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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO. 1-10269
ALLERGAN, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 95-1622442
(State of Incorporation) (I.R.S. Employer Identification No.)
2525 DUPONT DRIVE
IRVINE, CALIFORNIA 92612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 246-4500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which each class registered
Common Stock, $0.01 par value New York Stock Exchange
Preferred Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $2,200,000,000 on February 27, 1998, based upon
the closing price on the New York Stock Exchange on such date.
Common Stock outstanding as of February 27, 1998 - 65,479,220 shares
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate certain information by reference from the
registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1997. With the exception of the sections of the Annual Report specifically
incorporated by reference herein, the Annual Report is not deemed filed as part
of this Report on Form 10-K.
Part III incorporates certain information by reference from the
registrant's definitive proxy statement for the annual meeting of stockholders
to be held on April 21, 1998, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1997.
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TABLE OF CONTENTS
<TABLE>
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PART I PAGE
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Item 1. Business....................................................1
Item 2. Properties.................................................13
Item 3. Legal Proceedings..........................................14
Item 4. Submission of Matters to a Vote of Security Holders........14
Item I-A. Executive Officers of Allergan, Inc........................15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................18
Item 6. Selected Financial Data....................................18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................18
Item 8. Financial Statements and Supplementary Data................18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................18
PART III
Item 10. Directors and Executive Officers of Allergan, Inc..........19
Item 11. Executive Compensation ....................................19
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................19
Item 13. Certain Relationships and Related Transactions.............19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................20
SIGNATURES ...........................................................21
INDEX OF EXHIBITS ........................................................23
SCHEDULE ..........................................................S-1
EXHIBITS .......................(Attached to this Report on Form 10-K)
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Allergan, Inc. ("Allergan" or the "Company") is a leading provider of
eye care and specialty pharmaceutical products throughout the world with
products in the eye care pharmaceutical, ophthalmic surgical device,
over-the-counter contact lens care, movement disorder, and dermatological
markets. Its worldwide consolidated revenues are principally generated by
prescription and non-prescription pharmaceutical products in the areas of
ophthalmology and skin care, intraocular lenses and other ophthalmic surgical
products, and contact lens care products.
Allergan was incorporated in California in 1948 and reincorporated in
Delaware in 1977. In 1980, the Company was acquired by SmithKline Beckman
Corporation (then known as "SmithKline Corporation" and herein "SmithKline").
The Company operated as a wholly-owned subsidiary of SmithKline from 1980 until
1989 when Allergan again became a stand-alone public company through a spin-off
distribution by SmithKline.
In November 1992, the Company sold its contact lens business in North
and South America. In August 1993, the Company sold its contact lens business
outside of the Americas.
During 1994, the Company acquired the Ioptex Research worldwide
intraocular lens product line and Lorsen SA, a manufacturer of skin care
products in Argentina. During 1995, the Company completed four acquisitions. In
January 1995, the Company acquired Optical Micro Systems, Inc., a U.S.-based
developer and manufacturer of phacoemulsification surgical equipment. In June
1995, the Company acquired Laboratorios Frumtost, S.A., a manufacturer of
ophthalmic and other pharmaceutical products in Brazil. In August 1995, the
Company purchased the assets of Herald Pharmacal, Inc., a U.S.-based developer
and manufacturer of glycolic acid-based, aesthetic skin care products. In
November 1995, the Company purchased the worldwide contact lens care product
business of Pilkington Barnes Hind. Also in 1995, Allergan acquired 100%
ownership interest in Santen-Allergan, its Japanese contact lens care joint
venture.
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ALLERGAN BUSINESSES
The following table sets forth, for the periods indicated, the net sales
from continuing operations for each of the Company's specialty therapeutics
businesses and product lines:
<TABLE>
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YEAR ENDED DECEMBER 31
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1997 1996 1995
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(IN MILLIONS)
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Specialty Pharmaceuticals:
Eye Care Pharmaceuticals $ 408.5 $ 425.1 $ 415.1
Skin Care 80.6 64.7 44.7
Botox(R)/Neuromuscular 90.1 67.2 48.9
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Total 579.2 557.0 508.7
Medical Devices and OTC Product Lines:
Ophthalmic Surgical 182.2 184.0 188.7
Optical Contact Lens Care 376.6 406.0 369.8
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Total 558.8 590.0 558.5
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Total Product Net Sales $1,138.0 $1,147.0 $1,067.2
======== ======== ========
Domestic 42.8% 41.4% 43.6%
International 57.2% 58.6% 56.4%
</TABLE>
The foregoing table does not include sales of discontinued operations. See Note
12 of Notes to Consolidated Financial Statements on page 47 of the 1997 Annual
Report for further information concerning foreign and domestic operations.
SPECIALTY PHARMACEUTICAL BUSINESS
Eye Care Pharmaceutical Product Line
Allergan develops, manufactures and markets a broad range of
prescription and non-prescription products designed to treat diseases and
disorders of the eye, including glaucoma, inflammation, infection and allergy.
In addition, the specialty over-the-counter product line consists of products
designed to treat ocular surface disease, including artificial tears and ocular
decongestants.
The largest segment of the market for ophthalmic prescription drugs is
for the treatment of glaucoma, a sight-threatening disease characterized by
elevated intraocular pressure. Allergan's largest selling pharmaceutical product
is Alphagan(R) (brimonidine), which was approved in the United States in
September 1996 for the treatment of open-angle glaucoma and ocular hypertension;
the period of new chemical entity exclusivity for Alphagan(R) ophthalmic
solution extends for five years from the date of approval. In March 1997,
Alphagan(R) was also approved in the United Kingdom; in October 1997, the
Company received approval to market Alphagan(R) in 14 of the 15 member states of
the European Union through the mutual recognition filing process. Also, in March
1997, Alphagan(R) was approved in the United States for acute post-surgical
elevated pressure in the eye following argon laser trabeculoplasty. The Company
also markets Betagan(R) ophthalmic solution, a topical beta blocker used in the
initial treatment of glaucoma, and Propine(R) ophthalmic solution, which is used
alone or in combination with other drugs when initial drug therapy for glaucoma
becomes inadequate. Patent protection for both products expired in the United
States in 1991 and they both face generic competition from several companies
including Bausch & Lomb and Alcon Laboratories, Inc. (a division of Nestle). In
addition, the Company markets its own generic version of these two products.
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The Company also markets several leading ophthalmic products to treat
ocular inflammation and infection. Pred Forte(R) and FML(R) Liquifilm(R)
suspensions are leading products in the ocular corticosteroid inflammation
market. Allergan's Acular(R)1 ophthalmic solution is indicated for the relief of
itch associated with seasonal allergic conjunctivitis and for the treatment of
postoperative inflammation in patients who have undergone cataract extraction.
In November 1997, the Company received approval from the U.S. Food and Drug
Administration ("FDA") to market Acular(R) PF, the first unit-dose,
preservative-free topical nonsteroidal anti-inflammatory drug (NSAID) in the
United States, for the reduction of ocular pain and photophobia following
incisional refractive surgery. Allergan's major products in the anti-infective
market are Blephamide(R) suspension, a topical anti-inflammatory and
anti-infective, Polytrim(R) solution, a synthetic antimicrobial which treats
surface ocular bacterial infections, and Ocuflox(R)/Oflox(R)/Exocin(R) solution,
a fluroquinolone which treats bacterial conjunctivitis. In May 1996, the Company
received approval from the FDA to market Ocuflox(R) solution for the treatment
of corneal ulcers.
Skin Care Product Line
Building upon its strength in marketing to medical specialties and
taking advantage of synergies in research and development, Allergan's skin care
business develops, manufactures and markets therapeutic as well as cosmetic skin
care products, primarily in the United States and Argentina. During the fourth
quarter of 1996, the Company received approval from the German Ministry of
Health (Bfarm) to market Zorac(R) (tazarotene topical gel) 0.05% and 0.1% to
treat mild-to-moderate plaque psoriasis. Approval to market Zorac(R) in the
balance of the European Union through the mutual recognition filing process
began in April 1997; approval has been obtained in 12 of the 15 member
countries. In June 1997, the Company received approval from the FDA to market
Tazorac(R) (tazarotene topical gel) 0.05% and 0.1% (the trade name for Zorac(R)
topical gel in the United States and Canada) for the treatment of plaque
psoriasis and acne.
Azelex(R) (azelaic acid) cream for the topical treatment of mild to
moderate inflammatory acne vulgaris was launched in the U.S. in December 1995
and has been well received in the market. The therapeutic product line also
includes Elimite(R) cream for the treatment of scabies, Naftin(R), a topical
anti-fungal gel and cream and Gris-Peg(R) tablets, a systemic anti-fungal
product.
The Company also develops, manufactures and markets glycolic acid-based
skin care products as a result of its 1995 acquisition of the assets of Herald
Pharmacal, Inc.
Botox(R)/Neuromuscular
Allergan's Botox(R) (Botulinum Toxin Type A) purified neurotoxin complex
injection is used in the treatment of certain neuromuscular disorders which are
characterized by involuntary muscle contractions or spasms. Botox(R) purified
neurotoxin complex injection is marketed in the United States and a number of
other major countries for the treatment of blepharospasm (the uncontrollable
contraction of the eyelid muscles which can force the eye closed and result in
functional blindness) and strabismus (misalignment of the eyes) in people 12
years of age and over. In May 1994, Botox(R) was approved in the United Kingdom
for blepharospasm and hemifacial spasm. In March 1991, an application was filed
with the FDA for the treatment of a neck and shoulder movement disorder known as
cervical dystonia (spasmodic torticollis). In 1995, in response to a request
from the FDA, Allergan initiated
- -------------------
1 Acular(R), is a registered trademark of and is licensed from its developer
Syntex (U.S.A.) Inc.
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additional clinical trials in support of the cervical dystonia filing. Botox(R)
purified neurotoxin complex has been approved in Canada and several European
countries for the treatment of cervical dystonia and in Denmark and Ireland for
the treatment of juvenile cerebral palsy. In October 1996, Botox(R) was approved
in Japan for the treatment of blepharospasm.
MEDICAL DEVICES AND OTC PRODUCT LINES
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Ophthalmic Surgical Product Line
Allergan's ophthalmic surgical business develops, manufactures and
markets intraocular lenses ("IOLs"), surgically related pharmaceuticals,
phacoemulsification equipment and other ophthalmic surgical products.
The largest segment of the surgical market is for the treatment of
cataracts. Cataracts are a condition, usually age related, in which the natural
lens of the eye becomes progressively clouded. This clouding obstructs the
passage of light and can lead to blindness. Most patients blinded by cataracts
can be surgically cured by removing the clouded lens and replacing it with an
IOL. The Company currently offers a full line of AMO(R) products used in the
performance of cataract surgery, including rigid multi-piece, single-piece and
small incision design IOLs. In September 1994, Allergan acquired the worldwide
IOL business of Ioptex Research Inc., a division of Smith & Nephew, plc.
Sales of all models of the Company's IOLs represented 12%, 11% and 11%
of total Company sales in 1995, 1996 and 1997, respectively. Intraocular lenses
marketed by Allergan for small incision cataract surgery include the AMO(R)
PhacoflexII(R)SI-30NB(R) foldable small incision IOL, introduced in April 1993,
the AMO(R)SI-40NB(TM) foldable small incision IOL, introduced in 1995, the
AMO(R)PhacoflexII(R)SI-55NB(TM), introduced in 1997 and the AMO(R)DuraLens(R)
IOL, which was also introduced in 1995. Along with foldable IOLs, the Company
also markets a series of insertion systems for each of its foldable lens models,
referred to as The UnFolder(TM)AMO(R)PhacoflexII(R) implantation systems. The
systems assist the surgeon in achieving controlled release of the IOL in the
smallest incisions The AMO(R)Array(R) multifocal IOL was approved for marketing
in the United States in September 1997. It is also available in Brazil and
several European countries including Germany, France and Italy. The Company
believes that the AMO(R)Array(R) multifocal IOL will be viewed by ophthalmic
surgeons and cataract patients as a significant improvement in IOL design,
providing an improved patient outcome due to enhanced near vision.
Small incision IOLs continue to grow in popularity along with increasing
use of phacoemulsification, a method of cataract extraction that uses ultrasound
waves to break the natural lens into small fragments that can be removed through
a hollow needle. Phacoemulsification requires only a 3 to 4 millimeter incision,
compared to incisions of up to 12 millimeters for other techniques.
Phacoemulsification is currently utilized in more than 80 percent of cataract
procedures in the United States. In 1993 Allergan introduced the
AMO(R)Prestige(R) phacoemulsification machine. AMO(R)Prestige(R) makes
small-incision cataract surgery easier than other phacoemulsification machines
by using a sophisticated microprocessor that monitors vacuum and fluid in the
eye. In January 1995, Allergan acquired Optical Micro Systems, Inc. ("OMS"). OMS
develops and manufactures phacoemulsification equipment. This acquisition, along
with the acquisition of the Ioptex business in 1994, provided the Company with
additional IOL and phacoemulsification equipment product offerings and the
capability to manufacture phacoemulsification equipment. The AMO(R)Diplomax(R)
phacoemulsification machine, launched in the U.S. by the Company in November
1995, is the first OMS phaco-technology system introduced since the
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acquisition. Allergan also markets AMO(R)Vitrax(R), a viscoelastic used to
maintain the anterior chamber and protect endothelial cells during cataract
surgery.
Optical Contact Lens Care Product Line
The Company has been doing business in the contact lens care market
since 1960. On a worldwide basis, it develops, manufactures and markets a broad
range of products for use with every available type of contact lens. These
products include disinfecting solutions to destroy harmful microorganisms in and
on the surface of contact lenses; daily cleaners to remove undesirable film and
deposits from contact lenses; and enzymatic cleaners to remove protein deposits
from contact lenses. In the area of disinfecting products, the Company offers
products that can be used in each of the three disinfecting systems: hydrogen
peroxide systems, convenient chemical systems and thermal systems. Allergan's
leading hydrogen peroxide system products are the Oxysept 1Step(R)/UltraCare(R)
hydrogen peroxide neutralizer/disinfection system and the UltraCare(R) system
with a color indicator which turns the solution pink to indicate the
disinfectant tablet has dissolved. Both UltraCare(R) products are marketed in
many countries around the world under the brand name, Oxysept 1Step(R).
Complete(R) brand Multi-Purpose solution is the Company's convenient, one-bottle
chemical disinfection system for soft contact lenses. One-bottle systems,
including the Company's product, continue to gain popularity with consumers.
In November 1995, the Company acquired the worldwide contact lens care
business of Pilkington Barnes Hind. Included in the acquisition was the Consept
F(R) Cleaning and Disinfecting System, the first approved non-heat disinfection
system for soft contact lenses in Japan. This acquisition significantly
increased the Company's contact lens care product business in Japan.
Sales of the Company's hydrogen peroxide disinfection systems
represented 14%, 12% and 11% of total Company sales in 1995, 1996 and 1997,
respectively. It is difficult for the Company to predict what effect, if any,
the continued market acceptance of daily disposable contact lenses and the
increasing acceptance of the surgical correction of nearsightedness and other
forms of visual acuity impairment, especially in the United States, will have on
the Company's optical business. The Company believes that a continuation of
these trends could result in a material adverse impact on sales of the Company's
contact lens care products in the United States. In addition, in Europe, sales
of the Company's contact lens care products have been negatively impacted by the
market shift from traditional hydrogen peroxide disinfection systems to more
convenient and lower priced one-bottle disinfection systems and by new private
label competition.
EMPLOYEE RELATIONS
At December 31, 1997, the Company employed approximately 6,100 persons
throughout the world, including approximately 2,500 in the United States. None
of the Company's U.S.-based employees are represented by unions. The Company
considers that its relations with its employees are, in general, very good.
INTERNATIONAL OPERATIONS
The Company believes that international markets represent a significant
opportunity for continued growth. International sales have represented
approximately 56.4%, 58.6% and 57.2% of total sales for the years ended December
31, 1995, 1996 and 1997, respectively. Allergan believes that its
well-established international market presence provides it with a
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competitive advantage, enabling the Company to maximize the return on its
investment in research, product development and manufacturing.
Allergan established its first foreign subsidiary in 1964 and currently
sells products in approximately 100 countries. Marketing activities are
coordinated on a worldwide basis and resident management teams provide
leadership and infrastructure for customer focused rapid introduction of new
products in the local markets.
In Japan, the second largest eye care market in the world, certain of
Allergan's eye care pharmaceutical products have been licensed to Santen
Pharmaceuticals ("Santen"), the largest eye care pharmaceutical manufacturer in
Japan. Allergan also directly markets contact lens care products, IOLs and other
eye care surgical products, for which it has a leading market position.
Beginning in 1993, Allergan launched its Complete(R) brand contact lens
care products and a range of ophthalmic pharmaceutical products, including Poly
Pred(R), Pred Forte(R), Acular(R), FML(R), Propine(R) and Betagan(R) solutions,
in the People's Republic of China. In 1995, the Company received government
approval to do business through its wholly foreign owned entity, Allergan
Pharmaceutical (Hangzhou) Co. Ltd., and five additional products were launched.
The Company also began construction of its new manufacturing facility in
Hangzhou in October, 1995; the grand opening took place in March 1998. Also, in
June 1995, Allergan acquired Laboratorios Frumtost, S.A., a manufacturer of
ophthalmic and other pharmaceutical products in Brazil. In 1994, Allergan and
Nicholas Piramal India Limited formed Allergan India Private Ltd., a joint
venture to manufacture and market eye care products in India. Since 1994, 17
ophthalmic pharmaceutical products as well as Botox(R) purified neurotoxin
complex have been approved for sale in India.
SALES AND MARKETING
Allergan maintains global marketing and regional sales organizations.
Supplementing the sales efforts and promotional activities aimed at eye and skin
care professionals, as well as neurologists outside the U.S., who use, prescribe
and recommend its products, Allergan has been focusing increasingly on managed
care providers. In addition, Allergan advertises in professional journals and
has an extensive direct mail program of descriptive product literature and
scientific information to specialists in the ophthalmic, dermatological and
movement disorder fields. The Company's specialty therapeutic products are sold
to drug wholesalers, independent and chain drug stores, commercial optical
chains, mass merchandisers, food stores, hospitals, ambulatory surgery centers
and medical practitioners, including neurologists. At December 31, 1997, the
Company employed approximately 1,200 sales representatives throughout the world.
RESEARCH AND DEVELOPMENT
The Company's global research and development efforts focus on eye care,
skin care and neuromuscular products that are safe, effective, convenient and
have an economic benefit. The Company's own research and development activities
are supplemented by a commitment to identifying and obtaining new technologies
through in-licensing, technological collaborations, joint ventures and
acquisition efforts, including the establishment of research relationships with
academic institutions and individual researchers.
At December 31, 1997, there were, in the aggregate, approximately 800
people involved in the Company's research and development efforts. The Company's
research and development expenditures associated with continuing operations for
1995, 1996 and 1997
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were $116.7 million, $118.3 million and $131.2 million, respectively, excluding
amounts spent by the Company on behalf of Allergan Ligand Retinoid Therapeutics,
Inc. ("ALRT").
