n) "Incentive Stock Option" means an incentive stock option, as defined
under Section 422 of the Code and the regulations thereunder.
(o) "Nonqualified Stock Option" means a stock option other than an
Incentive Stock Option.
(p) "Option" or "Stock Option" means a right to purchase Common Stock and
refers to both Incentive Stock Options and Nonqualified Stock Options.
(q) "Participant" means any Employee selected by the Committee to receive
an Incentive Award pursuant to this Plan.
(r) "Payment Event" means the event or events giving rise to the right to
payment of a Performance Award.
A-2
<PAGE> 41
(s) "Performance Award" means an award, payable in cash, Common Stock or a
combination thereof, the terms and conditions of which may be determined by the
Committee at the time the Performance Award is granted.
(t) "Plan" means the Allergan, Inc. 1989 Incentive Compensation Plan as set
forth herein, as amended from time to time.
(u) "Purchase Price" means the purchase price (if any) to be paid by a
Participant for Restricted Stock as determined by the Committee (which price
shall be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).
(v) "Restricted Stock" means Common Stock which is the subject of an
Incentive Award under this Plan and which is nontransferable and subject to a
substantial risk of forfeiture until specific conditions are met as set forth in
this Plan and in any statement evidencing the grant of such Incentive Award.
(w) "Securities Act" means the Securities Act of 1933, as amended.
(x) "Stock Appreciation Right" or "Right" means a right granted pursuant to
Section VI of the Plan to receive a number of shares of Common Stock or, in the
discretion of the Committee, an amount of cash or a combination of shares and
cash, based on the increase in the Fair Market Value of the shares subject to
the right during such period as is specified by the Committee.
(y) "Stock Payment" means a payment in shares of the Company's Common Stock
to replace all or any portion of the compensation (other than base salary) that
would otherwise become payable to any Employee of the Company.
1.3 SHARES OF COMMON STOCK SUBJECT TO THE PLAN
(a) Subject to the provisions of Section 1.3(c) and Section 8.1 of the
Plan, the maximum number of shares of Common Stock that may be issued pursuant
to Incentive Awards under the Plan shall be:
(i) During the period commencing with the inception of the Plan
through February 29, 1992 (the "Transition Date"), the aggregate number of
shares that may be issued pursuant to or issuable upon exercise of
Incentive Awards granted prior to the Transition Date shall be 5,000,000
shares.
(ii) After the Transition Date, the aggregate number of shares that
may be issued pursuant to or issuable upon exercise of Incentive Awards
granted during any calendar year shall be up to 1.5% of the Outstanding
Shares (as defined below) plus (A) with respect to calendar years 1993 and
thereafter, any unused shares available under this Section 1.3(a)(ii) from
prior years and (B) any shares issued or issuable under Incentive Awards
granted after the Transition Date which by virtue of Section 1.3(c) below
again become available for the grant of further Incentive Awards.
(For purposes of Section 1.3(a)(ii) above, the term "Outstanding Shares" means
the number of shares of Common Stock outstanding on December 31 of the year
preceding the year for which the calculation is to be made; provided that, for
purposes of determining the maximum aggregate number of shares which may be
issued pursuant to or issuable upon exercise of Incentive Awards granted during
calendar 1992 after the Transition Date, "Outstanding Shares" shall mean the
number of shares of Common Stock outstanding on the Transition Date.)
(b) The Common Stock to be issued under this Plan will be made available,
at the discretion of the Board or the Committee, either from authorized but
unissued shares of Common Stock or from previously issued shares of Common Stock
reacquired by the Company, including shares purchased on the open market.
(c) Shares of Common Stock subject to unexercised portions of any Incentive
Award granted under this Plan that expire, terminate or are cancelled, and
shares of Common Stock issued pursuant to an Incentive Award under this Plan
that are reacquired by the Company pursuant to the terms of the Incentive Award
under which such shares were issued, will again become available for the grant
of further Incentive Awards under this Plan.