Research and development efforts for the ophthalmic pharmaceuticals
business focus primarily on new therapeutic products for glaucoma, inflammation,
dry eye, allergy and new anti-infective pharmaceuticals for eye care. The
Company is conducting research on new compounds that control intraocular
pressure by either reducing the inflow or production, or improving the outflow
of aqueous humor. The Company is also conducting research and clinical trials on
a class of compounds called hypotensive lipids. Unlike beta-blockers that
decrease the inflow or production of aqueous humor, hypotensive lipids reduce
intraocular pressure by improving its outflow. The Company is also developing
topical cyclosporine A for the treatment of severe dry eye.
Research and development activities for the surgical business
concentrate on improved cataract surgical systems, implantation instruments and
methods, and new IOL materials and designs, including the AMO(R)Array(R)
multifocal IOL, designed to allow patients to see well over a range of distances
and the AMO(R)SENSAR(TM), an acrylic foldable IOL. The Company received U.S.
marketing approval for the AMO(R)Array(R) multifocal IOL in September 1997 and
anticipates filing for U.S. marketing approval for the AMO(R)SENSAR(TM) acrylic
foldable IOL in 1998.
Research and development efforts for neuromuscular disorders focus on
expanding the uses for Botox(R) (Botulinum Toxin Type A) purified neurotoxin
complex to include treatment for cervical dystonia, juvenile cerebral palsy,
spasticity, migraine headache pain and back pain.
Research and development in the optical business is aimed at contact
lens care systems which are effective and more convenient for patients to use,
and thus lead to a higher rate of compliance with recommended lens care
procedures. Improved compliance can enhance safety and extend the time a patient
will be a contact lens wearer. The Company believes that continued development
and commercialization of disinfection systems that are both easy-to-use and
efficacious will be important for the future success of this part of the
Company's business.
From 1992 to 1994, the Company and Ligand Pharmaceuticals Incorporated
(Ligand) operated a joint venture for the purpose of performing certain research
and development activities. In December 1994, Allergan and Ligand formed a new
research and development company, Allergan Ligand Retinoid Therapeutics, Inc.
("ALRT") to function as the successor to the joint venture. In June 1995, Ligand
contributed $17.5 million to ALRT for a right to acquire all of the stock of
ALRT at specified future dates and amounts. At the same time, the Company
contributed $50.0 million to ALRT in exchange for rights to acquire one half of
all technologies and other assets, or a similar right to acquire all of the
stock of ALRT if Ligand did not exercise its right. The Company accounted for
its $50.0 million contribution as a charge to operating expense at the time of
the contribution. Allergan Pharmaceuticals (Ireland) Ltd., Inc. ("Allergan
Ireland"), a wholly owned subsidiary of the Company, also purchased $6.0 million
of Ligand common stock at the time of its contribution to ALRT. As a result,
Allergan Ireland owns approximately 8.9% of the outstanding common stock of
Ligand.
In November 1997, pursuant to the exercise of its stock purchase option,
Ligand acquired all of the stock of ALRT in exchange for $71.4 million. At the
same time, pursuant to the exercise of its asset purchase option, Allergan
acquired one-half of all technologies, cash (of which Allergan's share was
approximately $5.5 million) and other assets of ALRT
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in exchange for $8.9 million. The initial agreements between Allergan and Ligand
provided for a joint research, development and commercialization arrangement
following such option exercises. In connection with the option exercises,
Allergan and Ligand amended their agreements so that, among other things, ALRT
compounds and development programs were divided between Allergan and Ligand, and
each party received exclusive rights to ALRT technology for use with their
respective compounds and programs, subject to certain royalty and milestone
payment obligations.
The Company performed contract research services for ALRT from 1995 to
1997. Revenues from such services represent a recovery of the research and
development costs incurred with an amount added to compensate the Company for
general corporate overhead costs.
In 1997 the Company formed a new subsidiary, Allergan Specialty
Therapeutics, Inc. ("ASTI"), to conduct research and development of potential
pharmaceutical products based on the Company's retinoid and neuroprotective
technologies. In November, the Company filed a registration statement with the
Securities and Exchange Commission on behalf of ASTI relating to a proposed
special distribution of ASTI Class A Common Stock to the Company's stockholders.
The distribution of the ASTI shares was completed on March 10, 1998 to
shareholders of record on February 17, 1998.
Prior to the distribution, the Company contributed $200 million to ASTI.
The market value of ASTI stock was approximately $29 million at the date of
distribution. The Company recorded a dividend for the amount of the market value
of ASTI stock at the distribution. The remainder of the $200 million was
recorded as a charge against operating income. The Company's stockholders
received one share of ASTI Class A Common Stock for each 20 shares of common
stock held as of the record date. Based on 65,453,805 shares of common stock
outstanding as of February 17, 1998, approximately 3,272,700 shares of ASTI
Class A Common Stock were issued in the distribution. The Company's shareholders
were not required to pay any cash or other consideration for the ASTI Class A
Common Stock received in the distribution. The distribution is taxable as a
dividend to each holder in the amount of the fair market value of ASTI Shares
distributed to such holder.
As the sole holder of ASTI's outstanding Class B Common Stock following
the Distribution, under the terms of ASTI's Restated Certificate of
Incorporation, the Company will have the option to repurchase all of the
outstanding ASTI Shares under specified conditions. Under the terms of a
technology license agreement and a license option agreement between the Company
and ASTI, the Company has also granted certain technology licenses and agreed to
make specified payments on sales of certain products in exchange for the payment
by ASTI of a technology fee and the option to independently develop certain
compounds funded by ASTI prior to the filing of an Investigational New Drug
application with the U.S. Food and Drug Administration with respect thereto and
to license any products and technology developed by ASTI. The Company will
recognize the technology fee as revenue as it is earned and received.
ASTI's technology and product research and development activities will
take place under a research and development agreement with the Company. The
Company will recognize revenues and related costs as services are performed
under such contracts. It is currently expected that substantially all of ASTI's
funds will be directed toward continuing the research and development of
products based on retinoid and neuroprotective technologies. In addition, ASTI
may fund the research and development of pharmaceutical products in therapeutic
categories of interest to the Company other than those based on
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retinoid and neuroprotective technologies, but that complement the Company's
product pipeline or otherwise are believed to provide a potential
commercialization opportunity for the Company.
In October 1996, the Company entered into an exclusive collaboration
agreement with SUGEN, Inc. to identify, develop and commercialize novel
pharmaceutical compounds utilizing SUGEN's proprietary small molecule signal
transduction inhibition technology for the treatment of ophthalmic neovascular
diseases, such as age-related macular degeneration and diabetic retinopathy. In
November 1996, the Company entered into a collaboration agreement with Cambridge
NeuroScience, Inc. ("CNSI") to develop new treatments for glaucoma and other
serious ophthalmic diseases. CNSI specializes in glutamate ion channel-blocker
and sodium channel technology. In September 1997, the Company entered into an
exclusive collaboration agreement with ACADIA Pharmaceuticals Inc. (formerly
Receptor Technologies) to identify receptor-selective compounds with respect to
certain targets, develop receptor arrays and probes specific for G-protein
coupled and other receptors and facilitate the establishment of drug discovery
programs.
The option agreement with Peptech (UK) Ltd. for the development and
commercialization of certain therapeutic products based on its GMDP (a synthetic
glucosaminyl muramyl dipeptide) compound for dermatology indications, such as
psoriasis, ophthalmology and oncology, expired unexercised in October 1997.
The continuing introduction of new products supplied by the Company's
research and development efforts and in-licensing opportunities is critical to
the success of the Company. There is no assurance that any of the research
projects or pending drug marketing approval applications will result in new
products that the Company can commercialize. Delays or failures in one or more
significant research projects and pending drug marketing approval applications
could have a material adverse impact on the future operations of the Company.
COMPETITION
Allergan faces strong competition in all of its markets worldwide.
Numerous companies are engaged in the development, manufacture and marketing of
health care products competitive with those manufactured by Allergan. Major eye
care competitors include Alcon Laboratories, Inc. (a subsidiary of Nestle),
Bausch & Lomb and its recently acquired businesses Chiron Vision and Storz
Ophthalmics, CIBA Vision Ophthalmics (a division of Novartis), Merck & Co., Inc.
and Pharmacia Ophthalmics (a subsidiary of Pharmacia & Upjohn). These
competitors have equivalent or, in most cases, greater resources than Allergan.
The Company's skin care business competes against a number of companies,
including, among others, Bristol-Myers Squibb, Schering-Plough Corporation,
Johnson & Johnson and Hoffman-La Roche Inc., which all have greater resources
than Allergan. In marketing its products to health care professionals, pharmacy
benefits management companies, health care maintenance organizations, and
various other national and regional health care providers and managed care
entities, the Company competes primarily on the basis of product technology,
value-added services and price. The Company believes that it competes favorably
in its product markets.
GOVERNMENT REGULATION
Drugs, biologics and medical devices, including intraocular lenses
(IOLs) and contact lens care products, are subject to regulation by the FDA,
state agencies and, in varying degrees, by foreign health agencies. Government
regulation of most of the Company's products generally requires extensive
testing of new products and filing
9
<PAGE> 12
applications for approval by the FDA prior to sale in the United States and by
some foreign health agencies prior to sale as well. The FDA and foreign health
agencies review these applications and determine whether the product is safe and
effective. The process of developing data to support a premarket application and
governmental review is costly and takes many years to complete.
In general, manufacturers of drugs, medical devices and biologicals are
operating in an increasingly more rigorous regulatory environment than has been
the case in previous years. The total cost of providing health care services has
been and will continue to be subject to review by governmental agencies and
legislative bodies in the major world markets, including the United States,
which are faced with significant pressure to lower health care costs.
In 1996, Congress examined the regulatory burdens imposed on drug and
medical device manufacturers by the FDA in its product approval processes. In
1997, Congress enacted legislation intended to ameliorate those burdens. Among
other things, the Food and Drug Administration Modernization Act of 1997 ("FDA
Modernization Act") extends the Prescription Drug User Fee Act for another five
years; expands access to investigational drugs; authorizes FDA to approve a new
drug application on the basis of the results of one clinical trial, if the
results are sufficient to establish effectiveness; otherwise seeks to streamline
and facilitate the drug approval process; permits the dissemination of
scientific and medical information regarding a product's unapproved uses under
specific circumstances; and expands FDA inspectional authority over
non-prescription drugs. The FDA Modernization Act also seeks to improve the
regulation of medical devices. It is too soon to determine what if any effect
the FDA Modernization Act will have on Allergan.
Internationally, the regulation of drugs and medical devices is likewise
becoming increasingly complex. In Europe, the Company's products are subject to
extensive regulatory requirements. As in the United States, the marketing of
medicinal products has for many years been subject to the granting of marketing
authorizations by medicine agencies. Particular emphasis is also being placed on
more sophisticated and faster procedures for reporting of adverse events to the
competent authorities. Additionally, new rules are being introduced in several
areas such as the harmonization of clinical research laws and labeling and
patient package information, which are expected to assist companies such as
Allergan to bring products to market quickly once the first European approval is
received.
A new EU regulatory regime has been installed to cover medical devices.
This regulatory process is optional but will become mandatory in June 1998. It
requires that medical devices may only be placed on the market if they do not
compromise safety and health when properly installed, maintained and used in
accordance with their intended purpose. National laws conforming to this EU
legislation will regulate the Company's IOLs and contact lens care products
under the medical devices regulatory system rather than the more extensive
system for medicinal products under which they are currently regulated. The EU
regulatory system for cosmetics, which covers many of the Company's skin care
products, has been extended to include, among other aspects, formal maintenance
of a technical file, a safety assessment, data on undesirable effects, good
manufacturing practice and extended labeling requirements.
In the United States, a significant percentage of the patients who
receive the Company's IOLs are covered by the federal Medicare program. When a
cataract extraction with IOL implantation is performed in an ambulatory surgery
center ("ASC"), Medicare provides the ASC with a fixed facility fee which
includes a $150 allowance to cover the cost
10
<PAGE> 13
of the IOL. When the procedure is performed in a hospital outpatient department,
the hospital's reimbursement is determined using a complex formula that blends
the hospital's costs with the $150 allowance paid to ASCs. In its effort to
reduce Medicare expenditures, Congress may lower the IOL allowance below $150.
The Medicare Technical Corrections Bill of 1994 directed the U.S. Health Care
Financing Administration ("HCFA") to establish a system through which the agency
would pay ASCs and hospitals a rate above $150 for "new technology IOLs." HCFA
has issued proposed rules which would implement this mandate. Allergan is
seeking "new technology" status for the AMO (R)Array (R) multifocal IOL.
The Company has orphan drug designations from the FDA for two indicated
uses for the marketed drug BOTOX (R) Purified Neurotoxin Complex: cervical
dystonia and juvenile cerebral palsy. Clinical trials are under way, and the
Company expects to seek supplemental approvals to market the drug for said uses.
If the Company gains approval for one or both uses before any other manufacturer
of the same designated drug, the Company will be entitled to seven years
exclusive marketing in the United States for those uses.
The Company cannot predict the likelihood or pace of any significant
legislative action in these areas, nor can it predict whether or in what form
health care legislation being formulated by various governments will be passed.
The Company also cannot predict exactly what effect such governmental measures
would have if they were ultimately enacted into law. However, in general, the
Company believes that such legislative activity will likely continue, and the
adoption of such measures can be expected to have some impact on the Company's
business.
PATENTS, TRADEMARKS AND LICENSES
Allergan owns, or is licensed under, numerous patents relating to its
products, product uses and manufacturing processes. It has numerous patents
issued in the United States and corresponding foreign patents issued in many of
the major countries in which it does business. Allergan believes that its
patents and licenses are important to its business, but that with the exception
of those relating to hydrogen peroxide disinfection systems, no one patent or
license is currently of material importance in relation to its overall sales.
Allergan markets its products under various trademarks and considers these
trademarks to be valuable because of their contribution to the market
identification of the various products.
11
<PAGE> 14
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign
environmental laws and regulations. The Company believes that its operations
comply in all material respects with applicable environmental laws and
regulations in each country where the Company has a business presence. Although
Allergan continues to make capital expenditures for environmental protection, it
does not anticipate any significant expenditures in order to comply with such
laws and regulations which would have a material impact on the Company's capital
expenditures, earnings or competitive position. The Company is not aware of any
pending litigation or significant financial obligations arising from current or
past environmental practices that are likely to have a material adverse impact
on the Company's financial position. There can be no assurance, however, that
environmental problems relating to properties owned or operated by the Company
will not develop in the future, and the Company cannot predict whether any such
problems, if they were to develop, could require significant expenditures on the
part of the Company. In addition, the Company is unable to predict what
legislation or regulations may be adopted or enacted in the future with respect
to environmental protection and waste disposal.
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN AND ITS BUSINESSES
Certain disclosures made by the Company in this report and in other
reports and statements released by the Company are and will be forward-looking
in nature, such as comments which express the Company's opinions about trends
and factors which may impact future operating results. Disclosures which use
words such as the Company "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from expectations. Any such forward-looking statements,
whether made in this report or elsewhere, should be considered in context with
the various disclosures made by the Company about its businesses including the
factors discussed below.
- - The three largest parts of the Company's overall business in terms of
revenue -- eye care pharmaceuticals, ophthalmic surgical and contact lens
care -- have not experienced any significant overall revenue growth in the
past three years.
- - The pharmaceutical industry and other healthcare-related industries continue
to experience consolidation, resulting in larger, more diversified companies
with greater resources than the Company. Among other things, these larger
companies can spread their research and development costs over much broader
revenue bases than Allergan.
- - Two of the Company's largest ophthalmic pharmaceutical products, Betagan(R)
and Propine(R), are off patent in the U.S. and continue to face competition
from generic versions of these compounds as well as from recently introduced
new technology glaucoma products. Other significant products are also off
patent and may face similar generic competition.
- - The Company's Optical Contact Lens Care business continues to be impacted by
trends in the contact lens and lens care marketplace, including
technological and medical advances in surgical techniques for the correction
of vision impairment; the popularity of one-bottle chemical disinfection
systems among soft contact lens wearers instead of peroxide-based lens care
products which have historically been Allergan's strongest family of lens
care products; and the growing use and acceptance of daily
12
<PAGE> 15
contact lenses which could have the effect of reducing demand for lens
care products generally.
- - Sales of the Company's surgical and pharmaceutical products have been and
are expected to continue to be impacted by continuing pricing pressures
resulting from various government initiatives as well as from the purchasing
and operational decisions made by managed care organizations. Failure of the
AMO(R)Array(R) multifocal IOL to be designated as an "advanced technology
IOL" by HCFA will adversely affect the Company's profit margin for the
product.
- - In the past two years, the Company has taken steps designed to improve its
gross profit margin, including continued emphasis on new products as well as
the closure of certain plants and other cost-cutting measures. Whether these
steps will succeed in improving gross profit margin depends in part on
whether sales of new products will result in a more favorable mix of
products, and on whether the anticipated cost savings can be achieved and
sustained.
- - The Company has allocated significant resources to the development and
introduction of new products. The regulatory approval and market acceptance
of the products cannot be assured.
- - There are intrinsic uncertainties associated with Research & Development
efforts and the regulatory process both of which are discussed in greater
details in the "Research and Development" and the "Government Regulation"
sections, respectively.
13
<PAGE> 16
ITEM 2. PROPERTIES
Allergan's operations are conducted in owned and leased facilities
located throughout the world. Its primary administrative and research facilities
are located in Irvine, California. The following table describes the general
character of the major existing facilities as of March 1, 1998:
<TABLE>
<CAPTION>
LOCATION PRIMARY FUNCTION INTEREST INTEREST
- -------- ------------------------- --------
<S> <C> <C>
Irvine, California Headquarters, research and development, Owned/Leased
manufacturing, administrative, warehousing
Costa Mesa, California Administrative Leased
Berkeley, California Administrative, manufacturing, warehousing Leased
Santa Ana, California Manufacturing, warehousing Owned
North Andover, Massachusetts Administrative, manufacturing Leased
Lenoir, North Carolina Administrative, manufacturing, warehousing Owned
Waco, Texas Manufacturing, warehousing Owned
Anasco, Puerto Rico Manufacturing, warehousing Leased
Hormigueros, Puerto Rico Manufacturing, warehousing Owned
Buenos Aires, Argentina Administrative, manufacturing, warehousing Owned
Sydney, Australia Administrative, warehousing Owned
Sao Paulo, Brazil Administrative, manufacturing, warehousing Owned/Leased
Guarulhos, Brazil Manufacturing, warehousing Owned
Markham, Canada Administrative, warehousing Leased
Hangzhou, China Manufacturing (when operational) Owned
Sophia Antipolis, France Administrative, warehousing Leased
Ettlingen, Germany Administrative, warehousing Owned
Hong Kong Administrative, warehousing Leased
Dublin, Ireland Administrative Leased
Westport, Ireland Administrative, manufacturing, warehousing Owned
Rome, Italy Administrative Owned
Osaka, Japan Administrative Leased
Tokyo, Japan Administrative, research and development Leased
Madrid, Spain Administrative, warehousing Owned
Johannesburg, South Africa Administrative, warehousing Leased
High Wycombe, U.K. Administrative, warehousing Leased
</TABLE>
The Company believes its present facilities are adequate for its current
needs.
14
<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS
In October 1993, the Company disclosed to the U.S. Department of
Commerce Office of Export Enforcement (the "Commerce Department") that it had
been shipping its medicine, Botox(R) purified neurotoxin complex, under general
license authority to various foreign countries in the period since July 15,
1992, when the active ingredient in Botox(R), an attenuated form of botulinum
toxin, was reclassified to require validated export licensing. It is the
Company's position that the reclassification did not and could not apply to
medicines, such as Botox(R), that are exempt from validated export licensing by
statute and that have no potential application as biological warfare agents or
other undesired uses. After conducting a field investigation, in which the
Company cooperated, the Commerce Department advised the Company in the first
quarter of 1995 that it did not agree with the Company's position regarding the
export classification of Botox(R) and that it had referred the case to the
office of the U.S. Attorney in order to determine whether criminal charges might
be warranted. In August, 1995, the U.S. Attorney referred the matter back to the
Commerce Department, without levying any formal criminal charges, for its
evaluation of possible civil liability. In September, 1995, the Company was
advised by the Commerce Department that further field investigation would be
required. Such investigation occurred with the Company's cooperation.
It remained the Company's position that Botox(R) is a medical product
with no biological weapons potential and that it is, thus, exempt by statute and
regulation from export licensing control. Therefore, the Company believed, and
continues to believe, that as a matter of law and of fact it should not have
been charged with a violation and, if charged, that it would prevail on the
merits. The Company met with the Commerce Department in an effort to persuade
the Commerce Department that charges would be inappropriate. However, the
Commerce Department insisted that it would issue formal charges absent a
settlement.
Accordingly, to avoid exposure, attorneys' fees, and other expenses, the
Company settled the matter by entering into an agreement wherein the Company,
without admitting any liability, paid $824,000 as a civil penalty in full
resolution of all issues.
The Company and its subsidiaries are involved in various litigation and
claims arising in the normal course of business which Allergan considers to be
normal in view of the size and nature of its business.
Although the ultimate outcome of any pending litigation and claims
cannot be precisely ascertained at this time, Allergan believes that any
liability resulting from the aggregate amount of uninsured damages for
outstanding lawsuits, investigations and claims will not have a material adverse
effect on its consolidated financial position and results of operation. However,
in view of the unpredictable nature of such matters, no assurances can be given
in this regard.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth quarter of the
fiscal year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
15
<PAGE> 18
ITEM I-A. EXECUTIVE OFFICERS OF ALLERGAN, INC.
The executive officers of the Company and their ages as of March 1, 1998
are as follows:
<TABLE>
<S> <C> <C>
David E.I. Pyott 44 President and Chief Executive Officer
F. Michael Ball 42 Corporate Vice President and
President, North America Region
Jeffrey B. D'Eliscu 47 Corporate Vice President,
Corporate Communications
Michael J. Donohoe 55 Corporate Vice President and
President, Europe/Africa/Middle East
Region
David A. Fellows 41 Corporate Vice President and
President, Asia Pacific Region
James H. Fuller 53 Corporate Vice President and
President, Latin America Region
Richard J. Hilles 55 Corporate Vice President,
Human Resources
Lester J. Kaplan, Ph.D. 47 Corporate Vice President,
Science and Technology
George M. Lasezkay, Pharm.D., J.D. 46 Vice President,
Corporate Development
Albert J. Moyer 54 Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Jacqueline Schiavo 49 Corporate Vice President,
Worldwide Operations
Francis R. Tunney, Jr., J.D. 50 Corporate Vice President,
General Counsel and Secretary
Dwight J. Yoder 52 Senior Vice President and Controller
(Principal Accounting Officer)
</TABLE>
Officers are appointed by and hold office at the pleasure of the Board
of Directors.
Mr. Pyott became President and Chief Executive Officer in January 1998.
Previously, he was head of the Nutrition Division and a member of the executive
committee of Novartis AG during 1997 and had held a similar position at Sandoz
International AG, from 1995 to 1996, prior to the merger of Sandoz and Ciba to
form Norvartis. Also, while at Sandoz, Mr. Pyott was President and Chief
Executive Officer of Sandoz Nutrition Corp., Minneapolis, Minnesota (1992-1995),
General Manager of Sandoz
16
<PAGE> 19
Nutrition, Barcelona, Spain (1990-1992) and held other positions within the
Sandoz Nutrition group from 1980.
Mr. Ball has been Corporate Vice President and President, North America
Region since April 1996. He joined the Company in 1995 as Senior Vice President,
U.S. Marketing after 12 years with Syntex Corporation, where he held a variety
of positions including President, Syntex Inc. Canada and Senior Vice President,
Syntex Laboratories. In November of 1995, Mr. Ball assumed management
responsibility for U.S. Eye Care Sales in addition to his responsibilities for
U.S. Eye Care Marketing.
Mr. D'Eliscu has been Corporate Vice President, Corporate Communications
since 1992 and was Vice President, Investor Relations and Public Communications
from 1991. Mr. D'Eliscu had been Senior Director, Investor Relations of the
Company from 1989 to 1991 and prior thereto, he had been Director of Business
Development from 1988 and Senior Product Manager from 1985. Mr. D'Eliscu first
joined the Company in 1979.
Mr. Donohoe has been Corporate Vice President and President,
Europe/Africa /Middle East Region since 1992. Prior thereto, he was Corporate
Vice President and President, Optical, Consumer/OTC Group from 1991. Mr. Donohoe
was Senior Vice President and General Manager, Contact Lenses from 1990 to 1991
and Area Vice President, Northern Europe from 1989 to 1990. Mr. Donohoe first
joined the Company in 1987.
Mr. Fellows has been Corporate Vice President of the Asia Pacific Region
since June, 1997 and prior thereto, was Senior Vice President, U.S. Eye Care
Marketing since June, 1996. From 1993 to 1996, he was Senior Vice President,
Therapeutics Strategic Marketing, and from 1991 until 1993, he was Vice
President, Pharmaceuticals Strategic Marketing. Mr. Fellows joined the Company
in 1980.
Mr. Fuller has been Corporate Vice President and President, Latin
America Region since May 1996, prior to which he had been Vice President of the
region from 1994, and Senior Vice President from February of 1996. From January
1992 to July 1994, he was Senior Vice President, Sales and Marketing. Mr. Fuller
first joined the Company in 1974.
Mr. Hilles has been Corporate Vice President, Human Resources since 1991
and prior thereto was Senior Vice President, Human Resources from 1986 to 1991.
Mr. Hilles first joined SmithKline Beckman Corporation, the Company's former
parent, in 1965.
Dr. Kaplan has been Corporate Vice President, Science and Technology
since July 1996 and had been Corporate Vice President, Research and Development
since 1992. He had been Senior Vice President, Pharmaceutical Research and
Development since 1991 and Senior Vice President, Research and Development since
1989. Dr. Kaplan first joined the Company in 1983. He is also a member of the
Board of Directors of ACADIA Pharmaceuticals Inc. and Allergan Specialty
Therapeutics, Inc.
Dr. Lasezkay has been Vice President, Corporate Development since July
1996. He had been Assistant General Counsel of the Company since 1995 and Senior
Counsel to the Company since 1989 when he first joined the Company.
Mr. Moyer joined the Company as Corporate Vice President and Chief
Financial Officer in July, 1995. From 1993 until 1995, he had been Senior Vice
President and Chief Financial Officer of Coldwell Banker Corporation. Through
Moyer and Associates, he offered management consulting services to a variety of
companies from 1990 to 1993.
17
<PAGE> 20
Mr. Moyer served as Chief Financial Officer of Western Digital Corporation
(1986-1990) and has held various management positions since 1975 with companies
such as Westinghouse Electric Corporation, White Consolidated Industries, Inc.,
National Semiconductor Corporation and Enhansys, Inc.
Ms. Schiavo has been Corporate Vice President, Worldwide Operations
since 1992. She was Senior Vice President, Operations from 1991 and Vice
President, Operations from 1989. Ms. Schiavo first joined the Company in 1980.
Mr. Tunney has been Corporate Vice President, General Counsel and
Secretary of the Company since 1991 and prior thereto was Senior Vice President,
General Counsel and Secretary from 1989 through 1991. Mr. Tunney first joined
SmithKline Beckman Corporation, the Company's former parent, in 1979.
Mr. Yoder has been Senior Vice President and Controller of the Company
since July 1996, prior to which he had been Vice President and Controller since
joining the Company in 1990. He is also the Chief Financial Officer of Allergan
Specialty Therapeutics, Inc.
18
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The section entitled "Market Prices of Common Stock and Dividends" on
the inside back cover of the Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Selected Financial Data" on page 52 of the Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three Year Period Ended December 31,
1997" on pages 25-32 of the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, including the notes thereto, included on
pages 33-48 of the Annual Report, together with the sections entitled
"Independent Auditors' Report" and "Quarterly Results (Unaudited)" of the Annual
Report included on pages 50 and 51, respectively, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ALLERGAN, INC.
Information under this Item is included on pages 2-4 of the Proxy
Statement and such information is incorporated herein by reference. Information
with respect to executive officers is included on pages 15-17 of this Form 10-K.
The information required by Item 405 of Regulation S-K is included on
page 7 of the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation," and the subsection
entitled "Director Compensation" included in the Proxy Statement on pages 16-18
and page 6, respectively, are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The common stock information in the section entitled "Security
Ownership of Certain Beneficial Owners and Management" on pages 14-15 of the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled "Other Matters" and "Compensation Committee
Interlocks and Insider Participation" on pages 6-7 and page 24, respectively,
of the Proxy Statement are incorporated herein by reference.
20
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements *
<TABLE>
<CAPTION>
PAGE(S) IN
ANNUAL REPORT
<S> <C>
1. Financial Statements included in Part II of this report:
Independent Auditors' Report .................................. 50
Consolidated Balance Sheets at December 31, 1997 and
December 31, 1996 ............................................. 33
Consolidated Statements of Earnings for Each of the Years
in the Three Year Period Ended December 31, 1997 .............. 34
Consolidated Statements of Stockholders' Equity for
Each of the Years in the Three Year Period
Ended December 31, 1997 ....................................... 35
Consolidated Statements of Cash Flows for Each of the Years
in the Three Year Period Ended December 31, 1997 .............. 36
Notes to Consolidated Financial Statements .................... 37-48
</TABLE>
* Incorporated by reference from the indicated pages of the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1997 (and except
for the pages specifically incorporated by reference, the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1997, is not
deemed filed as part of this report).
2. Schedules Supporting the Consolidated Financial Statements:
<TABLE>
<CAPTION>
PAGE IN
THIS REPORT
<S> <C> <C>
Schedule numbered in accordance with Rule 5-04 of Regulation S-X:
II Valuation of Qualifying Accounts........................... S-1
All other schedules have been omitted for the reason that the required
information is presented in financial statements or notes thereto, the
amounts involved are not significant or the schedules are not
applicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of 1997.
(c) Item 601 Exhibits
Reference is made to the Index of Exhibits beginning at page 23 of this
report.
(d) Other Financial Statements
There are no financial statements required to be filed by Regulation
S-X which
</TABLE>
21
<PAGE> 24
<TABLE>
<S> <C> <C>
are excluded from the annual report to shareholders by Rule 14
a-3(b)(1).
</TABLE>
22
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 6, 1998 ALLERGAN, INC.
By /s/ DAVID E.I. PYOTT
--------------------------------
David E.I. Pyott
President, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: March 6, 1998 By /s/ DAVID E.I. PYOTT
--------------------------------
David E.I. Pyott
President, Chief Executive
Officer
Date: March 6, 1998 By /s/ A. J. MOYER
--------------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 6, 1998 By /s/ DWIGHT J. YODER
--------------------------------
Dwight J. Yoder
Senior Vice President and
Controller
(Principal Accounting Officer)
Date: March 6, 1998 By /s/ HERBERT W. BOYER, PH.D.
--------------------------------
Herbert W. Boyer, Ph.D.,
Chairman of the Board
Date: March 10, 1998 By /s/ TAMARA J. ERICKSON
--------------------------------
Tamara J. Erickson, Director
Date: March 9, 1998 By /s/ HANDEL E. EVANS
--------------------------------
Handel E. Evans, Director
Date: March 9, 1998 By /s/ WILLIAM R. GRANT
--------------------------------
William R. Grant, Director
23
<PAGE> 26
Date: March 11, 1998 By /s/ HOWARD E. GREENE, JR.
--------------------------------
Howard E. Greene, Jr., Director
Date: March 9, 1998 By /s/ GAVIN S. HERBERT
--------------------------------
Gavin S. Herbert, Director and
Chairman Emeritus
Date: March 9, 1998 By /s/ LESTER J. KAPLAN, PH.D.
--------------------------------
Lester J. Kaplan, Ph.D.,
Director
Date: March 10, 1998 By /s/ LESLIE G. MCCRAW
--------------------------------
Leslie G. McCraw, Director
Date: March 10, 1998 By /s/ LOUIS T. ROSSO
--------------------------------
Louis T. Rosso, Director
Date: March 10, 1998 By /s/ LEONARD D. SCHAEFFER
--------------------------------
Leonard D. Schaeffer, Director
Date: March 11, 1998 By /s/ HENRY WENDT
--------------------------------
Henry Wendt, Director
24
<PAGE> 27
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company as
filed with the State of Delaware on May 22, 1989
(incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1 No. 33-28855, filed
May 24, 1989)..............................................
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3 to the Company's Report on Form 10-Q for the
Quarter ended June 30, 1995)...............................
4.1 Certificate of Designation, Preferences and Rights of
Series A Participating Preferred Stock as filed with the
State of Delaware on May 22, 1989 (incorporated by
reference to Exhibit 4.1 to Registration Statement on
Form S-1 No. 33-28855, filed May 24, 1989).................
10.1 Form of director and executive officer Indemnity
Agreement (incorporated by reference to Exhibit 10.4 to
the Company's Report on Form 10-K for the Fiscal Year
ended December 31, 1992)*..................................
10.2 Allergan, Inc. 1989 Nonemployee Director Stock Plan, as
amended and restated (incorporated by reference to
Exhibit 10.4 to the Company's Report on Form 10-Q for
the Quarter ended March 31, 1996)*.........................
10.3 Allergan, Inc. Deferred Directors' Fee Program
(incorporated by reference to Exhibit 10.6 to the
Company's Report on Form 10-K for the Fiscal Year ended
December 31, 1991)*........................................
10.4 Allergan, Inc. 1989 Incentive Compensation Plan, as
amended and restated (incorporated by reference to
Exhibit A to the Company's Proxy Statement dated March
18, 1996, filed in definitive form on March 14, 1996)*.....
10.5 Restated Allergan, Inc. Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)............................................
10.6 First Amendment to Restated Allergan, Inc. Employee
Stock Ownership Plan (incorporated by reference to
Exhibit 10.3 to the Company's Report on Form 10-Q for
the Quarter ended June 30, 1996)...........................
</TABLE>
- --------------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
25
<PAGE> 28
<TABLE>
<S> <C> <C>
10.7 Second Amendment to Restated Allergan, Inc. Employee
Stock Ownership Plan.......................................
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
10.8 Restated Allergan, Inc. Savings and Investment Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)............................................
10.9 First Amendment to the Allergan, Inc. Savings and
Investment Plan (incorporated by reference to Exhibit
10.4 to the Company's Report on Form 10-Q for the
Quarter ended June 30, 1996)...............................
10.10 Second Amendment to the Allergan, Inc. Savings and
Investment Plan............................................
10.11 Form of Allergan change in control severance agreement *...
10.12 $250,000,000 Credit Agreement dated as of December 22,
1993 and amended and restated as of May 10, 1996 among
the Company, as Borrower and Guarantor, the Eligible
Subsidiaries Referred to Therein, the Banks Listed
Therein, Morgan Guaranty Trust Company of New York, as
Agent and Bank of America National Trust and Savings
Association, as Co-Agent (the "Credit Agreement")
(incorporated by reference to Exhibit 10.7 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)............................................
10.13 Restated Allergan, Inc. Pension Plan (incorporated by
reference to Exhibit 10.3 to the Company's Report on
Form 10-Q for the Quarter ended March 31, 1996) *..........
10.14 First Amendment to the Allergan, Inc. Pension Plan *.......
10.15 Restated Allergan, Inc. Supplemental Retirement Income
Plan (incorporated by reference to Exhibit 10.5 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996) *.........................................
10.16 Restated Allergan, Inc. Supplemental Executive Benefit
Plan (incorporated by reference to Exhibit 10.6 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)*..........................................
10.17 Allergan, Inc. Management Bonus Plan*.....................
10.18 Distribution Agreement dated March 4, 1994 between
Allergan, Inc. and Merrill Lynch & Co. and J.P. Morgan
</TABLE>
- --------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
27
<PAGE> 30
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
Securities Inc. (incorporated by reference to Exhibit
10.14 to the Company's Report on Form 10-K for the
fiscal year ended December 31, 1993)......................
10.19 Allergan, Inc. Executive Deferred Compensation Plan
dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.15 to the Company's Report on Form 10-K
for the fiscal year ended December 31, 1994)*.............
10.20 First Amendment to the Executive Deferred Compensation
Plan (incorporated by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q for the Quarter ended June
30, 1996)*................................................
10.21 Allergan, Inc. Stock Price Incentive Plan *................
10.22 Letter Agreement between Allergan, Inc. and William C.
Shepherd dated September 27, 1997 *........................
10.23 Technology License Agreement dated as of March 6, 1998
among Allergan, Inc. and certain of its affiliates and
Allergan Specialty Therapeutics, Inc. ("ASTI").............
10.24 Research and Development Agreement dated as of March 6,
1998 between Allergan, Inc. and ASTI.......................
10.25 License Option Agreement dated as of March 6, 1998
between Allergan, Inc. and ASTI............................
10.26 Distribution Agreement dated as of March 6, 1998 between
Allergan, Inc. and ASTI....................................
13 The Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 (with the exception
of the information incorporated by reference into Items
5, 6, 7, 8 and 14 of this report, the Annual Report to
Shareholders is not deemed to be filed as part of this
report)...................................................
21 List of Subsidiaries of the Company.......................
23 Report and consent of KPMG Peat Marwick, LLP to the
incorporation of their reports herein to Registration
Statements Nos. 33-29527, 33-29528, 33-44770, 33-48908,
33-66874, 333-09091, 333-04859, 333-25891, 33-55061 and
33-69746..................................................
27 Financial Data Schedule...................................
</TABLE>
- --------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
28
<PAGE> 31
SCHEDULE II
ALLERGAN, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
OF YEAR ADDITIONS DEDUCTIONS OF YEAR
------- --------- ---------- -------
<S> <C> <C> <C> <C>
1997 $7.5 $1.8 (a) $2.5 (b) $6.8
---- ---- ---- ----
1996 $6.2 $4.1 (a) $2.8 (b) $7.5
---- ---- ---- ----
1995 $7.2 $1.7 (a) $2.7 (b) $6.2
---- ---- ---- ----
</TABLE>
_________________
(a) Provision charged to earnings.