A-3
<PAGE> 42
(d) Notwithstanding Section 1.3(a) (ii) above, the maximum number of shares
issuable upon the exercise of Incentive Awards granted in the form of Incentive
Stock Options after the Transition Date shall be the lesser of the amount
determined pursuant to Section 1.3 (a) (ii) above and 5,000,000 shares,
(e) The maximum number of shares of Common Stock with respect to which
Stock Options may be granted to an executive officer in any given calendar year
is 200,000 Options per executive officer.
1.4 ADMINISTRATION OF THE PLAN
(a) The Plan will be administered by the Committee, which will consist of
three or more persons appointed by the Board (i) who are not eligible to receive
Incentive Awards under the Plan and (ii) who have not been eligible at any time
within one year before appointment to the Committee for selection as persons to
whom Incentive Awards may be granted pursuant to the Plan, or to whom shares may
be allocated, or stock options, stock appreciation rights or similar rights may
be granted, pursuant to any other discretionary plan of Allergan (or any
affiliate thereof, within the meaning of the Exchange Act and the regulations
thereunder) entitling the participants therein to acquire stock, stock options,
stock appreciation rights or similar rights of Allergan (or any affiliate
thereof, within the meaning of the Exchange Act and the regulations thereunder).
Notwithstanding anything contained herein, no person shall be disqualified from
being a member of the Committee merely because such person is entitled to
receive grants of restricted stock pursuant to the Allergan, Inc. 1989
Nonemployee Director Stock Plan or any successor thereto providing for the
automatic grant, without the intervention of any administrative discretion, of
stock options, restricted stock or other stock-based incentive compensation
awards.
(b) The Committee has and may exercise such powers and authority of the
Board as may be necessary or appropriate for the Committee to carry out its
functions as described in the Plan. The Committee has authority in its
discretion to select the eligible Employees to whom, and the time or times at
which, Incentive Awards shall be granted or sold, the nature of each Incentive
Award, the number of shares of Common Stock or the number of rights that make up
each Incentive Award, the period for the exercise of each Incentive Award, the
performance criteria (which need not be identical) utilized to measure the value
of Performance Awards and such other terms and conditions applicable to each
individual Incentive Award as the Committee shall determine. The Committee may
grant at any time new Incentive Awards to a Participant who has previously
received Incentive Awards or other grants (including other stock options)
whether such prior Incentive Awards or such other grants are still outstanding,
have previously been exercised in whole or in part, or are cancelled in
connection with the issuance of new Incentive Awards. The Committee may grant
Incentive Awards singly or in combination or in tandem with other Incentive
Awards as it determines in its discretion. The purchase price or initial value
and any and all other terms and conditions of the Incentive Awards may be
established by the Committee without regard to existing Incentive Awards or
other grants. Further, the Committee may, with the consent of a Participant,
amend in a manner consistent with the Plan the terms of any existing Incentive
Award previously granted to such Participant.
(c) Subject to the express provisions of the Plan, the Committee has the
authority to interpret the Plan, to determine the terms and conditions of
Incentive Awards and to make all other determinations necessary or advisable for
the administration of the Plan. The Committee has authority to prescribe, amend
and rescind rules and regulations relating to the Plan. All interpretations,
determinations and actions by the Committee shall be final, conclusive and
binding upon all parties. Any action of the Committee with respect to the
administration of the Plan shall be taken pursuant to a majority vote or by the
unanimous written consent of its members.
(d) No member of the Board or the Committee nor any designee thereof will
be liable for any action or determination made in good faith by the Board or the
Committee with respect to the Plan or any transaction arising under the Plan.
A-4
<PAGE> 43
1.5 PARTICIPATION
(a) All Employees who are key Employees of the Company, as determined by
the Committee, are eligible to receive Incentive Awards under the Plan. In no
event may any member of the Board who is not an Employee be granted an Incentive
Award under the Plan.
(b) At the time of the grant of each Incentive Award pursuant to this Plan,
the Committee shall deliver, or cause to be delivered, to the Participant to
whom the Incentive Award is granted a written statement evidencing the Incentive
Award and setting forth such terms and conditions applicable to the Incentive
Award as the Committee may in its discretion determine consistent with the Plan.