(b) Accounts written off.
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDMENT TO
ALLERGAN, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(RESTATED 1996)
The ALLERGAN, INC. EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan") is hereby amended
to read as follows:
I. Section 2.13 of the Plan is amended in its entirety, effective October 1,
1997, as follows:
"2.13 'Employee' shall mean any person who is employed by the Sponsor or
any Affiliated Company in any capacity, any portion of whose income is subject
to withholding of income tax and/or for whom Social Security contributions are
made by the Sponsor or any such Affiliated Company, as well as any other person
qualifying as a common-law employee of the Sponsor or any such Affiliated
Company except that such term shall not include (a) any individual who performs
services for the Company or an Affiliate and who is classified or paid as an
independent contractor (regardless of his or her classification for federal tax
or other legal purposes) by the Company or Affiliate and (b) any individual,
whether a Leased Employee or otherwise, who performs services for the Company or
an Affiliate pursuant to an agreement between the Company or Affiliate and any
other person including a leasing organization."
II. Section 5.9(a) is amended in its entirety, effective January 1, 1998, as
follows:
"(a) In no event shall any benefits under this Plan, including
benefits upon retirement, termination of employment, or Disability, be paid to a
Participant prior to the 'Consent Date' (as defined herein) unless the
Participant consents in writing to the payment of such benefits prior to said
Consent Date. As used herein, the term 'Consent Date' shall mean the later of
(1) the Participant's 62nd birthday, or (2) the Participant's Normal Retirement
Age. Notwithstanding the foregoing, the provisions of this Paragraph shall not
apply (1) following the Participant's death, or (2) with respect to a lump-sum
distribution of the vested portion of a Participant's ESOP Accounts if the total
amount of such vested portion does not exceed or has never exceeded $5,000."
III. Section 5.9(c) is amended in its entirety, effective January 1, 1997, as
follows:
"(c) Notwithstanding Paragraphs (a) or (b) above, distributions
of the entire vested portion of a Participant's ESOP Accounts shall be made no
later than the Participant's Required Beginning Date, or, if such distribution
is to be made over the life of such participant or over the lives of such
Participant and a Beneficiary (or over a
<PAGE> 2
period not extending beyond the life expectancy of such Participant and
Beneficiary) then such distribution shall commence no later than the
Participant's Required Beginning Date. Required Beginning Date shall mean:
(i) Participants attaining age 70-1/2 prior to 1999:
The Required Beginning Date of a Participant who attains age 70-1/2 prior to
1999 shall be April 1 of the calendar year immediately following the year in
which the Participant attains age 70-1/2; provided, however, that a Participant,
other than a Five Percent Owner (as defined in Code Section 416(i) and
applicable regulations), who attains age 70-1/2 in 1996, 1997, or 1998 may elect
to defer the Required Beginning Date until April 1 of the calendar year
following the later of the calendar year in which the Participant attains age
70-1/2 or retires.
(ii) Participants attaining age 70-1/2 after 1998: The
Required Beginning Date of a Participant who attains age 70-1/2 after 1998 shall
be April 1 of the calendar year immediately following the later of the calendar
year in which the Participant attains age 70-1/2 or retires; provided, however,
if such Participant is a Five Percent Owner (as defined in Code Section 416(i)
and applicable regulations) with respect to the Plan Year ending in the calendar
year in which such Participant attains age 70-1/2, the Required Beginning Date
shall be April 1 of the calendar year immediately following the year in which
such Participant attains age 70-1/2."
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this Amendment as of November
18, 1997.
ALLERGAN, INC.
By: /s/ FRANCIS R. TUNNEY, JR
----------------------------------------------
Francis R. Tunney, Jr.
Corporate Vice President, General Counsel
and Secretary
2
<PAGE> 1
EXHIBIT 10.10
SECOND AMENDMENT TO
ALLERGAN, INC.
SAVINGS AND INVESTMENT PLAN
(RESTATED 1996)
The ALLERGAN, INC. SAVINGS AND INVESTMENT PLAN (the "Plan") is hereby amended to
read as follows:
I. Section 2.29 of the Plan is amended in its entirety, effective October 1,
1997, as follows:
"2.29 Employee. 'Employee' shall mean any person who is employed by the
Sponsor or any Affiliated Company in any capacity, any portion of whose income
is subject to withholding of income tax and/or for whom Social Security
contributions are made by the Sponsor or any such Affiliated Company, as well as
any other person qualifying as a common-law employee of the Sponsor or any such
Affiliated Company except that such term shall not include (a) any individual
who performs services for the Company or an Affiliate and who is classified or
paid as an independent contractor (regardless of his or her classification for
federal tax or other legal purposes) by the Company or Affiliate and (b) any
individual, whether a Leased Employee or otherwise, who performs services for
the Company or an Affiliate pursuant to an agreement between the Company or
Affiliate and any other person including a leasing organization."
II. Section 8.5(a) is amended in its entirety, effective January 1, 1998, as
follows:
"(a) In no event shall any benefits under this Plan, including
benefits upon retirement, Severance, or Disability, be paid (or commence to be
paid) to a Participant prior to the 'Consent Date' (as defined herein) unless
the Participant consents in writing to the payment (or commencement of payment)
of such benefits prior to said Consent Date. As used herein, the term 'Consent
Date' shall mean the later of (1) the Participant's 62nd birthday, or (2) the
Participant's Normal Retirement Age. Notwithstanding the foregoing, the
provisions of this Paragraph shall not apply (1) following the Participant's
death, or (2) with respect to a lump sum distribution of the vested portion of a
Participant's Account if the total amount of such vested portion does not exceed
or has never exceeded $5,000."
III. Section 8.5(c) is amended in its entirety, effective January 1, 1997, as
follows:
"(c) Notwithstanding Paragraphs (a) or (b) above, distributions
of the entire vested portion of a Participant's Accounts shall be made no later
than the Participant's Required Beginning Date, or, if such distribution is to
be made over the life
<PAGE> 2
of such participant or over the lives of such Participant and a Beneficiary (or
over a period not extending beyond the life expectancy of such Participant and
Beneficiary) then such distribution shall commence no later than the
Participant's Required Beginning Date. Required Beginning Date shall mean:
(1) Participants attaining age 70-1/2 prior to 1999:
The Required Beginning Date of a Participant who attains age 70-1/2 prior to
1999 shall be April 1 of the calendar year immediately following the year in
which the Participant attains age 70-1/2; provided, however, that a Participant,
other than a Five Percent Owner (as defined in Code Section 416(i) and
applicable regulations), who attains age 70-1/2 in 1996, 1997, or 1998 may elect
to defer the Required Beginning Date until April 1 of the calendar year
following the later of the calendar year in which the Participant attains age
70-1/2 or retires.
(2) Participants attaining age 70-1/2 after 1998: The
Required Beginning Date of a Participant who attains age 70-1/2 after 1998 shall
be April 1 of the calendar year immediately following the later of the calendar
year in which the Participant attains age 70-1/2 or retires; provided, however,
if such Participant is a Five Percent Owner (as defined in Code Section 416(i)
and applicable regulations) with respect to the Plan Year ending in the calendar
year in which such Participant attains age 70-1/2, the Required Beginning Date
shall be April 1 of the calendar year immediately following the year in which
such Participant attains age 70-1/2."
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this Amendment as of November
18, 1997.
ALLERGAN, INC.
By: /s/ FRANCIS R. TUNNEY, JR.
----------------------------------------------
Francis R. Tunney, Jr.
Corporate Vice President, General Counsel
and Secretary
2
<PAGE> 1
EXHIBIT 10.11
AGREEMENT
This Agreement ("Agreement") dated as of , is entered into by and
between ("Employee"), and Allergan, Inc., a Delaware corporation (the
"Company").
RECITALS
The Company believes that because of its position in the industry,
financial resources and historical operating results there is a possibility that
the Company may become the subject of a Change in Control (as defined below),
either now or at some time in the future.
The Company believes that it is in the best interest of the Company and
its stockholders to foster Employee's objectivity in making decisions with
respect to any pending or threatened Change in Control of the Company and to
assure that the Company will have the continued dedication and availability of
Employee as an employee of the Company or one of its affiliates, notwithstanding
the possibility, threat or occurrence of a Change in Control. The Company
believes that these goals can be accomplished by alleviating certain of the
risks and uncertainties with regard to Employee's financial and professional
security that would be created by a pending or threatened Change in Control and
that inevitably would distract Employee and could impair his or her ability to
objectively perform his or her duties for and on behalf of the Company.
Accordingly, the Company believes that it is appropriate and in the best
interest of the Company and its stockholders to provide to Employee compensation
arrangements upon a Change in Control that lessen Employee's financial risks and
uncertainties and that are competitive with those of other corporations.
With these and other considerations in mind, the Board of Directors of
the Company, acting through its Organization and Compensation Committee, has
authorized the Company to enter into this Agreement with Employee to provide the
protections set forth herein for Employee's financial security following a
Change in Control.
NOW, THEREFORE, in consideration of the foregoing, it is hereby agreed
as follows:
1. Term of Agreement. This Agreement shall be effective from the date
first written above until December 31, 1998. The Company may, in its sole
discretion and for any reason, provide written notice of termination (effective
as of the then applicable expiration date) to Employee no later than 60 days
before the expiration date of this Agreement. If written notice is not so
provided, this Agreement shall be automatically extended for an additional
period of 12 months past the expiration date. This Agreement shall continue to
be automatically extended for an additional 12 months at the end of such
12-month period and each succeeding 12-month period unless notice is given in
the manner described in this Section. No termination of this Agreement shall
affect Employee's rights hereunder with respect to a Change in Control which has
occurred prior to such termination.
<PAGE> 2
2. Purpose of Agreement. The purpose of this Agreement is to provide
that, in the event of a "Change in Control," Employee may become entitled to
receive certain additional benefits, as described herein, in the event of his or
her termination.
3. Change in Control. As used in this Agreement, the phrase "Change in
Control" shall mean the following and shall be deemed to occur if any of the
following events occur:
(a) Any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (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 the Company
representing 20% or more of the combined voting power of the Company's
then outstanding voting securities;
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board"), cease for any reason to
constitute at least a majority of the Board of Directors, provided that
any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company'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
the Company, as such terms are used Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall, for the purposes of this
Agreement, be considered as though such person were a member of the
Incumbent Board of the Company;
(c) The stockholders of the Company approve a merger or
consolidation with any other corporation, other than
(1) a merger or consolidation which would result in the
voting securities of the Company 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 power of the voting securities of
the Company or such other entity outstanding immediately after such
merger or consolidation, and
(2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no person acquires 20% or more of the combined voting power of the
Company's then outstanding voting securities; or
(d) The stockholders of the Company 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 Section, a Change in Control
shall not be deemed to have occurred (1) if the "person" described in the
preceding provisions of
2
<PAGE> 3
this Section is an underwriter or underwriting syndicate that has acquired the
ownership of 20% or more of the combined voting power of the Company's then
outstanding voting securities solely in connection with a public offering of the
Company's securities, or (2) if the "person" described in the preceding
provisions of this Section is an employee stock ownership plan or other employee
benefit plan maintained by the Company (or any of its affiliated companies) that
is qualified under the provisions of the Employee Retirement Income Security Act
of 1974, as amended.
4. Effect of a Change in Control. In the event of a Change in Control,
Sections 6 through 10 of this Agreement shall become applicable to Employee.
These Sections shall continue to remain applicable until the second anniversary
of the date upon which the Change in Control occurs. At that point, so long as
the employment of Employee has not been terminated on account of a Qualifying
Termination, as defined in Section 5, this Agreement shall terminate and be of
no further force. If Employee's employment with the Company and its affiliated
companies is terminated on account of a Qualifying Termination on or before such
date, this Agreement shall remain in effect until Employee receives the various
benefits to which he or she has become entitled under the terms of this
Agreement.
5. Qualifying Termination. If, subsequent to a Change in Control
Employee's employment with the Company and its affiliated companies is
terminated, such termination shall be considered a Qualifying Termination
unless:
(a) Employee voluntarily terminates his or her employment with the
Company and its affiliated companies. Employee, however, shall not be
considered to have voluntarily terminated his or her employment with the
Company and its affiliated companies if, following the Change in Control,
Employee's overall compensation is reduced or adversely modified in any
material respect or Employee's duties are materially changed, and
subsequent to such reduction, modification or change, Employee elects to
terminate his or her employment with the Company and its affiliated
companies. For such purposes, Employee's duties shall be considered to
have been "materially changed" if, without Employee's express written
consent, there is any substantial diminution or adverse modification in
Employee's overall position, responsibilities or reporting relationship,
or if, without Employee's express written consent, Employee's job location
is transferred to a site more than 50 miles away from his or her place of
employment prior to the Change in Control.
(b) The termination is on account of Employee's death or
Disability. For such purposes, "Disability" shall mean a physical or
mental incapacity as a result of which Employee becomes unable to continue
the performance of his or her responsibilities for the Company and its
affiliated companies and which, at least 26 weeks after its commencement,
is determined to be total and permanent by a physician agreed to by the
Company and Employee, or in the event of Employee's inability to designate
a physician, Employee's legal representative. In the absence of agreement
between the Company and Employee, each party shall nominate a qualified
physician and the two physicians so nominated shall select a third
physician who shall make the determination as to Disability.
3
<PAGE> 4
(c) Employee is involuntarily terminated for "cause." For this
purpose, "cause" shall be limited to only three types of events:
(1) the willful refusal of Employee to comply with a lawful,
written instruction of the Board so long as the instruction is
consistent with the scope and responsibilities of Employee's
position prior to the Change in Control;
(2) dishonesty by Employee which results in a material
financial loss to the Company (or to any of its affiliated
companies) or material injury to its public reputation (or to the
public reputation of any of its affiliated companies); or
(3) Employee's conviction of any felony involving an act of
moral turpitude.
6. Severance Payment. If Employee's employment is terminated as a result
of a Qualifying Termination, the Company shall pay Employee within 30 days after
the Qualifying Termination a cash lump sum equal to (one, two or three times)
Employee's "Compensation" (the "Severance Payment").
(a) For purposes of this Agreement, and subject to Sections 6 (c ),
(d) and (e), below, Employee's "Compensation" shall equal the sum of (i)
Employee's highest annual salary rate within the five-year period ending
on the date of Employee's Qualifying Termination plus (ii) a "Management
Bonus Increment." The Management Bonus Increment shall equal the average
of the two highest of the last five bonuses paid to Employee under the
Management Bonus Plan or any successor thereto.
(b) In lieu of a cash lump sum, Employee may elect to receive the
Severance Payment provided by this Section in equal annual installments
over two (2) or three (3) years at Employee's election. Such installments
shall be paid to Employee on each anniversary of the date of Employee's
Qualifying Termination, beginning with the first such anniversary and
continuing on each such anniversary thereafter until fully paid. Such
election to receive the Severance Payment in installments, and the number
of installments to receive, may be made and/or revoked by Employee at any
time prior to the occurrence of a Change in Control by written notice to
the Secretary of the Company. Upon the occurrence of a Change in Control,
any such election to receive the Severance Payment in installments that
has been made and not revoked prior to the Change in Control shall be
irrevocable and binding on both the Company and Employee. In the event
that at the time of a Change in Control there is not in effect an election
by Employee to receive the Severance Payment in installments, such
Severance Payment shall be paid to Employee in a single cash lump sum as
provided above.
(c) If Employee has not participated in the Management Bonus Plan
(including any successor thereto) for at least two full plan years, then
the missing bonus component(s) will be computed, for purposes of
calculating the Management Bonus Increment under this Agreement, by
reference to the
4
<PAGE> 5
guideline percentage for officers at Employee's grade level for the most
recently completed bonus period, assuming a 100% target bonus for both
corporate and individual objectives.
(d) If Employee's normal severance payment under the Company's
applicable severance pay policies for a reduction in force would be
greater than the Compensation described in Section 6(a), above, then
Employee's "Compensation" for purposed of Section 6(a) shall be such
greater amount.
(e) The Severance Payment hereunder is in lieu of any severance
payment that Employee might otherwise be entitled to from the Company
under the Company's applicable severance pay policies.
7. Incentive Compensation Grants. Employee may have received stock
option grants, grants of restricted stock or other incentive compensation awards
under the Allergan, Inc. 1989 Incentive Compensation Plan or other incentive
compensation plans of the Company (collectively the "Incentive Plans"). In the
event of a Qualifying Termination, the Company agrees that any and all such
stock options, restricted stock and other incentive compensation awards that are
outstanding at the time of such termination and that have not previously become
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 that the exercise period of any stock option or other
incentive award granted pursuant to any of the Incentive Plans shall continue
for the length of the exercise period specified in the grant of the award
determined without regard to Employee's termination of employment.
8. Retirement Plan. In addition to any retirement benefits that might
otherwise be due Employee under the Allergan, Inc. Pension Plan or any successor
qualified defined benefit plan maintained by the Company (the "Retirement Plan")
or under the Allergan, Inc. Retirement Income Plan and the Allergan, Inc.
Supplemental Executive Benefit Plan or any successor supplemental employee
retirement plan(s) maintained by the Company (collectively the "SERP"), Employee
shall receive additional payments from the Company calculated as set forth in
this Section if Employee is terminated on account of a Qualifying Termination.
(a) At the time that Employee (or Employee's beneficiary) first
begins to receive benefits under the Retirement Plan, there shall be
calculated the difference between the benefit that Employee or Employee's
beneficiary has begun to receive under the Retirement Plan and/or the SERP
and the benefit that would have been received if Employee had worked for
another (one, two or three years) subsequent to the date of the Qualifying
Termination. For the purpose of the preceding sentence, Employee shall be
deemed to have received "Earnings" under the Retirement Plan and the SERP
for the period subsequent to the Qualifying Termination at an annual rate
equal to his or her Compensation, as calculated under Section 6(a) of this
Agreement. This difference shall be paid by the Company as a supplemental
payment to Employee or Employee's beneficiary for the period of time that
he or she is entitled to the payment that is being supplemented.
5
<PAGE> 6
(b) Notwithstanding the preceding subsection, Employee shall not be
treated under this Section as if he or she had continued employment with
the Company once Employee elects to commence to receive benefits under the
Retirement Plan. For example, if Employee elects to commence to receive
benefits one year after his or her Qualifying Termination, then Employee
shall be credited with only one year's additional employment under this
Section, even if Employee is entitled to receive a Severance Payment equal
to three times his or her Compensation.
(c) If Employee is not a participant in the Retirement Plan,
Employee will be provided with the benefits contemplated by the provisions
of this Section 8 as part of the retirement plan provided by the affiliate
of the Company in which Employee is employed.
9. Additional Benefits. In the event of a Qualifying Termination,
Employee shall be entitled to continue to participate in all of the employee
benefit programs available to Employee before the Qualifying Termination,
including but not limited to, group medical insurance, group dental insurance,
group-term life insurance, disability insurance, automobile allowance, gasoline
allowance, and a full allowance for club dues and tax and financial planning. In
addition, Employee shall receive Executive Outplacement benefits of a type and
duration generally provided to executives at Employee's level. These programs
shall be continued at no cost to Employee, except to the extent that tax rules
require the inclusion of the value of such benefits in Employee's income. The
programs shall be continued in the same way and at the same level as immediately
prior to the Qualifying Termination. If Employee is employed by an affiliate of
the Company that does not provide the additional benefits enumerated, Employee
shall be entitled to continue to participate in the employee benefit programs in
which Employee had been participating prior to the Qualifying Termination. The
programs shall continue for (one, two or three years).
10. Indemnification for Excise Tax. In the event that Employee becomes
entitled to receive a Severance Payment in accordance with the provisions of
Section 6 above, and such Severance Payment or any other benefits or payments
(including transfers of Property) that Employee receives, or is to receive,
pursuant to this Agreement or any other agreement, plan or arrangement with the
Company in connection with a Change in Control of the Company ("Other Benefits")
shall be subject to the tax imposed pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (or any successor thereto) or any
comparable provision of state law (an "Excise Tax"), the following rules shall
apply:
(a) The Company shall pay to Employee, within 30 days after
Employee's Qualifying Termination, an additional amount (the "Gross-Up
Payment") such that the net amount retained by Employee, after deduction
of any Excise Tax with respect to the Severance Payments or the Other
Benefits and any federal, state and local income tax and Excise Tax upon
such Gross-Up Payment, is equal to the amount that would have been
retained by Employee if such Excise Tax were not applicable. It is
intended that Employee shall not suffer any loss or expense resulting from
the assessment of any Excise Tax or the Company's reimbursement of
Employee for payment of any such Excise Tax.
6
<PAGE> 7
(b) For purposes of determining whether any of the Severance
Payments or Other Benefits will be subject to an Excise Tax and the amount
of such Excise Tax, (i) any other payment or benefits received or to be
received by Employee in connection with a Change in Control of the Company
or Employee's termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control or any
person affiliated with the Company or such person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
(or any successor thereto), and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code (or any successor thereto) shall
be treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors and acceptable to
Employee such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole
or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code (or any
successor thereto), (ii) the amount of the Severance Payments and Other
Benefits which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Severance Payments or
Other Benefits or (B) the amount of excess parachute payments within the
meaning of Sections 280G(b)(1) and (4) of the Code (or any successor or
successors thereto), after applying clause (i), above, and (iii) the value
of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
Principles of Sections 280G(d)(3) and (4) of the Code (or any successor or
successors thereto).
(c) For purposes of determining the amount of the Gross-Up Payment,
Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of Employee's
residence on the date of Employee's Qualifying Termination, net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(d) In the event that the Excise Tax is subsequently determined to
be less than the amount taken into account hereunder at the time of
Employee's Qualifying Termination, Employee shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such
reduction plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code (or any successor thereto)
(the "Applicable Rate"). In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of such
Qualifying Termination (including by reason of any payment the existence
or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect
of such excess (plus interest, determined at the Applicable Rate, payable
with respect to such excess) at the time that the amount of such excess is
finally determined.
7
<PAGE> 8
11. Rights and Obligations Prior to a Change in Control. Prior to a
Change in Control, the rights and obligations of Employee with respect to his or
her employment by the Company shall be determined in accordance with the
policies and procedures adopted from time to time by the Company and the
provisions of any written employment contract in effect between the Company and
Employee from time to time. This Agreement deals only with certain rights and
obligations of Employee subsequent to a Change in Control, and the existence of
this Agreement shall not be treated as raising any inference with respect to
what rights and obligations exist prior to a Change in Control. Unless otherwise
expressly set forth in a separate employment agreement between Employee and the
Company, the employment of Employee is at-will, and Employee or the Company may
terminate Employee's employment with the Company at any time and for any reason,
with or without cause, provided that if such termination occurs within two years
after a Change in Control and constitutes a Qualifying Termination (as defined
in Section 5 above) the provisions of this Agreement shall govern the payment of
the Severance Payment and certain other benefits as provided herein.
12. Non-Exclusivity of Rights. Subject to Section 6(d) above, nothing in
this Agreement shall prevent or limit Employee's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which Employee may
qualify, nor shall anything herein limit or otherwise affect (except as provided
in Section 7 above) such rights as Employee may have under any stock option or
other agreements with the Company or any of its affiliated companies. Except as
otherwise provided in Section 6(d) above, amounts which are vested benefits or
which Employee is otherwise entitled to receive under any plan or program of the
Company or any of its affiliated companies at or subsequent to the date of any
Qualified Termination shall be payable in accordance with such plan or program.
13. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counter-claim, recoupment,
defense or other claim, right or action which the Company may have against
Employee or others. In no event shall Employee be obligated to seek other
employment or to take any other action by way of mitigation of the amounts
payable to Employee under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which Employee may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Employee about the
amount of any payment pursuant to Section 10 of this Agreement), plus in each
case interest at the Applicable Rate (as defined in Section 10 above).
14. Successors.
(a) This Agreement is personal to Employee, and without the prior
written consent of the Company shall not be assignable by Employee other
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by Employee's legal
representatives.
8
<PAGE> 9
(b) The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company.
15. Governing Law. This Agreement is made and entered into in the State
of California, and the laws of California shall govern its validity and
interpretation in the performance by the parties hereto of their respective
duties and obligations hereunder.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties respecting the benefits due Employee in the event of a
Change in Control followed by a Qualifying Termination, and there are no
representations, warranties or commitments, other than those set forth herein,
which relate to such benefits. This Agreement may be amended or modified only by
an instrument in writing executed by all of the parties hereto.
17. Dispute Resolution.
(a) Any controversy or dispute between the parties involving the
construction, interpretation, application or performance of the terms,
covenants, or conditions of this Agreement or in any way arising under
this Agreement (a "Covered Dispute") shall, on demand by either of the
parties by written notice served on the other party in the manner
prescribed in Section 18 hereof, be referenced pursuant to the procedures
described in California Code of Civil Procedure ("CCP") Sections 638, et
seq., as they may be amended from time to time (the "Reference
Procedures"), to a retired Judge from the Superior Court for the County of
Los Angeles or the County of Orange for a decision.
(b) The Reference Procedures shall be commenced by either party by
the filing in the Superior Court of the State of California for the County
of Orange of a petition pursuant to CCP Section 638(1) (a "Petition").
Said Petition shall designate as a referee a Judge from the list of
retired Los Angeles County and Orange County Superior Court Judges who
have made themselves available for trial or settlement of civil litigation
under said Reference Procedures. If the parties hereto are unable to agree
on the designation of a particular retired Los Angeles County or Orange
County Superior Court Judge or the designated Judge is unavailable or
unable to serve in such capacity, request shall be made in said Petition
that the Presiding or Assistant Presiding Judge of the Orange County
Superior Court appoint as referee a retired Los Angeles County or Orange
County Superior Court Judge from the aforementioned list.
(c) Except as hereafter agreed by the parties, the referee shall
apply the law of California in deciding the issues submitted hereunder.
Unless formal pleadings are waived by agreement among the parties and the
referee, the moving party shall file and serve its complaint within 15
days from the date a referee is designated as provided herein, and the
other party shall have 15 days thereafter in which to plead to said
complaint. Each of the parties reserves its respective rights to allege
and assert in such pleadings all claims, causes of action, contentions and
defenses which it may have arising out of or relating to the general
subject matter of the Covered Dispute that is being determined
9
<PAGE> 10
pursuant to the Reference Procedures. Reasonable notice of any motions
before the referee shall be given, and all matters shall be set at the
convenience of the referee. Discovery shall be conducted as the parties
agree or as allowed by the referee. Unless waived by each of the parties,
a reporter shall be present at all proceedings before the referee.
(d) It is the parties' intention by this Section 17 that all issues
of fact and law and all matters of a legal and equitable nature related to
any Covered Dispute will be submitted for determination by a referee
designated as provided herein. Accordingly, the parties hereby stipulate
that a referee designated as provided herein shall have all powers of a
Judge of the Superior Court including, without limitation, the power to
grant equitable and interlocutory and permanent injunctive relief.
(e) Each of the parties specifically (i) consents to the exercise
of jurisdiction over his or her person by a referee designated as provided
herein with respect to any and all Covered Disputes; and (ii) consents to
the personal jurisdiction of the California courts with respect to any
appeal or review of the decision of any such referee.
(f) Each of the parties acknowledges that the decision by a referee
designated as provided herein shall be a basis for a judgment as provided
in CCP Section 644 and shall be subject to exception and review as
provided in CCP Section 645.
18. Notices. Any notice or communications required or permitted to be
given to the parties hereto shall be delivered personally, sent via facsimile or
via an overnight courier service or be sent by United States registered or
certified mail, postage prepaid and return receipt requested, and addressed or
delivered as follows, or as such other addresses the party addressed may have
substituted by notice pursuant to this Section:
(a) If to the Company: Allergan, Inc.
2525 Dupont Drive
Irvine, California 92612
Attn: General Counsel
(b) If to Employee:
19. Captions. The captions of this Agreement are inserted for
convenience and do not constitute a part hereof.
20. Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein and there shall be deemed substituted for such invalid,
illegal or unenforceable provision such other provision as will most nearly
accomplish the intent of the parties to the extent permitted by the
10
<PAGE> 11
applicable law. In case this Agreement, or any one or more of the provisions
hereof, shall be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, this Agreement or any such
provision thereof shall not as a consequence thereof be deemed to be invalid,
illegal or unenforceable in any other governmental jurisdiction or subdivision
thereof.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one in the same Agreement.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above.
Dated: , 1998. ALLERGAN, INC.
By:
-------------------------------------
David E.I. Pyott
Chief Executive Officer
Dated: , 1998. ----------------------------------------
11
<PAGE> 1
EXHIBIT 10.14
FIRST AMENDMENT TO
ALLERGAN, INC.
PENSION PLAN
(RESTATED 1996)
The ALLERGAN, INC. PENSION PLAN (the "Plan") is hereby amended to read as
follows:
I. The definition of the term "Employee" in Section 1.1 of the Plan is amended
in its entirety, effective October 1, 1997, as follows:
"'Employee' means a person who is employed by or is an officer of the
Company or an Affiliate except that such term shall not include (a) any
individual who performs services for the Company or an Affiliate and who is
classified or paid as an independent contractor (regardless of his or her
classification for federal tax or other legal purposes) by the Company or
Affiliate and (b) any individual, whether a Leased Employee or otherwise, who
performs services for the Company or an Affiliate pursuant to an agreement
between the Company or Affiliate and any other person including a leasing
organization."
II. Section 4.7 is amended in its entirety, effective January 1, 1997, as
follows:
"4.7 Mandatory Commencement of Benefits.
(a) A Participant's pension shall begin no later than sixty days
after the close of the Plan Year in which falls the later of his Normal
Retirement Date or the date he retires.
(b) In addition, payment shall begin no later than a
Participant's required beginning date determined under the rules of
Subparagraphs (i) and (ii) below:
(i) Participants attaining age 70-1/2 prior to 1999:
The required beginning date of a Participant who attains age 70-1/2 prior to
1999 shall be April 1 of the calendar year immediately following the year in
which the Participant attains age 70-1/2; provided, however, that a Participant,
other than a Five Percent Owner (as defined in Code Section 416(i) and
applicable regulations), who attains age 70-1/2 in 1996, 1997, or 1998 may elect
to defer the required beginning date until April 1 of the calendar year
following the later of the calendar year in which the Participant attains age
70-1/2 or retires.
(ii) Participants attaining age 70-1/2 after 1998: The
required beginning date of a Participant who attains age 70-1/2 after 1998 shall
be April 1 of the calendar year immediately following the later of the calendar
year in which the Participant
<PAGE> 2
attains age 70-1/2 or retires; provided, however, if such Participant is a Five
Percent Owner (as defined in Code Section 416(i) and applicable regulations)
with respect to the Plan Year ending in the calendar year in which such
Participant attains age 70-1/2, the required beginning date shall be April 1 of
the calendar year immediately following the year in which such Participant
attains age 70-1/2."
III. Section 5.4 is amended in its entirety, effective January 1, 1998, as
follows:
"5.4 Cash-Outs.
(a) If the lump sum Actuarial Equivalent of a Participant's
nonforfeitable Accrued Benefit does not exceed or has never exceeded $5,000, the
Participant or the Participant's beneficiary (i) shall be paid the lump sum
Actuarial Equivalent, or (ii) may elect to have an Eligible Rollover
Distribution paid directly by the Trustee to the trustee of an Eligible
Retirement Plan.
(b) If the lump sum Actuarial Equivalent of a Participant's
nonforfeitable Accrued Benefit exceeds $5,000, but does not exceed $10,000, the
Participant, or the Participant's beneficiary in the event of the Participant's
death, may elect (i) to be paid the lump sum Actuarial Equivalent, or (ii) to
have an Eligible Rollover Distribution paid directly by the Trustee to the
trustee of an Eligible Retirement Plan. No distribution may be elected under
this Paragraph (b) unless the Participant has attained at least Age 55 with 5 or
more Vesting Years. In addition, the election may not be made after pension
payments start, except that a Participant or a Participant's beneficiary whose
payments started prior to January 1, 1998 and whose lump sum Actuarial
Equivalent did not exceed $10,000 at the date payments started, may elect to be
paid the remaining lump sum Actuarial Equivalent. A married Participant who
elects under this Paragraph (b) must comply with the applicable requirements for
spousal consent.
(c) A Participant who has no nonforfeitable Accrued Benefit in
the Plan at the time of his Separation from Service shall be deemed to have been
cashed out with a zero cash benefit upon such Separation from Service."
IN WITNESS WHEREOF, Allergan, Inc. hereby executes this Amendment as of November
18, 1997.
ALLERGAN, INC.
By: /s/ FRANCIS R. TUNNEY, JR.
----------------------------------------------
Francis R. Tunney, Jr.
Corporate Vice President, General Counsel
and Secretary
2
<PAGE> 1
EXHIBIT 10.17
[LOGO]ALLERGAN
1998
MANAGEMENT BONUS PLAN
JANUARY 1998
<PAGE> 2
_____________________________________________________________________________
PURPOSE OF THE PLAN
The Allergan, Inc. Management Bonus Plan (the "Plan") is designed to reward
eligible management-level employees for their contributions to providing
Allergan's shareholders increased value for their investment through the
successful accomplishment of specific financial objectives and individual
performance objectives.
_____________________________________________________________________________
PLAN YEAR
The Plan year runs from January 1, 1998 through December 31, 1998 for all
locations that have a fiscal year beginning January 1 and ending December 31.
For the international locations with fiscal years beginning December 1 and
ending November 1, the Plan year is December 1, 1997 to November 30, 1998.
_____________________________________________________________________________
ELIGIBILITY
All regular full-time and part-time employees scheduled to work 20 or more hours
per week in salary grades 7E and above who are not covered by any other bonus or
sales incentive plan are eligible to participate in the Plan. For the locations
where the Plan year is January 1, 1998 through December 31, 1998, the
participants must be employed on or before June 30, 1998; for the locations
where the Plan year is December 1, 1997 through November 30, 1998, the
participants must be employed on or before May 31, 1998. Participants must be
actively employed by Allergan on the date bonuses are paid in order to be
eligible to receive a bonus. Participants who resign or are terminated for
reasons other than those noted below will receive no bonus.
Bonuses, if any, for participants who become eligible after the beginning of the
plan year, retire (defined as age 55 or over with at least 5 years of service),
become disabled, die or transfer into a position covered by another incentive
plan will be prorated. Bonuses, if any, for participants who are laid-off will
be prorated provided the participant was eligible for at least six months of the
Plan year. All proration will be based on the number of months of participation
in the Plan during the Plan year.
_____________________________________________________________________________
PERFORMANCE OBJECTIVES
Bonuses for Plan participants are based on both corporate performance and
individual performance in relation to pre-established objectives, as follows:
- - CORPORATE OBJECTIVES -- Corporate performance is measured in terms of
Allergan, Inc.'s Earnings Per Share (EPS) compared to objective. EPS is
defined as net earnings divided by the weighted average number of common
and common equivalent shares.
- - INDIVIDUAL OBJECTIVES -- MBOs are prepared by each participant and his
or her supervisor at the beginning of the Plan year and may be modified
throughout the year as necessary. Objectives should reflect major
results and accomplishments to be achieved in order to meet short- and
long-term business goals which contribute to increased shareholder
value. MBOs are expressed as specific, quantifiable measures of
performance in relation to key operating decisions for the participant's
business unit, such as managing inventory levels, receivables, expenses,
or payables; increasing sales; eliminating unnecessary capital
expenditures, etc.
At the end of the Plan year, the supervisor evaluates the participant's
performance in relation to his or her objectives in order to determine
the size of the bonus award, if any. A more detailed description of how
the award is calculated is provided under "Individual Bonus Award
Calculation."
<PAGE> 3
_____________________________________________________________________________
BONUS POOL CALCULATION
The two components of this calculation are:
1. Individual objectives; and,
2. Corporate financial objectives.
INDIVIDUAL OBJECTIVES -- This component is funded at 75% of target awards for
non-officers (grade 7E - 12E) and at 50% for officers (grade 13E+).
CORPORATE FINANCIAL OBJECTIVES -- This component is funded according to the
following table if corporate eps performance is within 1998 EPS range.
<TABLE>
<CAPTION>
% OF TARGET BONUS
1998 EPS RANGE 7E - 12E 13E+
- --------------- ----------- ------------
<S> <C> <C>
- -$0.10 2.5% 5%
- -$0.08 7% 14%
- -$0.06 11.5% 23%
- -$0.04 16% 32%
- -$0.02 20.5% 41%
Target 25% 50%
Above Target 50% of incremental earnings will be added to the
bonus pool; 50% returned to the company.
</TABLE>
If actual EPS results fall between the performance levels shown above, bonuses
will be prorated accordingly. At the end of the year, the President and Chief
Executive Officer of Allergan, Inc. may recommend adjustments to the bonus
funding levels to the Organization and Compensation Committee after
consideration of key operating results.
_____________________________________________________________________________
INDIVIDUAL BONUS AWARD CALCULATION
Target bonus awards are expressed as a percentage of the participant's year-end
base salary. For U.S. participants, year-end is December 31, 1998; for
international participants, year-end is November 30, 1998. The target
percentages vary by salary grade (see addendum). If a participant changes grades
during the plan year, his or her bonus will be prorated to reflect the amount of
time in each grade, the participant's salary at the time of grade change and at
year-end, and the bonus percentage relating to each grade.
A participant's actual bonus award may vary above or below the targeted level
based on the supervisor's evaluation of his or her performance in relation to
the predetermined MBOs. The bonus can be modified between 0%-150% of the
targeted bonus. However, the total of all bonus awards given within each
business unit must total no more than 100% of the total bonus pool dollars
allocated to that business unit.
<PAGE> 4
_____________________________________________________________________________
METHOD OF PAYMENT
Cash awards are paid following the review and authorization of bonuses by the
Board of Directors, usually in late February following the close of the Plan
year. Bonuses will be paid within 30 days following management communication of
the award, through the participant's normal payroll channel.