II. DIVIDEND EQUIVALENTS
A Participant may in the discretion of the Committee be granted, at no
additional cost, Dividend Equivalents based on the dividends declared on the
Common Stock on record dates during the period between the date an Incentive
Award is granted and the date such Incentive Award is exercised or such other
period as is determined by the Committee and specified in the instrument that
evidences the grant of the Incentive Award. Such Dividend Equivalents shall be
converted to additional shares or cash by such formula as may be determined by
the Committee.
Dividend Equivalents shall be computed as of each dividend record date in
such manner as may be determined by the Committee and shall be payable to
Participants at such time or time as the Committee in its discretion may
determine.
III. OPTIONS
3.1 OPTION PRICE
The purchase price of Common Stock under each Option (the "Option Exercise
Price") will be determined by the Committee at the date such Option is granted.
The Option Exercise Price may be less than the Fair Market Value on the date of
grant of the Common Stock subject to the Option; provided, however, that in no
event shall the Option Exercise Price be less than the par value of the shares
of Common Stock subject to the Option; and further provided that in the case of
an Incentive Stock Option the Option Exercise Price shall be not less than the
Fair Market Value on the date of grant of the Common Stock subject to such
Option or such other amount as is necessary to enable such Option to be treated
as an "incentive stock option" within the meaning of Code Section 422A.
3.2 OPTION PERIOD
Options may be exercised as determined by the Committee, but, in the case
of an Incentive Stock Option, in no event after ten years from the date of grant
of such Option or such other period as is necessary to enable such Option to be
treated as an "incentive stock option" within the meaning of Code Section 422A.
3.3 EXERCISE OF OPTIONS
At the time of the exercise of an Option, the purchase price shall be paid
in full in cash or other equivalent consideration acceptable to the Committee
and consistent with the Plan's purpose and applicable law, including without
limitation Common Stock or Restricted Stock or other contingent awards
denominated in either stock or cash. Any shares of Company Stock assigned and
delivered to the Company in payment or partial payment of the purchase price
will be valued at their Fair Market Value on the exercise date. No fractional
shares will be issued pursuant to the exercise of an Option nor will any cash
payment be made in lieu of fractional shares.
A-5
<PAGE> 44
3.4 LIMITATION ON EXERCISE OF INCENTIVE STOCK OPTIONS
The aggregate Fair Market Value (determined at the time the Option is
granted) with respect to which Incentive Stock Options are exercisable for the
first time by any Employee during any calendar year (under all stock option
plans of the Company) shall not exceed $100,000 or such other limit as is
prescribed by the Code. Any Options granted as Incentive Stock Options pursuant
to the Plan in excess of such limitation shall be treated as Nonqualified Stock
Options.
3.5 TERMINATION OF EMPLOYMENT
(a) Except as otherwise provided in a written agreement between the Company
and the Participant, in the event of the termination of a Participant's
employment with the Company for Cause, all of the Participant's unexercised
Options and/or Rights shall expire as of the date of such termination.
(b) Except as otherwise provided in a written agreement between the Company
and the Participant, in the event of a Participant's termination of employment
for:
(i) Any reason other than for Cause, death, disability, or normal
retirement (as defined in the instrument evidencing the grant of the
Option), the Participant's Options and/or Rights shall expire and become
unexercisable as of the earlier of (A) the date such Options and/or Rights
expire in accordance with their terms or (B) three calendar months after
the date of termination.
(ii) Death or disability, subject to the provisions of Paragraph (c)
below, the Participant shall have twelve (12) months after the date of
termination within which to exercise Options and/or Rights that have become
exercisable on or before such date and that have not expired on or before
such date, regardless of the date upon which such Options or Rights would
otherwise expire in accordance with their terms.
(iii) Normal retirement, the Participant's Options and/or Rights shall
expire and become unexercisable as of the earlier of (A) the date such
Options and/or Rights expire in accordance with their terms or (B) three
(3) years after the date of termination.
(c) Notwithstanding anything to the contrary in Paragraphs (a) or (b)
above, the Committee may in its discretion designate such shorter or longer
periods to exercise Options and/or Rights following a Participant's termination
of employment; provided, however, that any shorter periods determined by the
Committee shall be effective only if provided for in the instrument that
evidences the grant to the Participant of such Options and/or Rights or if such
shorter period is agreed to in writing by the Participant. In the case of an
Incentive Stock Option, notwithstanding anything to the contrary herein, in no
event shall such Option be exercisable after the expiration of ten years from
the date such Option is granted (or such other period as is provided in Code
Section 422A). Notwithstanding anything to the contrary herein, Options and/or
Rights shall be exercisable by a Participant (or his successor in interest)
following such Participant's termination of employment only to the extent that
installments thereof had become exercisable on or prior to the date of such
termination; provided, however, that the Committee, in its discretion, may elect
to accelerate the vesting of all or any portion of any Options and/or Rights
that had not become exercisable on or prior to the date of such termination.
3.6 GRANT OF OPTIONS IN SUBSTITUTION FOR SMITHKLINE BECKMAN CORPORATION OPTIONS
In accordance with the provisions of Section 7.05 of that certain
Distribution Agreement dated as of April 11, 1989, among SmithKline Beckman
Corporation ("SKB"), Allergan and Beckman Instruments, Inc. (the "Distribution
Agreement") and notwithstanding anything to the contrary in this Plan, in the
event that as of the Distribution Date (as defined in the Distribution
Agreement) an Employee (or other person described in Section 7.05(b) of the
Distribution Agreement) shall hold an outstanding option granted under any
employee stock option plan of SKB (an "SKB Option") there shall be granted to
such Employee (or other person) pursuant to this Plan, in substitution for such
SKB Option, an Option to purchase Common Stock (a
A-6
<PAGE> 45
"Substitute Option"). The number of shares subject to such Substitute Option,
the Option Exercise Price of such Substitute Option and the other terms and
conditions of such Substitute Option shall be determined by the Committee in
accordance with Section 425(a) of the Code or any other reasonably comparable
method designed to preserve the gain in the SKB Option at the time of the
substitution.
IV. PERFORMANCE AWARDS
4.1 GRANT OF PERFORMANCE AWARDS
The Committee shall determine the performance criteria (which need not be
identical) to be utilized to calculate the value of the Performance Awards, the
term of such Performance Awards, the Payment Event, and the form and time of
payment of Performance Awards. The specific terms and conditions of each
Performance Award shall be set forth in a written statement evidencing the grant
of such Performance Award.
4.2 PAYMENT OF AWARD; LIMITATION
Upon the occurrence of a Payment Event, payment of a Performance Award will
be made to the Participant in cash or in shares of Common Stock valued at Fair
Market Value on the date of the Payment Event or a combination of Common Stock
and cash, as the Committee in its discretion may determine. The Committee may
impose a limitation on the amount payable upon the occurrence of a Payment
Event, which limitation shall be set forth in the written statement evidencing
the grant of the Performance Award.
4.3 EXPIRATION OF PERFORMANCE AWARD
If any Participant's employment with the Company is terminated for any
reason other than normal retirement (as defined in the instrument evidencing the
grant of the Performance Award), death, or disability prior to the occurrence of
the Payment Event, all of the Participant's rights under the Performance Award
shall expire and terminate unless otherwise determined by the Committee. In the
event of termination of employment by reason of death, disability or normal
retirement, the Committee, in its discretion, may determine what portions, if
any, of the Performance Award should be paid to the Participant.
V. RESTRICTED STOCK
5.1 AWARD OF RESTRICTED STOCK
The Committee may grant awards of Restricted Stock to Employees. The
Committee shall determine the Purchase Price (if any), the terms of payment of
the Purchase Price, the restrictions upon the Restricted Stock, and when such
restrictions shall lapse. The terms and conditions of the Restricted Stock shall
be set forth in the statement evidencing the grant of such award of Restricted
Stock.
5.2 REQUIREMENTS OF RESTRICTED STOCK
All shares of Restricted Stock granted or sold, pursuant to the Plan will
be subject to the following conditions:
(a) The shares may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, alienated or encumbered until the
restrictions are removed or expire;
(b) The Committee may require that the certificates representing Restricted
Stock granted or sold to a Participant pursuant to the Plan remain in the
physical custody of an escrow holder or the Company until all restrictions are
removed or expire;
(c) Each certificate representing Restricted Stock granted or sold to a
Participant pursuant to the Plan will bear such legend or legends making
reference to the restrictions imposed upon such Restricted Stock as the
Committee in its discretion deems necessary or appropriate to enforce such
restrictions; and
(d) The Committee may impose such other conditions on Restricted Stock as
the Committee may deem advisable including, without limitation, restrictions
under the Securities Act, under the Exchange Act, under
A-7
<PAGE> 46
the requirements of any stock exchange upon which such Restricted Stock or
shares of the same class are then listed and under any blue sky or other
securities laws applicable to such shares.