_____________________________________________________________________________
CHANGE-IN-CONTROL
If a change-in-control occurs after the close of the Plan year but prior to
payment and Company performance supports bonus pool funding, participants will
be eligible for a bonus based on performance in relation to predetermined
objectives.
If the change-in-control occurs during the Plan year, participants will be
eligible for a bonus based on performance of corporate objectives and individual
objectives. The bonus will be prorated to reflect the number of months prior to
the change-in-control. For purposes of determining achievement of corporate EPS
objective, the Company will utilize its monthly EPS target.
_____________________________________________________________________________
CONFIDENTIALITY
This plan document contains confidential, non-public information about
Allergan's Management Bonus Plan. The information is intended solely for
Allergan's management and is not to be disclosed to persons outside of Allergan
or to non-management personnel who don't have a need to know
_____________________________________________________________________________
GENERAL
Management reserves the right to define corporate performance and individual
performance and to review, alter, amend, or terminate the Plan at any time. This
Plan does not constitute a contract of employment and cannot be relied upon as
such. Any questions regarding this Plan should be directed to the Human
Resources department or the Director, Compensation. This Management Bonus Plan
document supersedes any previous document you may have received.
<PAGE> 1
EXHIBIT 10.21
ALLERGAN, INC.
STOCK PRICE INCENTIVE PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Stock Price Incentive Plan (the "PLAN") is to
provide a means of paying incentive compensation to certain key management
employees who contribute materially to the success of Allergan, Inc. (the
"COMPANY"). By relating incentive rewards of certain key management employees to
increases in market price of the Company's common stock, the Company will be in
a position to provide additional motivation and to reward extraordinary
performance by making those employees most responsible for such performance
participants in the Company's success and to align their interests with the
interests of the Company's stockholders.
ARTICLE II
EFFECTIVE DATE AND TERM OF PLAN
2.1 EFFECTIVE DATE OF PLAN. This Plan is adopted by the Committee
effective as of January 1, 1998, subject to stockholder approval. In the event
any Goal is achieved prior to the date of stockholder approval, the Committee
shall pay the amounts due to Participants under this Plan after such stockholder
approval is obtained along with interest at the prime rate from the latest time
such amounts otherwise would have been due to the Participants under this Plan.
2.2 AMENDMENT AND TERMINATION OF PLAN. The Board may terminate this Plan
or modify or amend this Plan from time to time in such respects as it shall deem
advisable. Unless this Plan shall theretofore have been terminated as herein
provided, the Plan shall automatically terminate on December 31, 2000 and the
Committee shall not have authority to award Incentive Compensation after
December 31, 2000. No termination or amendment of this Plan under this Section
2.2 shall reduce the amount of the benefit which a Participant has already
become entitled to under Article 5, unless such Participant consents to such
reduction.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1. ADMINISTRATION. This Plan shall be administered by the Company's
Organization and Compensation Committee of the Board of Directors (the
"COMMITTEE"). The Committee shall be comprised solely of two or more outside
directors as defined in Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "CODE") and the regulations promulgated thereunder. No member of
the Committee may, while serving on the Committee, also be a Participant in this
Plan. The Committee shall administer this Plan in accordance with its terms.
<PAGE> 2
3.2 AUTHORITY OF THE COMMITTEE. Subject to the express provisions of
this Plan, the Committee has the authority to interpret this Plan, to determine
the terms and conditions of Incentive Compensation, to make all determinations
necessary or advisable for the administration of this Plan, to prescribe, amend
and rescind rules and regulations for the administration hereof as it may deem
desirable, and otherwise to carry out the terms of this Plan. All
interpretations, determinations and actions by the Committee shall be final,
conclusive and binding. Any action taken by, or inaction of, the Committee
relating to this Plan shall be within the absolute discretion of the Committee
and shall be conclusive and binding upon all persons, subject only to compliance
with the express provisions hereof.
3.3 ORGANIZATION AND OPERATION OF COMMITTEE. The Committee shall act by
a majority vote of its members or by unanimous written consent of its members.
The Committee may authorize any one or more of its members or any specifically
designated officer of the Company to execute any document or documents on behalf
of the Committee. The Committee may appoint such accountants, counsel,
specialists, and other persons as it deems necessary or desirable in connection
with the administration of this Plan.
3.4 RELIANCE ON REPORTS. Each member of the Committee and each member of
the Board shall be fully justified in relying or acting in good faith upon any
opinion or report made by the independent public accountants of this Company and
upon any other opinions, reports or information furnished in connection with
this Plan by any accountant, counsel, or other specialist (including financial
officers of the Company). In no event shall any person who is or shall have been
a member of the Committee or of the Board be liable for any determination made
or other action taken or any omission to act in reliance upon any such opinion,
report or information or for any action, or failure to act, if in good faith.
3.5 RECORDS AND REPORTS. The Committee shall keep a record of all its
proceedings and acts, and shall keep all such books of account, records and
other data as may be necessary for proper administration of this Plan.
3.6 INVALID PROVISIONS. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid and unenforceable provision were not contained herein.
3.7 GOVERNING LAW. This Plan shall be governed by and interpreted in
accordance with the internal laws of the State of California, without giving
effect to the principles of the conflicts of laws thereof.
ARTICLE IV
ELIGIBILITY AND PARTICIPATION IN THE PLAN
4.1 ELIGIBILITY. To be eligible as a Participant under this Plan, an
employee must be an officer of the Company at the corporate vice president
(Grade 13) or higher level.
4.2 NEW PARTICIPANTS. Participants shall be selected by the Committee
from among those persons who become eligible under Section 4.1. New Participants
2
<PAGE> 3
added during the period from January 1, 1998 through December 31, 1998 shall
participate in this Plan without proration. New Participants added during the
period from January 1, 1999 through December 31, 1999 shall participate in this
Plan on the basis of a 50% proration. No new Participants may be added during
the third calendar year of this Plan.
4.3 DURATION OF PARTICIPATION. A person shall become a Participant upon
selection as a Participant pursuant to the preceding provisions of this Article
4. A person shall cease to be a Participant upon the earlier of such person's
(i) death, (ii) retirement, or (iii) termination of eligibility as a Participant
(including termination of employment). The Participant must be an employee of
the Company on the date of the relevant Goal achievement in order to receive any
Incentive Compensation with respect to that Goal achievement.
4.4 NO EMPLOYMENT RIGHTS. Neither this Plan nor any action taken
hereunder shall confer or be deemed to confer upon any employee any right to be
retained in the employ of the Company, or constitute any contract or agreement
for employment or interfere in any way with the right of the Company to reduce
any Participant's compensation or other benefits or to terminate the employment
of such Participant, with or without cause.
4.5 NONTRANSFERABILITY. A person's rights and interests under this Plan,
including amounts payable, may not be assigned, pledged, transferred or
otherwise hypothecated except, in the event of an employee's death, to his
designated beneficiary as provided in this Plan, or in the absence of such
designation, to his heirs, devisees or legatees by will or the laws of descent
and distribution.
4.6 TAX WITHHOLDING. The Company shall have the right to deduct any
Federal, state, local or foreign taxes or other charges required by law to be
withheld from payments made to participants under this Plan.
4.7 UNSECURED OBLIGATIONS. Participants under this Plan shall not have
any interest in any fund or specific assets of the Company by reason of this
Plan. No trust fund shall be created in connection with this Plan, and there
shall be no funding of amounts which may become or are payable to any
Participant.
ARTICLE V
DETERMINATION OF INCENTIVE COMPENSATION
5.1 FIRST GOAL. In the event that the First Goal is achieved for twenty
(20) consecutive trading days at any time during the Performance Period, each
Participant shall be entitled to an Incentive Compensation payment equal to 100%
of such Participant's Base Salary as of such twentieth day; provided, however,
that if (i) the First Goal is achieved for ten (10) or more consecutive trading
days but less than the required twenty (20) consecutive trading days and (ii)
the Committee makes a good faith determination that the failure to sustain the
First Goal for the required twenty (20) consecutive trading day period was
predominately due to factors external to the Company's performance, then each
Participant shall be entitled to an Incentive Compensation payment equal to 100%
of such Participant's Base Salary as of such twentieth day. Notwithstanding
anything herein to the contrary, there may not be more than one (1) First Goal
attained during the Performance Period.
3
<PAGE> 4
5.2 SECOND GOAL. In the event that the Second Goal is achieved for
twenty (20) consecutive trading days at any time during the Performance Period,
each Participant shall be entitled to an Incentive Compensation payment equal to
200% of such Participant's Base Salary as of such twentieth day; provided,
however, that if (i) the Second Goal is achieved for ten (10) or more
consecutive trading days but less than the required twenty (20) consecutive
trading days and (ii) the Committee makes a good faith determination that the
failure to sustain the Second Goal for the required twenty (20) consecutive
trading day period was predominately due to factors external to the Company's
performance, then each Participant shall be entitled to an Incentive
Compensation payment equal to 200% of such Participant's Base Salary as of such
twentieth day. Notwithstanding anything herein to the contrary, there may not be
more than one (1) Second Goal attained during the Performance Period.
ARTICLE VI
PAYMENT OF INCENTIVE COMPENSATION
6.1 FORM OF PAYMENT. The Committee shall have the discretion to
determine whether the Incentive Compensation shall be paid in cash as a lump
sum, in common stock of the Company or in any combination thereof. If the
Committee elects to pay Incentive Compensation in the common stock of the
Company, in whole or in part, such common stock shall be valued at the average
of the high and low prices of the Company's common stock on the New York Stock
Exchange as reported in the Wall Street Journal for the day on which the
Committee makes such election. All Incentive Compensation shall be paid within
thirty (30) days of the Committee's determination that Incentive Compensation
shall be paid in accordance with Article 5 hereof, unless deferred by the
Participant in accordance with any applicable program for deferring incentive
compensation under which such Participant has made a valid election to defer all
or part of such award.
6.2 SOURCE OF SHARES. Any common stock to be issued under this Plan in
accordance with Section 6.1 will be made available, at the discretion of the
Board, either from authorized but unissued shares or from shares held in
treasury.
6.3 DEATH OR TERMINATION OF EMPLOYMENT PRIOR TO FULL PAYMENT.
(a) In the event that a Participant has amounts payable as
Incentive Compensation under this Plan in accordance with Article 5 or Article 7
and dies prior to the payment of such amounts, the amounts payable at the time
of the Participant's death shall be paid to the Participant's beneficiary or, if
no beneficiary was designated by the Participant, to the Participant's estate.
(b) In the event that a Participant has amounts payable as
Incentive Compensation under this Plan in accordance with Article 5 or Article 7
and retires or is no longer eligible to be a Participant prior to the payment of
such amounts, the amounts payable at the time the Participant retires or at the
time the Participant's eligibility changes shall be paid to the Participant.
ARTICLE VII
REORGANIZATIONS
As of the effective time and date of any Change in Control this Plan and
the Participant's rights hereunder shall automatically terminate, the Committee
shall not
4
<PAGE> 5
have authority to award Incentive Compensation and no Incentive Compensation
shall be paid. Notwithstanding the foregoing, if (i) the Committee previously
determined that Incentive Compensation shall be paid in accordance with Article
5 hereof and such Incentive Compensation has not yet been paid in accordance
with Article 6 hereof or (ii) the value of the per share Change in Control
consideration to be received by the Company's stockholders in such Change in
Control transaction, as determined in good faith by the Committee, equals or
exceeds the First Goal or the Second Goal, then the applicable Incentive
Compensation shall be paid prior to or at the effective time of the Change in
Control.
ARTICLE VIII
DEFINITIONS
Capitalized terms used in this Plan and not otherwise defined shall have
the meanings set forth below:
"BASE SALARY" shall mean the Participant's base annual compensation
excluding any overtime or other elements of compensation. Without limiting the
generality of the foregoing, Base Salary shall not include commissions, bonuses,
incentive compensation, automobile or other expense allowances or any other
compensation generally regarded as perquisites.
"BOARD" shall mean the Board of Directors of the Company.
"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 the Company
representing 50% or more of the combined voting power of the Company's then
outstanding voting securities;
(ii) Individuals who, as of the effective 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 the Company'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 the
Company, 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 the Company approve a merger or consolidation
with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company 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 power of the
voting securities of the Company or such other entity outstanding immediately
after such merger or consolidation, and
5
<PAGE> 6
(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 the Company's then outstanding voting
securities; or
(iv) The stockholders of the Company 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 definition, a Change in
Control shall not be deemed to have occurred (1) if the "person" described in
the preceding provisions of this definition is an underwriter or underwriting
syndicate that has acquired the ownership of 50% or more of the combined voting
power of the Company's then outstanding voting securities solely in connection
with a public offering of the Company's securities or (2) if the "person"
described in the preceding provisions of this definition 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.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FIRST GOAL" shall mean a Stock Price of $50.00 per share.
"GOAL" shall mean the First Goal and the Second Goal, collectively.
"INCENTIVE COMPENSATION" shall mean the dollar amount awarded to a
Participant.
"PARTICIPANT" means each officer of the Company (corporate vice
president or above) who is selected as a participant and who continues to be a
participant under the provisions of this Plan.
"PERFORMANCE PERIOD" shall mean the three (3) years beginning January 1,
1998 and ending December 31, 2000.
"SECOND GOAL" shall mean a Stock Price of $60.00 per share.
"STOCK PRICE" shall mean the closing price of the Company's common stock
on the New York Stock Exchange as reported in the Wall Street Journal. The Stock
Price described in the definition of the First Goal and the Second Goal shall be
adjusted appropriately (as determined by the Committee in good faith) for any
stock splits, reverse stock splits or stock dividends.
6
<PAGE> 1
EXHIBIT 10.22
[ALLERGAN LETTERHEAD]
September 25, 1997
Mr. William C. Shepherd
1206 E. Balboa Boulevard
Balboa, CA 92661-1420
Dear Bill,
This letter agreement and release of all claims will serve to set forth all
agreements and understandings relative to your termination from Allergan. The
reason for the termination of employment is Early Retirement by Mutual
Agreement.
1. TERMINATION DATE
Your last day as an active employee will be January 1, 1998, (your
"Termination Date").
2. FINAL PAY
You will be paid through your Termination Date.
In addition, you will be paid for any earned but unused vacation hours, up
to the maximum accrual of 13 weeks (520 hours) of pay at your base salary.
You will cease to accrue additional vacation benefits after your Termination
Date.
3. RESIGNATION AS DIRECTOR
You shall tender your resignation as a member of the Allergan, Inc. Board of
Directors and as a Director and/or officer of any Allergan subsidiary on
which you serve, effective on your Termination Date.
4. SEVERANCE PAY
You will receive severance pay over the next thirty six (36) months
following your Termination Date, payable semi-monthly. This payment is
contingent on your signing this letter agreement. The total severance value,
at the rate of $89,166.67 per month, is $3,210,000. This rate reflects three
times your highest annual salary in the last 5 year period plus three times
the average of your two highest bonuses in the last 5 year period. If you
elect not to sign this letter agreement, your severance will be equal to 3
months' base salary or $267,500. The 36-month period or the 3-month period
(depending on whether you sign this letter agreement) is referred to in this
letter as the "Severance Pay Period."
5. CONSULTING SUPPORT TO ALLERGAN
As part of the consideration for your severance pay, you agree to provide
consulting support to Allergan as requested by Allergan's CEO, up to a
maximum of 50 days per year, during the severance pay period.
- --------------------------------------------------------------------------------
1 9/25/97 Initialed By: /S/ W. GRANT
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W. Grant Date
Initialed By: /S/ WCS 9/29/97
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W. Shepherd Date
<PAGE> 2
6. OFFICE
You will be provided with off site office and secretarial support, as
approved by the Allergan CEO, during the severance pay period.
7. BENEFITS
Normal benefits, i.e., vacation accrual, personal accident, and business
travel accident coverage, will end on your Termination Date. Medical,
dental, group term life, disability, and flexible spending account benefits
will continue beyond your Termination Date during the Severance Pay Period,
or until you become eligible for these healthcare benefits under another
employer group plan, whichever comes first. Standard employee premiums will
be deducted from each semi-monthly paycheck.
8. RETIREE MEDICAL
You are eligible for Retiree medical coverage.
9. EXECUTIVE PERQUISITES
On your Termination Date you will receive the cash value of your executive
perquisites for your Severance Pay Period, as listed below.
- Auto allowance: $750.00 per month x 36 months.
- Gasoline allowance: $1,500.00 per year x 3 years.
- Club allowance: $20,040.00 per year x 3 years.
- Tax and Financial Planning: $13,360.00 per year x 3 years.
Ownership of any club memberships to which you belong will be transferred to
you. All other perquisites and benefits not specifically noted will end on
your Termination Date.
10. EXPENSE REIMBURSEMENT AND ADVANCES
You may file an expense claim for business expenses and executive
perquisites entitled for reimbursement as incurred through your Termination
Date. Advances should be cleared by this date, as well.
11. PENSION, SIP, AND ESOP
Please refer to the attached information in the document titled, Benefits
Summary for Terminating Employees, for treatment of your balances or
eligibility in these plans. You will receive 3 years additional pension
benefit accrual under your Severance Pay Period. Your pension will be based
on your last highest salary in the last 5 years plus the average of your
last 2 highest bonuses. ESOP and SIP participation end on your Termination
Date.
12. BONUS
You are eligible for a bonus for 1997 as determined at the discretion of the
O&CC.
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2 9/25/97 Initialed By: /S/ W. GRANT
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W. Grant Date
Initialed By: /S/ WCS 9/29/97
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W. Shepherd Date
<PAGE> 3
13. STOCK AWARDS
The vesting of all your unvested stock options will be accelerated on your
Termination Date, upon agreement with the terms of this letter agreement.
You may exercise any vested stock options, at your choice, according to plan
documents.
Your stock option exercise period is the earlier of: A) 5 years from your
Termination Date; or B) the normal expiration date.
As has been past practice, you should not exercise stock options or trade in
stock of Allergan, directly or indirectly, without first consulting with
Frank Tunney or Susan Glass.
14. EXECUTIVE DEFERRED COMPENSATION PLAN
Your contributions under this plan will be treated as outlined under the
provisions of the plan.
15. COMPANY INFORMATION
You acknowledge that during the term of your employment you had, and that
during the Severance Pay Period and subsequent thereto you may have, access
to information confidential and/or proprietary to Allergan including, but
not limited to, trade secrets, technical data or know-how relating to
investigational or marketed products, research, or manufacturing processes,
or any information of a business, financial, or technical nature (not
already publicly available in a reasonably integrated form), and that such
information shall be and remain at all times the exclusive property of
Allergan. You shall maintain such information in confidence and shall not
disclose such information to anyone else, nor shall you use it for your own
benefit or for the benefit of others, except as expressly directed in
writing by Allergan during the term of this letter agreement or at any time
thereafter.
16. COMPANY PROPERTY
You must return all company property on your Termination Date. This
includes, but is not limited to, credit and travel cards, building and card
keys, office equipment such as calculators, Dictaphones, modems, and all
other items which are Company property. This also includes any report,
customer list, price list, files, notebooks or other materials pertaining to
the Company's business which are in your possession or under your control.
You may purchase your Allergan computer at a mutually acceptable price, to
be determined.