5.3 LAPSE OF RESTRICTIONS
The restrictions imposed upon Restricted Stock pursuant to Section 5.2
above will lapse in accordance with such schedule or other conditions as are
determined by the Committee and set forth in the statement evidencing the grant
or sale of the Restricted Stock.
5.4 RIGHTS OF PARTICIPANT
Subject to the provisions of Section 5.2 or restrictions imposed pursuant
to Section 5.2, the Participant will have all rights of a stockholder with
respect to the Restricted Stock granted or sold to such Participant under the
Plan, including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
5.5 TERMINATION OF EMPLOYMENT
Unless the Committee in its discretion determines otherwise, upon a
Participant's termination of employment for any reason, all of the Participant's
Restricted Stock remaining subject to restrictions imposed pursuant to this Plan
on the date of such termination of employment shall be repurchased by the
Company at the Purchase Price (if any).
VI. STOCK APPRECIATION RIGHTS
6.1 GRANTING OF STOCK APPRECIATION RIGHTS
The Committee may approve the grant to eligible Employees of Stock
Appreciation Rights related or unrelated to Options, at any time.
(a) A Stock Appreciation Right granted in connection with an Option granted
under this Plan will entitle the holder of the related Option, upon exercise of
the Stock Appreciation Right, to surrender such Option, or any portion thereof
to the extent unexercised, with respect to the number of shares as to which such
Stock Appreciation Right is exercised, and to receive payment of an amount
computed pursuant to Section 6.1(c). Such Option will, to the extent
surrendered, then cease to be exercisable.
(b) Subject to Section 6.1(g), a Stock Appreciation Right granted in
connection with an Option hereunder will be exercisable at such time or times,
and only to the extent that, the related Option is exercisable, and will not be
transferable except to the extent that such related Option may be transferable.
(c) Upon the exercise of a Stock Appreciation Right related to an Option,
the Holder will be entitled to receive payment of an amount determined by
multiplying: (i) the difference obtained by subtracting the Option Exercise
Price of a share of Common Stock specified in the related Option from the Fair
Market Value of a share of Common Stock on the date of exercise of such Stock
Appreciation Right (or as of such other date or as of the occurrence of such
event as may have been specified in the instrument evidencing the grant of the
Stock Appreciation Right), by (ii) the number of shares as to which such Stock
Appreciation Right is exercised.
(d) The Committee may grant Stock Appreciation Rights unrelated to Options
to eligible Employees. Section 6.1(c) shall be used to determine the amount
payable at exercise under such Stock Appreciation Right, except that in lieu of
the Option Exercise Price specified in the related Option the initial base
amount specified in the Incentive Award shall be used.
(e) Notwithstanding the foregoing, the Committee, in its discretion, may
place a dollar limitation on the maximum amount that will be payable upon the
exercise of a Stock Appreciation Right under the Plan.
A-8
<PAGE> 47
(f) Payment of the amount determined under the foregoing provisions of this
Section 6.2 may be made solely in whole shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Stock Appreciation Right or,
alternatively, at the sole discretion of the Committee, in cash or in a
combination of cash and shares of Common Stock as the Committee deems advisable.
The Committee is hereby vested with full discretion to determine the form in
which payment of a Stock Appreciation Right will be made and to consent to or
disapprove the election of a Participant to receive cash in full or partial
settlement of a Stock Appreciation Right. If the Committee decides to make full
payment in shares of Common Stock, and the amount payable results in a
fractional share, payment for the fractional share will be made in cash.
(g) The Committee may, at the time a Stock Appreciation Right is granted,
impose such conditions on the exercise of the Stock Appreciation Right as may be
required to satisfy the requirements of Rule 16b-3 under the Exchange Act (or
any other comparable provisions in effect at the time or times in question).
6.2 TERMINATION OF EMPLOYMENT
Section 3.5 will govern the treatment of Stock Appreciation Rights upon the
termination of a Participant's employment with the Company.
VII. STOCK PAYMENTS
The Committee may approve Stock Payments of the Company's Common Stock to
any Employee of the Company for all or any portion of the compensation (other
than base salary) that would otherwise become payable to an Employee in cash.
VIII. OTHER PROVISIONS
8.1 ADJUSTMENT PROVISIONS
(a) Subject to Section 8.1(b) below, (i) if the outstanding shares of
Common Stock of the Company are increased, decreased or exchanged for a
different number or kind of shares or other securities, or if additional shares
or new or different shares or other securities are distributed in respect of
such shares of Common Stock (or any stock or securities received with respect to
such Common Stock), through merger, consolidation, sale or exchange of all or
substantially all of the properties of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, spin-off or other distribution with respect to such shares of Common
Stock (or any stock or securities received with respect to such Common Stock),
or (ii) if the value of the outstanding shares of Common Stock of the Company is
reduced by reason of an extraordinary cash dividend, an appropriate and
proportionate adjustment may be made in (x) the maximum number and kind of
shares provided in Section 1.3 (including the maximum amounts referred to in
Section 1.3(d) and (e)), (y) the number and kind of shares or other securities
subject to then outstanding Incentive Awards, and (z) the price for each share
or other unit of any other securities subject to then outstanding Incentive
Awards. Adjustments under this Section 8.1(a) will be made by the Committee,
whose determination as to what adjustments will be made and the extent thereof
will be final, binding and conclusive. No fractional interests will be issued
under the Plan resulting from any such adjustments.
(b) In addition to the adjustments permitted by Section 8.1(a) above,
except as otherwise expressly provided in the statement evidencing the grant of
an Incentive Award, upon the occurrence of a Change in Control of the Company
any outstanding Incentive Awards not theretofore exercisable, payable or free
from restrictions, as the case may be, shall immediately become exercisable,
payable or free from restrictions (other than restrictions required by
applicable law or any national securities exchange upon which any securities of
the Company are then listed), as the case may be, in their entirety and any
shares of Common Stock acquired pursuant to an Incentive Award which are not
fully vested shall immediately become fully vested, notwithstanding any of the
other provisions of the Plan.
A-9
<PAGE> 48
8.2 SECTION 16 PERSONS
Notwithstanding any other provisions in this Plan, any Incentive Award
granted hereunder to an Employee who is then subject to Section 16 of the
Exchange Act shall be subject to the following limitations:
(a) The Incentive Award may provide for the issuance of shares of Common
Stock as a stock bonus for no consideration other than services rendered or to
be rendered. In the event of an Incentive Award under which shares of Common
Stock are or may in the future be issued for any other type of consideration,
the amount of such consideration shall either (1) be equal to the amount (such
as the par value of such shares) required to be received by the Company in order
to assure compliance with applicable state law, (2) be equal to or greater than
50% of the fair market value of such shares on the date of grant of such
Incentive Award, or (3) in the case of Stock Options granted pursuant to Section
3.6 above, be the amount determined pursuant to the applicable substitution
formula. For such purposes, the fair market value of shares of Common Stock
shall be calculated on the basis of the closing price of stock of that class on
the day in question (or, if such day is not a trading day in the U.S. securities
markets, on the nearest preceding trading day), as reported with respect to the
principal market (or the composite of the markets, if more than one) in which
such shares are then traded, or, if no such closing prices are reported, on the
basis of the mean between the high bid and low asked prices that day on the
principal market or national quotation system on which such shares are then
quoted or, if not so quoted, as furnished by a professional securities dealer
making a market in such shares selected by the Board or the Committee.