17. INDEMNITY AGREEMENT
The provisions of the Indemnity Agreement between you and Allergan continue
to apply in accordance with its terms.
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3 9/25/97 Initialed By: /S/ W. GRANT
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W. Grant Date
Initialed By: /S/ WCS 9/29/97
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W. Shepherd Date
<PAGE> 4
18. RELEASE OF ALL CLAIMS
By executing this letter agreement you hereby release and discharge Allergan
from any and all claims, debts, wages, liabilities, promises, contracts,
agreements, obligations, undertakings and causes of action whatsoever,
whether known or unknown, arising out of, or in any way connected with, any
transaction, event, act or omission occurring on or prior to the date of
this Release Agreement regarding your employment with Allergan or your
separation therefrom.
You intend in executing this agreement to WAIVE AND RELINQUISH all rights
and benefits you have or may have pursuant to the provisions of Section 1542
of the California Civil Code, which provides as follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
Without limiting the foregoing, you acknowledge and agree that the benefits
provided to you in this Agreement supersede and replace any benefits that
might be owed to you under California law as a result of your employment
relationship with Allergan and the termination of your employment.
Furthermore, you agree that if you are entitled to Workers' Compensation
benefits as a result of a work-related injury incurred during your
employment with Allergan, for which no claim presently is pending, Allergan
may offset from the above-quoted severance pay any such Workers'
Compensation benefits you are paid.
19.ACKNOWLEDGMENT OF UNDERSTANDING
You have read the foregoing letter agreement and understand, accept, and
agree to its contents and sign it voluntarily without coercion and with full
understanding that you are releasing and waiving any and all claims that you
have or might have against Allergan connected with your employment or
separation. You expressly understand that you are receiving the sum of
$2,942,500 as a portion of your severance pay because you have executed this
letter agreement.
You have 21 days to consider this letter agreement before you sign it; you
may sign it earlier if you so wish, but the decision is entirely yours. Once
you sign this letter agreement, you have 7 days after signing it to revoke
it. To revoke it, please contact Rick Hilles in writing.
You have the right to consult with an attorney regarding the consequences of
this letter agreement and release and you are encouraged to do so.
20. CONFIDENTIALITY
Neither party shall reveal or discuss the contents of this letter agreement,
unless compelled to do so in order to enforce the terms hereof or required
to do so by law. You may, however, disclose and discuss the contents of this
letter agreement to your financial advisor(s), your lawyer(s), and your
wife, provided they agree to keep the information confidential. You
understand and agree that unauthorized disclosure of the terms and
conditions of this letter agreement to a third party will result in the
termination of all non-ERISA benefits and payments contained herein.
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4 9/25/97 Initialed By: /S/ W. GRANT
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W. Grant Date
Initialed By: /S/ WCS 9/29/97
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W. Shepherd Date
<PAGE> 5
21. SAVINGS CLAUSE
If any term of this letter agreement is declared void or is otherwise
unenforceable, it shall not alter the enforceability or validity of the
remaining paragraphs and terms of this settlement and release, each of which
shall remain fully binding on the parties.
22. CONTROLLING LAW
Should any dispute arise as to the interpretation, application, or breach of
this letter agreement, the resolution of such dispute shall be governed by
the laws of California.
23. MEDIATION
Any future dispute related to this letter agreement, that cannot be
resolved, shall be resolved by reference pursuant to Section 638 of the
California Code of Civil Procedure and all disputes shall be resolved by the
Judicial Arbitration and Mediation Service (JAMS) in Orange County,
California. Attorney's fees and costs shall be awarded to the party
prevailing in the dispute and any resolution, opinion, or order of JAMS may
be entered as a judgment of the Superior Court and appealed to the
appropriate appellate court pursuant to Section 644 of the California Code
of Civil Procedure. JAMS will control any discovery, rights, privileges, the
hearing dates, and all other matters connected therewith.
24. ENTIRE AGREEMENT
This letter agreement is the entire agreement concerning the benefits and
obligations relating to the termination of your employment and supersedes
all prior writings and discussions; and there are no representations,
warranties, or commitments other than those set forth in this letter
agreement. This letter agreement may be amended only in writing.
Sincerely,
/s/ WILLIAM R. GRANT
William Grant
cc: Richard J. Hilles
Tamara J. Erickson
att: Benefits Summary for Terminating Employees
Executive Supplement for Terminating Employees
---------------------------------------------------
AGREED TO AND ACCEPTED BY:
/s/ WILLIAM C. SHEPHERD 9/29/97
----------------------------- ---------------------
William C. Shepherd Date
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5 9/25/97
<PAGE> 1
EXHIBIT 10.23
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement (this "Agreement") is made as of the
6th day of March, 1998 among Allergan, Inc., a Delaware corporation
("Allergan"), each Allergan Affiliate listed on the signature page hereto (an
"Allergan Affiliate") and Allergan Specialty Therapeutics, Inc., a Delaware
corporation ("ASTI").
BACKGROUND
A. ASTI has been formed for the purpose of researching and developing
human pharmaceutical products, including products using Allergan Technology (as
defined herein), and commercializing such products, most likely through
licensing to Allergan.
B. Allergan and ASTI have entered into the Research and Development
Agreement (as defined herein) for the research and development of such products
and related activities.
C. Allergan is willing to grant to ASTI a license to use Allergan
Technology solely for the purposes set forth above on the terms set forth herein
and in the Research and Development Agreement and the License Option Agreement
(as defined herein).
Now, therefore, the parties agree as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Allergan Technology" shall mean all Proprietary Rights, whether
patented or unpatented, owned by, licensed to or controlled by Allergan, as of
the date of this Agreement or during the term of the Research and Development
Agreement, relating to retinoid and neuroprotective technologies, including but
not limited to Tazarotene, Memantine and other glutamate and ion channel
blockers and Allergan's and each Allergan Affiliate's rights under the
agreements listed on Exhibit A hereto. "Allergan Technology" shall also include
any additional technology which Allergan designates expressly in a writing
delivered to ASTI as Allergan Technology for purposes of this Agreement.
Notwithstanding the foregoing, however, in no event shall "Allergan Technology"
include, and ASTI shall have no rights with respect to, (i) any topical
formulation of Tazarotene or the research, development, manufacture or
commercial sale or other use thereof or (ii) the commercial sale of Memantine
and/or products incorporating or based on Memantine outside of the United
States.
1.
<PAGE> 2
1.3 "ASTI Product" shall mean any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by ASTI's Board of Directors
for development as such under the Research and Development Agreement. Such
recommendations may be made on a Field of Use basis. The following compounds
have been selected as the initial ASTI Products as of the date hereof: (i)
Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be
selected from the RAR alpha-selective agonist class of retinoid compounds for
the treatment of various cancers.
1.4 "Developed Technology" shall mean Proprietary Rights that (a) are
first generated, conceived or reduced to practice, as the case may be, by
Allergan or by any third party in the course of performing activities undertaken
pursuant to the Research and Development Agreement or (b) are, in any manner,
acquired by, or otherwise obtained on behalf of, ASTI during the term of the
Research and Development Agreement from persons other than Allergan and are
necessary or useful to the research, development or commercialization of ASTI
Products or Pre-Selection Products.
1.5 "Distribution" shall mean Allergan's distribution of all of the
outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of
record on March 10, 1998.
1.6 "Field of Use" shall mean a particular disease state or set of
related disease states.
1.7 "Infringing Product" shall mean any product sold by a third party
which infringes or is alleged to infringe any patent or patents licensed to ASTI
hereunder and covering an ASTI Product.
1.8 "License Agreement" shall mean an exclusive license agreement for a
particular ASTI Product between Allergan and ASTI, entered into as a result of
Allergan's exercise of the License Option for such product.
1.9 "License Option" shall mean the option granted to Allergan pursuant
to the License Option Agreement.
1.10 "License Option Agreement" shall mean the License Option Agreement
dated as of the date hereof between Allergan and ASTI.
1.11 "Pre-Selection Work" shall mean research and pre-clinical
development work involving one or more product candidates owned or controlled by
Allergan or a third party funded by ASTI pursuant to the Research and
Development Agreement and undertaken in order to determine the suitability of
such candidate for research and development.
1.12 "Pre-Selection Product" shall mean a product, other than one which
becomes an ASTI Product, for which ASTI funds Pre-Selection Work.
1.13 "Pre-Existing Rights" shall mean the rights of each party other
than Allergan under the agreements listed on Exhibit A.
2.
<PAGE> 3
1.14 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
claiming any of the foregoing, owned by, licensed to or controlled by a person
and which such person has the right to license or sublicense. Proprietary Rights
shall not include trademarks.
1.15 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all of the outstanding shares of ASTI Class A Common Stock.
1.16 "Research and Development Agreement" shall mean the Research and
Development Agreement dated as of the date hereof between Allergan and ASTI.
1.17 "Therapeutic Agent" shall mean a drug, protein, peptide, gene,
compound or other pharmaceutically active ingredient.
2. LICENSE.
2.1 GRANT OF LICENSE. Allergan hereby grants to ASTI, on the terms and
conditions of this Agreement, a worldwide (except as set forth below), exclusive
license (subject to the Pre-Existing Rights), in perpetuity, with the right to
sublicense (as set forth below), to use the Allergan Technology to research and
develop ASTI Products, to conduct related activities (including Pre-Selection
Work), and to commercialize ASTI Products, but for no other purposes whatsoever;
provided, however, that, the foregoing license shall exclude (i) the research,
development, manufacture or commercial sale or other use of any topical
formulation of Tazarotene and (ii) the commercial sale of Memantine and/or
products incorporating or based on Memantine outside of the United States. ASTI
shall not sublicense any Allergan Technology to, or enter into other
arrangements with respect to any Allergan Technology with, any third party for
any purpose, except as set forth in Sections 2.2 and 2.3 hereof.
2.2 PERMITTED SUBLICENSES.
(a) Except as set forth in Section 2.2(b) hereof, ASTI may grant
sublicenses to Allergan and third parties to use the Allergan Technology solely
for the purpose of performing activities in connection with the research and
development of ASTI Products and conducting related activities (including
Pre-Selection Work); provided however, that, during the term of the Research and
Development Agreement, any such sublicenses shall be granted in accordance with
the terms of the Research and Development Agreement.
(b) If the License Option with respect to any ASTI Product in one
or more countries expires unexercised, from and after expiration of such License
Option in any such country, ASTI may sublicense Allergan Technology to a third
party or third parties solely to the extent necessary to complete the
development of, or to make (or have made) and use such ASTI Product, or to sell
(or have sold) such ASTI Product in such country.
2.3 CONDITIONS OF SUBLICENSES. Each sublicensee shall execute such
agreements as Allergan reasonably deems appropriate to protect the Allergan
Technology and to protect Allergan's rights under all agreements between
Allergan and ASTI and under the Purchase
3.
<PAGE> 4
Option. Each sublicensee shall have all the duties of ASTI hereunder with
respect to such sublicense, and each sublicensee shall acknowledge these duties
to Allergan in writing. No sublicense shall have the effect of relieving ASTI of
any of its obligations hereunder.
2.4 PRIOR AND FUTURE GRANTS. ASTI understands and acknowledges that
Allergan is in the business of researching and developing products incorporating
the Allergan Technology for its own account and under arrangements with third
parties, and as a result, the license granted hereunder is limited strictly to
use the Allergan Technology for the purpose of researching and developing ASTI
Products and conducting related activities (including Pre-Selection Work) and
commercializing ASTI Products. ASTI acknowledges that Allergan may use and may
grant third party licenses to use the Allergan Technology for any and all other
purposes.
2.5 LICENSE TO ALLERGAN. In addition, in the event that Allergan
provides ASTI with a Reversion Notice (as such term is defined in Section 2.4 of
the Research and Development Agreement) with respect to a Pre-Selection Product,
ASTI hereby grants to Allergan, effective upon the date of such Reversion
Notice, a worldwide, exclusive (even as to ASTI), perpetual license, with the
right to sublicense, to conduct research and development with respect to such
Pre-Selection Product and to make, have made, use, sell, have sold, import and
export such Pre-Selection Product, subject to Allergan's obligation to pay
Pre-Selection Product Payments and Developed Technology Royalties (as such terms
are defined in the Research and Development Agreement).
3. COVENANTS OF ASTI.
3.1 DILIGENCE. ASTI promptly shall commence and shall use diligent
efforts to develop ASTI Products in accordance with approved work plans and cost
estimates under the Research and Development Agreement, subject to Allergan
diligently undertaking its obligations thereunder.
3.2 TECHNOLOGY FEE. ASTI shall pay Allergan in arrears the following
Technology Fee payments:
(a) $833,333 thirty days after the date of the Distribution and
$833,333 on the same day of each of the next eleven months;
(b) $558,333 per month on the same day of each of the next twelve
months;
(c) $275,000 per month on the same day of each of the next twelve
months; and
(d) $166,667 per month on the same day of each of the next twelve
months;
provided, however, that ASTI shall no longer be obligated to make such payment
beginning with any month following the date on which the total number of ASTI
Products either under development by ASTI pursuant to the Research and
Development Agreement or licensed to Allergan pursuant to Allergan's exercise of
the License Option is less than two.
4.
<PAGE> 5
3.3 PRE-EXISTING OBLIGATIONS. ASTI agrees to perform and timely
discharge all of Allergan's and/or each Allergan Affiliate's obligations and
duties under each of the agreements listed on Exhibit A, including but not
limited to any and all royalty, milestone, non-disclosure, patent filing and/or
prosecution license grant and/or license back and/or similar or related
obligations and duties.
4. PATENTS.
4.1 INFRINGEMENT. Each party shall promptly notify the other of any
infringement or alleged infringement known to such party of any patent covering
Allergan Technology, by the manufacture, development, use or sale by a third
party of any Infringing Product.
4.2 ACTION BY ALLERGAN. Subject to the provisions of the Research and
Development Agreement and any License Agreement, in the event of any such
alleged infringement, Allergan shall have the right, at its own expense and with
the right to all recoveries, to take appropriate action to restrain such alleged
infringement. If Allergan takes any such action, ASTI shall cooperate fully with
Allergan in its pursuit thereof, at Allergan's expense, to the extent reasonably
requested by Allergan. If Allergan brings an action under this Section 4.2, the
parties shall share equally any recoveries, after Allergan is reimbursed for its
expenses of bringing the action (including reasonable attorneys' fees).
4.3 ACTION BY ASTI. If (a) the Infringing Product is substantially
similar to an ASTI Product (in that the Infringing Product incorporates the same
active Therapeutic Agent or Agents as such ASTI Product and, in the case of an
ASTI Product that utilizes Allergan drug delivery technology, a drug delivery
system substantially similar to the Allergan drug delivery system) for which the
License Option has expired unexercised, and (b) within 90 days after the written
notice from either party described above (or at any time thereafter), Allergan
has not taken appropriate action to restrain such alleged infringement, and (c)
at such time, the annualized unit sales volume of such Infringing Product in a
country over a period of at least two calendar quarters, equals or exceeds 25%
of the annualized unit sales volume of the related ASTI Product in such country
during the same period, then ASTI shall have the right, at its own expense and
with the right to all recoveries, to take such action as it deems appropriate to
restrain such alleged infringement. If ASTI takes any such action, Allergan
shall cooperate with ASTI in its pursuit thereof, at ASTI's expense, to the
extent reasonably requested by ASTI. If the third party in any such action
brings a counteraction for invalidation or misuse of a patent covering the
Allergan Technology or the ASTI Product, ASTI shall promptly notify Allergan,
and Allergan may, within six months after the notification, join and participate
in such action at its own expense. ASTI shall not settle any such action
relating to any alleged infringement which in any manner would adversely affect
Allergan Technology without the prior written consent of Allergan.
5. CONFIDENTIALITY OF INFORMATION.
5.1 CONFIDENTIALITY. During the term of this Agreement and for a period
of ten years following its termination, ASTI shall maintain in confidence all
Allergan Technology; provided, however, that nothing contained herein shall
prevent ASTI from disclosing any Allergan Technology to the extent such Allergan
Technology (a) is required to be disclosed in connection
5.
<PAGE> 6
with researching or developing ASTI Products, conducting Pre-Selection Work,
conducting related activities, securing necessary governmental authorization for
the marketing of ASTI Products, or directly or indirectly making, using or
selling ASTI Products, as permitted or provided for in the agreements between
the parties, (b) is required to be disclosed by law for the purpose of complying
with governmental regulations, (c) is disclosed in connection with any
sublicense permitted hereunder, (d) is known to or used by ASTI prior to the
date hereof (other than through disclosure by or on behalf of Allergan) as
evidenced by ASTI's written records, (e) is lawfully disclosed to ASTI by a
third party having the right to disclose such information to ASTI, or (f) either
before or after the time of disclosure to ASTI, becomes known to the public
other than by an unauthorized act or omission of ASTI or any of ASTI's employees
or agents. Any disclosure of Allergan Technology to third parties shall be made
subject to similar obligations of confidentiality on the part of such third
parties. The obligations of ASTI pursuant to this Section 5.1 shall survive the
termination of this Agreement for any reason. Any breach of this Section 5.1 may
result in irreparable harm to Allergan, and in the event of a breach, Allergan
shall be entitled to seek injunctive relief (without the need to post a bond) in
addition to any other remedies available at law or in equity .
6. DISCLAIMER.
6.1 DISCLAIMER CONCERNING ALLERGAN TECHNOLOGY. ALLERGAN DISCLAIMS ANY
EXPRESS OR IMPLIED WARRANTY (A) THAT ANY ALLERGAN TECHNOLOGY, OR THE USE
THEREOF, OR ANY PRODUCTS INCORPORATING OR MANUFACTURED BY THE USE THEREOF, WILL
BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF
PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) OF THE ACCURACY, RELIABILITY,
TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE
ALLERGAN TECHNOLOGY OR ITS SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER
INCLUDING, WITHOUT LIMITATION, THE DESIGN, RESEARCH, DEVELOPMENT, MANUFACTURE,
USE OR SALE OF PRODUCTS. ALLERGAN DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER
NATURE, EXPRESS OR IMPLIED.
7. REPORTS OF ADVERSE REACTIONS.
7.1 REPORTS OF ADVERSE REACTIONS. During the term of this Agreement,
each party shall promptly inform the other party of any information that it
obtains or develops regarding the efficacy or safety of an ASTI Product and
shall promptly report to the other party any information or notice of adverse or
unexpected reactions or side effects related to the utilization or medical
administration of an ASTI Product. Further, during the term of this Agreement,
each party shall promptly inform the other of any information that it obtains or
develops regarding the safety of any Allergan Technology as related to the ASTI
Products. Each such party shall permit the other to comply with the adverse
reaction reporting obligations under the United States Food, Drug and Cosmetic
Act, or similar statutory provisions, and regulations thereunder and shall
assist the other party in complying therewith, with respect to the ASTI
Products. When appropriate, the parties will execute a standard operating
procedure to cover the foregoing. ASTI agrees and acknowledges that Allergan may
provide information it obtains under this Section 7.1 to
6.
<PAGE> 7
Allergan's other clients developing and/or commercializing products
incorporating the same Allergan drug delivery systems as are incorporated in the
ASTI Products.