(b) Any Stock Option or similar right (including a Stock Appreciation
Right) granted to such Employee pursuant to the Plan shall not be transferable
other than by will or the laws of descent and distribution and shall be
exercisable during such Employee's lifetime only by him or by his guardian or
legal representative. No Incentive Award granted to such Employee and no right
of such Employee under the Plan, contingent or otherwise, will be assignable or
made subject to any encumbrance, pledge or charge of any nature except that,
under such rules and regulations as the Committee may establish pursuant to the
terms of the Plan, a beneficiary may be designated with respect to an Incentive
Award in the event of death of such Employee. If such beneficiary is the
executor or administrator of the estate of the Employee, any rights with respect
to such Incentive Award may be transferred to the person or persons or entity
(including a trust) entitled thereto under the will of such Employee.
8.3 CONTINUATION OF EMPLOYMENT
(a) Nothing in the Plan or in any statement evidencing the grant of an
Incentive Award pursuant to the Plan shall be construed to create or imply any
contract of employment between any Participant and the Company, to confer upon
any Participant any right to continue in the employ of the Company, or to confer
upon the Company any right to require any Participant's continued employment.
Except as expressly provided in the Plan or in any statement evidencing the
grant of an Incentive Award pursuant to the Plan, the Company shall have the
right to deal with each Participant in the same manner as if the Plan and any
such statement evidencing the grant of an Incentive Award pursuant to the Plan
did not exist, including, without limitation, with respect to all matters
related to the hiring, discharge, compensation and conditions of the employment
of the Participant. Unless otherwise expressly set forth in a separate
employment agreement between the Company and such Participant, the Company may
terminate the employment of any Participant with the Company at any time for any
reason, with or without cause.
(b) Any question(s) as to whether and when there has been a termination of
a Participant's employment, the reason (if any) for such termination, and/or the
consequences thereof under the terms of the Plan or any statement evidencing the
grant of an Incentive Award pursuant to the Plan shall be determined by the
Committee's and the Committee's determination thereof shall be final and
binding.
A-10
<PAGE> 49
8.4 COMPLIANCE WITH GOVERNMENT REGULATIONS
No shares of Common Stock will be issued pursuant to an Incentive Award
unless and until all applicable requirements imposed by federal and state
securities and other laws, rules and regulations and by any regulatory agencies
having jurisdiction and by any stock exchanges upon which the Common Stock may
be listed have been fully met. As a condition precedent to the issuance of
shares of Common Stock pursuant to an Incentive Award, the Company may require
the Participant to take any reasonable action to comply with such requirements.
8.5 ADDITIONAL CONDITIONS
The award of any benefit under this Plan may also be subject to such other
provisions (whether or not applicable to the benefit award to any other
Participant) as the Committee determines appropriate including, without
limitation, provisions to assist the Participant in financing the purchase of
Common Stock through the exercise of Stock Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of Common
Stock acquired under any form of benefit, provisions giving the Company the
right to repurchase shares of Common Stock acquired under any form of benefit in
the event the Participant elects to dispose of such shares, and provisions to
comply with federal and state securities laws and federal and state income tax
withholding requirements.
8.6 PRIVILEGES OF STOCK OWNERSHIP
No Participant and no beneficiary or other person claiming under or through
such Participant will have any right, title or interest in or to any shares of
Common Stock allocated or reserved under the Plan or subject to any Incentive
Award, except as to such shares of Common Stock, if any, that have been issued
to such Participant in accordance with the terms and conditions of the
applicable Incentive Award; provided, however, that Participants who have
received Restricted Stock shall have only those rights with respect to such
stock as are set forth in this Plan and the statement evidencing the grant or
sale of such Restricted Stock.
8.7 AMENDMENT AND TERMINATION OF PLAN: AMENDMENT OF INCENTIVE AWARDS
(a) The Board may alter, amend, suspend or terminate the Plan at any time.
No such action of the Board, unless taken with the approval of the stockholders
of the Company, may increase the maximum number of shares that may be sold or
issued under the Plan or alter the class of Employees eligible to participate in
the Plan. With respect to any other amendments of the Plan, the Board may in its
discretion determine that such amendments shall only become effective upon
approval by the stockholders of the Company, if the Board determines that such
stockholder approval may be advisable, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under federal or state securities
law, federal or state tax law or any other laws or for the purposes of
satisfying applicable stock exchange listing requirements.
(b) The Committee may, with the consent of a Participant, make such
modifications in the terms and conditions of an Incentive Award as it deems
advisable. Without limiting the generality of the foregoing, the Committee may,
with the consent of the Participant, from time to time to adjust or reduce the
purchase price of Options held by such Participant by cancellation of such
Options and granting of Options to purchase the same or a lesser number of
shares at lower purchase prices or by modification, extension or renewal of such
Options.
(c) Except as otherwise provided in this Plan or in the statement
evidencing the grant of the Incentive Award, no amendment, suspension or
termination of the Plan will, without the consent of the Participant, alter,
terminate, impair or adversely affect any right or obligation under any
Incentive Award previously granted under the Plan.
A-11
<PAGE> 50
8.8 OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option, incentive
or other compensation plans in effect for the Company, nor shall the Plan
preclude the Company from establishing any other forms of incentive or other
compensation for Employees of the Company.
8.9 PLAN BINDING ON SUCCESSORS
The Plan shall be binding upon the successors and assigns of the Company.
8.10 SINGULAR, PLURAL; GENDER
Whenever used herein, nouns in the singular shall include the plural, and
the masculine pronoun shall include the feminine gender.
8.11 HEADINGS, ETC., NO PART OF PLAN
Heading of Articles and Sections hereof are inserted for convenience and
reference; they constitute no part of the Plan.
8.12 PARTICIPATION BY FOREIGN EMPLOYEES
Notwithstanding anything to the contrary herein, the Committee may, in
order to fulfill the purposes of the Plan, modify grants of Incentive Awards to
Participants who are foreign nationals or employed outside of the United States
to recognize differences in applicable law, tax policy or local custom.
IX. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the later of (a) the date of its
adoption by the Board, (b) the date of its approval by the holders of the
outstanding shares of Common Stock (either by a vote of a majority of such
outstanding shares present in person or by proxy and entitled to vote at a
meeting of stockholders of the Company or by written consent) or (c) the date of
the distribution by SKB (as defined in Section 3.6 above) of the stock of
Allergan pursuant to the terms of the Distribution Agreement (as defined in
Section 3.6 above). The Plan shall terminate at such time as the Board, in its
discretion, shall determine. No Incentive Award may be granted under the Plan
after the date of such termination, but such termination shall not affect any
Incentive Award theretofore granted.
A-12
<PAGE> 51
[LOGO] ALLERGAN
CONFIDENTIAL PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING APRIL 23, 1996
P
The undersigned hereby constitutes and appoints Francis R. Tunney, Jr.
R and Susan J. Glass, and each of them, his or her true and lawful
agents and proxies with full power of substitution in each to
O represent the undersigned at the Annual Meeting of Stockholders of
ALLERGAN, INC. to be held at its corporate headquarters, 2525 Dupont
X Drive, Irvine, CA on Tuesday, April 23, 1996, and at any adjournments
thereof, on all matters coming before the meeting.
Y
Election of Directors, Nominees:
Howard E. Greene, Jr., Richard M. Haugen, Lester J. Kaplan,
Ph.D., Leonard D. Schaeffer
If this Proxy relates to shares held for the undersigned in the
Allergan, Inc. Employee Stock Ownership Plan, the Allergan, Inc.
Savings and Investment Plan and the Allergan, Inc. Puerto Rico Savings
and Investment Plan, then, when properly executed, it shall constitute
instructions to the plan trustees to vote in the manner directed
herein.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE
APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF
YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATION. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND
RETURN THIS CARD.
-----------
SEE REVERSE
SIDE
-----------
<PAGE> 52
Please mark your
[X] votes as in this
example.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR election of
Directors and FOR Proposals 2 and 3.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR election of Directors.
- --------------------------------------------------------------------------------
1. Election of FOR WITHHELD
Directors. [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 2 and 3.
- --------------------------------------------------------------------------------
2. Approval of the amended and restated 1989 Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the amendment to the 1989 Nonemployee Director Stock Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
Please check the box if you plan to attend the [ ]
Annual Meeting.
Please check the box if you wish to have your [ ]
vote disclosed to the Company. The Company's
Confidential Voting Policy is described in the
Proxy Statement accompanying this Proxy.
NOTE: Please sign as name appears hereon.
Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such.
------------------------------------------------
------------------------------------------------
SIGNATURE(S) DATE