8. EFFECTIVE DATE; TERMINATION.
8.1 EFFECTIVE DATE. This Agreement shall become effective on the date of
the Distribution.
8.2 TERMINATION FOR BREACH. Either party may terminate this Agreement
effective upon the giving of written notice of such termination to the other
party in the event such other party breaches any of its material obligations
hereunder or under the License Option Agreement and such breach continues for a
period of 60 days after written notice thereof by the terminating party to the
other party.
8.3 AUTOMATIC TERMINATION. This Agreement shall automatically terminate
upon termination by ASTI of the Research and Development Agreement other than
due to a breach by Allergan, or upon termination by Allergan of the Research and
Development Agreement due to a breach by ASTI.
8.4 TERMINATION OF SUBLICENSES. Termination by Allergan of this
Agreement shall automatically terminate any sublicenses granted by ASTI
hereunder.
9. FORCE MAJEURE.
9.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for
failure or delay in the performance of any of its obligations hereunder if such
failure or delay is due to causes beyond its reasonable control, including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.
10. INDEMNIFICATION.
10.1 INDEMNITY. ASTI shall indemnify, defend and hold Allergan harmless
from and against any and all liabilities, claims, demands, damages, costs,
expenses or money judgments incurred by or rendered against Allergan and its
Affiliates, which arise out of the use, design, labeling, manufacture,
processing, packaging, sale or commercialization of the ASTI Products by ASTI,
its Affiliates and permitted subcontractors and sublicensees (other than
Allergan and its Affiliates, subcontractors, sublicensees, distributors and
others operating under arrangements with or through Allergan). Allergan shall
permit ASTI's attorneys, at ASTI's discretion and cost, to control the defense
of any claims or suits as to which Allergan may be entitled to indemnity
hereunder, and Allergan agrees not to settle any such claims or suits without
the prior written consent of ASTI. Allergan shall have the right to participate,
at its own expense, in the defense of any such claim or demand to the extent it
so desires.
7.
<PAGE> 8
10.2 NOTICE. Allergan shall give ASTI prompt notice in writing, in the
manner set forth in Section 11.7 below, of any claim or demand made against
Allergan for which Allergan may be entitled to indemnification under Section
10.1.
11. MISCELLANEOUS.
11.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of any other term or condition of this
Agreement. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be a
limitation of any other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a writing signed by
both parties.
11.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
11.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
11.6 HEADINGS. The section headings contained in this Agreement are
included for convenience only and form no part of the Agreement between the
parties.
8.
<PAGE> 9
11.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan
and/or any
Allergan Affiliate: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief Executive
Officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by facsimile (but only if followed by certified
or registered confirmation). Either party may change the address at which notice
is to be received by written notice pursuant to this Section 11.7.
11.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
11.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, co owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume or be liable for any liabilities
or obligations of the other party, whether past, present or future.
11.10 SURVIVAL. The provisions of Sections 1, 5, 6, 7, 10, 11.1, 11.3,
11.5, 11.6, 11.7, 11.8, 11.9 and this Section 11.10 shall survive the
termination for any reason of this Agreement. Any payments due under this
Agreement with respect to any period prior to its termination shall be made
notwithstanding the termination of this Agreement. Neither party shall be liable
to the other due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or otherwise.
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
ALLERGAN SPECIALTY
THERAPEUTICS, INC.
By: /s/ LESTER J. KAPLAN
------------------------------
Title: Chief Executive Officer
---------------------------
ALLERGAN, INC.
By: /s/ LESTER J. KAPLAN
------------------------------
Title: Corporate Vice President, Research & Technology
-------------------------------------------------
ALLERGAN AFFILIATES:
ALLERGAN AMERICA, INC.
By: /s/ SUSAN J. GLASS
------------------------------
Title: Assistant Secretary
---------------------------
ALLERGAN PHARMACEUTICALS (IRELAND) LTD., INC.
By: /s/ SUSAN J. GLASS
------------------------------
Title: Assistant Secretary
---------------------------
VISION PHARMACEUTICALS, L.P.
A Texas limited partnership, dba Allergan,
by Allergan General, Inc.,
its general partner
By: /s/ SUSAN J. GLASS
------------------------------
Title: Assistant Secretary
---------------------------
10.
<PAGE> 11
EXHIBIT A
Exclusive License Agreement dated August 23, 1995 among Children's
Medical Center Corporation, Allergan, Allergan America, Inc. ("Allergan
America") and Allergan Pharmaceuticals (Ireland) Ltd., Inc.
("Allergan-Ireland").
License and Supply Agreement dated February 28, 1997 among Merz + Co.
GmbH & Co., Vision Pharmaceuticals L.P. ("Vision"), Allergan America,
Allergan-Ireland and Allergan.
Collaborative Research, Development and Marketing Agreement dated
November 20, 1996 between Cambridge NeuroScience, Inc. and Vision.
Amended and Restated Technology Cross License Agreement dated September
24, 1997 among Ligand Pharmaceuticals Incorporated, Allergan and Allergan Ligand
Retinoid Therapeutics, Inc.
Cross License Agreement dated March 6, 1998 among Allergan, Allergan
America, Allergan-Ireland and Vision.
11.
<PAGE> 1
EXHIBIT 10.24
RESEARCH AND DEVELOPMENT AGREEMENT
This Research and Development Agreement (the "Agreement") is made as of
the 6th day of March, 1998 between Allergan, Inc., a Delaware corporation
("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation
("ASTI").
BACKGROUND
A. ASTI has been formed for the purpose of research and developing human
pharmaceutical products, including products using Allergan Technology (as
defined below) and commercializing such products, most likely through licensing
to Allergan.
B. Allergan is engaged in the business of performing research,
development, marketing, manufacture and distribution of therapeutic and
prophylactic products.
C. ASTI desires that Allergan perform, on behalf of ASTI, research and
development activities directed toward the research and development of ASTI
Products (as defined below) and related activities.
Now, therefore, the parties agree as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Allergan Technology" shall mean all Proprietary Rights licensed
and/or sublicensed by Allergan and/or its Affiliates pursuant to the Technology
License Agreement.
1.3 "ALRT" shall mean Allergan Ligand Retinoid Therapeutics, Inc, a
Delaware corporation.
1.4 "ASTI Product" shall mean any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by ASTI's Board of Directors
for development as such under this Agreement. Such recommendations may be made
on a Field of Use basis. The following compounds have been selected as the
initial ASTI Products as of the date hereof: (i) Tazarotene (oral), (ii)
Memantine, (iii) AGN 4310 and (iv) a compound to be selected from the RAR
alpha-selective agonist class of retinoid compounds for the treatment of various
cancers.
1.
<PAGE> 2
1.5 "Available Funds" shall mean, as of any date of determination, $200
million plus any investment income earned thereon less (a) the aggregate amount
of all Research and Development Costs paid or incurred by ASTI as of such date,
(b) ASTI's aggregate reasonable ongoing administrative expenses paid or incurred
as of such date and, (c) the aggregate amount of all Technology Fee payments
paid or incurred by ASTI as of such date.
1.6 "Developed Technology" shall mean Proprietary Rights that (a) are
first generated, conceived or reduced to practice, as the case may be, by
Allergan or by any third party in the course of performing activities undertaken
pursuant to this Agreement or (b) are, in any manner, acquired by, or otherwise
obtained on behalf of, ASTI during the term of this Agreement from persons other
than Allergan and are necessary or useful to the research, development or
commercialization of ASTI Products or Pre-Selection Products.
1.7 "Developed Technology Product" shall mean any product (other than an
ASTI Product) (i) covered, at the time of sale in a country by one or more
unexpired patents issued in such country that are included in Developed
Technology and (ii) with respect to which Allergan receives any consideration.
1.8 "Developed Technology Royalties" shall mean the payments made by
Allergan to ASTI with respect to Net Sales of Developed Technology Products.
1.9 "Distribution" shall mean Allergan's distribution of all of the
outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of
record on February 17, 1998.
1.10 "Distribution Agreement" shall mean the Distribution Agreement
dated as of the date hereof between Allergan and ASTI.
1.11 "FDA" shall mean the United States Food and Drug Administration or
any successor agency whose clearance is necessary to market an ASTI Product in
the United States.
1.12 "Field of Use" shall mean a particular disease state or set of
related disease states.
1.13 "License Option" shall mean the option granted to Allergan pursuant
to the License Option Agreement.
1.14 "License Option Agreement" shall mean the License Option Agreement
dated as of the date hereof between Allergan and ASTI.
1.15 "Major Market Country" shall mean any of the following countries:
United States, France, Germany, Italy, Japan or the United Kingdom.
1.16 "Net Sales" shall mean, with respect to any Licensed Product,
Developed Technology Product or Pre-Selection Product, the amount billed by
Allergan or its Affiliates to a third party which is not an Affiliate of the
selling party (unless such Affiliate is the end user of such product, in which
case the amount billed therefor shall be deemed to be the amount that would be
billed to a third party in an arm's length transaction) for sales of such
Licensed Product, Developed Technology Product or Pre-Selection Product to third
parties less the following items,
2.
<PAGE> 3
as allocable to such Licensed Product, Developed Technology Product or
Pre-Selection Product: (i) trade discounts, credits or allowances, (ii) credits
or allowances additionally granted upon returns, rejections or recalls (except
where any such recall arises out of Allergan's or its Affiliate's gross
negligence, willful misconduct or fraud), (iii) freight, shipping and insurance
charges, (iv) taxes, duties or other governmental tariffs (other than income
taxes) and (v) government mandated rebates.
1.17 "Pre-Selection Work" shall mean research and pre-clinical
development work involving one or more product candidates owned or controlled by
Allergan or a third party undertaken in order to determine the suitability of
such candidate for research and development by ASTI.
1.18 "Pre-Selection Product" shall mean a product, other than one which
becomes an ASTI Product, for which ASTI funds Pre-Selection Work.
1.19 "Pre-Selection Product Payments" shall mean the payments made by
Allergan to ASTI pursuant to Section 7.4 with respect to Net Sales of
Pre-Selection Products.
1.20 "Product Candidate" shall mean a potential ASTI Product or
potential Pre-Selection Product for which Allergan proposes a Work Plan in
accordance with Section 2.2.
1.21 "Product Research and Development Program" shall mean a program to
conduct research and development with respect to an ASTI Product.
1.22 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
claiming any of the foregoing, owned by, licensed to or controlled by a person
and which such person has the right to license or sublicense. Proprietary Rights
shall not include trademarks.
1.23 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all of the outstanding shares of ASTI Class A Common Stock.
1.24 "Research and Development Costs" shall mean the cost of the
activities undertaken pursuant to this Agreement, determined in accordance with
Exhibit A hereto.
1.25 "Specialty Royalty Payments" shall mean front-end distribution
fees, prepaid royalties or similar one-time, infrequent or special payments from
a sublicensee to Allergan with respect to a Licensed Product, a Developed
Technology Product or a Pre-Selection Product.
1.26 "Sublicensing Revenues" shall mean percentage-of-sales payments and
Specialty Royalty Payments received by Allergan from sublicensees with respect
to a Licensed Product, a Developed Technology Product or a Pre-Selection
Product.
1.27 "Technology Fee" shall mean payments to be made over a maximum
period of four (4) years by ASTI to Allergan pursuant to the Technology License
Agreement.
3.
<PAGE> 4
1.28 "Technology License Agreement" shall mean the Technology License
Agreement dated as of the date hereof between Allergan and ASTI.
1.29 "Therapeutic Agent" shall mean a drug, protein, peptide, gene,
compound or other pharmaceutically active ingredient.
1.30 "Work Plan" shall mean a work plan for research and development of
a potential ASTI Product or potential Pre-Selection Product including cost
estimates.
2. PRODUCT RESEARCH AND DEVELOPMENT PROGRAM.
2.1 PRODUCT CANDIDATE IDENTIFICATION PROCESS. On or before March 31,
1998 and at least annually thereafter, Allergan shall provide ASTI with a
proposed Work Plan covering activities to be undertaken by Allergan to identify
and conduct research and development with respect to Product Candidates for
consideration by ASTI under Sections 2.2, 2.3 and, as applicable, Section 2.4.
Promptly after Allergan provides ASTI with such proposed Work Plan, ASTI shall
notify Allergan of its acceptance or rejection of such proposed Work Plan.
2.2 PRODUCT CANDIDATE SELECTION.
(a) From time to time during the term of this Agreement, Allergan
shall present ASTI with Product Candidates recommended by Allergan for research
and development as ASTI Products, together with preliminary lifetime plans that
provide, for each such Product Candidate, an estimate of the total Research and
Development Costs for the Product Research and Development Program for such
Product Candidate through FDA review for clearance to market the resulting
product, milestones (including the timetable for the development of the
resulting product), detailed Work Plans for the first proposed stage of the
Product Research and Development Program and any other factors that Allergan
deems appropriate to determine whether to recommend the Product Candidate for
research and development.
(b) Promptly after Allergan recommends a Product Candidate for
research and development to ASTI, ASTI shall notify Allergan in writing of its
acceptance (in whole or in part) or rejection (in whole or in part) of the
initial Work Plan included with such recommendation. Upon written acceptance (in
whole or in part) of a Work Plan for a Product Candidate under this Section 2.2,
such Product Candidate shall be deemed to be an ASTI Product.
(c) If ASTI fails to accept a recommended Product Candidate for
research and development as an ASTI Product within 120 days of recommendation by
Allergan, then, subject to Section 7.4, ASTI shall have no rights with respect
to such Product Candidate; provided, however, that, at any time during the term
of this Agreement, ASTI may request Allergan to perform a Product Research and
Development Program for such Product Candidate and Allergan shall undertake its
duties with respect to such Product Research and Development Program, all in
accordance with this Section 2 and Section 3, unless, at the time of such
request, Allergan is then undertaking the research and development of such
Product Candidate for its own account or with a third party, or Allergan is
otherwise not permitted to undertake such research or development hereunder
because of an arrangement with a third party.
4.
<PAGE> 5
2.3 ASTI PRODUCTS AND PRE-SELECTION WORK. ASTI shall fund the Research
and Development Costs under Allergan approved Work Plans in accordance with
Section 4.1 for each of the initial ASTI Products specified in Section 1.4 and
for the Pre-Selection Work described in Exhibit B during the period from the
date on which ALRT ceased such funding (October 23, 1997) through March 31,
1998. On or before March 31, 1998, Allergan shall provide ASTI with a proposed
Work Plan and a lifetime plan for the continued development of each of such
initial ASTI Products and such initial Pre-Selection Work. On or before March
31, 1998, ASTI shall notify Allergan in writing of its acceptance (in whole or
in part) or rejection (in whole or in part) thereof.
2.4 PRE-SELECTION WORK. From time to time during the term of this
Agreement, Allergan may provide ASTI with a proposed Work Plan covering one or
more Pre-Selection Work projects with respect to Product Candidates which
Allergan designates as Pre-Selection Products. Promptly after Allergan provides
ASTI with such proposed Work Plan, ASTI shall notify Allergan of its acceptance
(in whole or in part) or rejection (in whole or in part) of such proposed Work
Plan. Allergan may propose to ASTI at any time that any Pre-Selection Product
(including any Pre-Selection Product relating to the Pre-Selection Work referred
to on Exhibit B) become an ASTI Product by complying with the procedures set
forth in Section 2.2. So long as an IND has not been filed with respect to a
Pre-Selection Product, Allergan may at any time, by providing notice to ASTI
(the "Reversion Notice"), cause all rights with respect to such Pre-Selection
Product to revert to Allergan, subject to Allergan's obligations to pay
Pre-Selection Product Payments and Developed Technology Royalties.
2.5 PARTIAL ACCEPTANCE. If ASTI accepts or rejects a Work Plan in part,
Allergan may either (i) perform the activities under the Work Plan as approved
by ASTI or (ii) propose a modified Work Plan to ASTI for approval.
3. RESEARCH AND DEVELOPMENT PROGRAMS; ALLERGAN SERVICES.
3.1 PRODUCT DEVELOPMENT--ASTI OBLIGATIONS. Once ASTI accepts a Work Plan
for an ASTI Product or a Pre-Selection Work pursuant to Section 2.2, 2.3 or 2.4,
ASTI shall use diligent efforts to complete such Work Plan, as amended from time
to time. ASTI shall request that Allergan or a third party perform the
activities under each such Work Plan; provided, however, that Allergan's prior
written consent shall be required for a third party to perform any activities
that involve Allergan Technology or that could affect Allergan's rights under
any agreement between Allergan and ASTI or Allergan's rights as holder of the
Class B Common Stock of ASTI. ASTI shall use diligent efforts to cause each
third party other than Allergan (or a third party engaged by Allergan) to
perform diligently the activities assigned it under a Work Plan.
3.2 PRODUCT DEVELOPMENT--ALLERGAN OBLIGATIONS; OTHER ALLERGAN
ACTIVITIES. ASTI hereby engages Allergan to perform product identification,
evaluation, research, development and related activities in accordance with the
tasks assigned to Allergan under the Work Plans accepted under Section 2, and to
undertake such other activities as the parties may agree. Allergan diligently
shall perform or cause to be performed such activities. In connection therewith,
Allergan shall make available such of its scientific and other personnel, and
shall take such steps as it deems necessary in order to perform its obligations
in accordance with the terms
5.
<PAGE> 6
hereof, but Allergan is not obligated to devote any specific amount of time or
resources to activities hereunder. Allergan shall have full discretion to
determine from time to time the allocation of resources of Allergan (facilities,
equipment and personnel) that are available for activities hereunder, and to
determine from time to time the allocation of resources of Allergan among such
activities. ASTI understands, acknowledges and agrees that Allergan may devote
substantial time and resources to research and development activities for other
persons and for its own account, and as a result, Allergan may develop and
commercialize, or have commercialized, products competitive with ASTI Products,
Pre-Selection Products and Developed Technology Products.
3.3 WORK PLANS. The parties understand and acknowledge that it is
difficult to predict accurately the activities that will be necessary to
complete any Work Plan, including the Research and Development Costs thereof,
and that significant uncertainties exist in any product development effort. ASTI
and Allergan shall cooperate in good faith to devise mutually acceptable Work
Plans for Product Research and Development Programs, Pre-Selection Work,
candidate identification activities and such other activities as the parties may
agree. Allergan and ASTI shall review each such Work Plan from time to time, and
with respect to a Work Plan for an ASTI Product no less often than at the end of
each stage of research and development, and shall revise each Work Plan as
appropriate such that each Work Plan remains a best estimate of the work to be
performed to complete the development objectives identified therein and of the
Research and Development Costs thereunder. ASTI shall not be obligated to pay
Research and Development Costs in excess of those provided for in approved Work
Plans, and Allergan shall not be obligated to perform work which would result in
Research and Development Costs exceeding those in approved Work Plans.
3.4 CONSULTATION. ASTI shall consult with Allergan and shall review with
Allergan from time to time the progress toward completion of the activities
under the Work Plans for each ASTI Product and Pre-Selection Work, including
without limitation, the status in each country for each ASTI Product for which
marketing clearance is being sought.
3.5 THIRD PARTY RIGHTS. Subject to the terms and conditions of this
Agreement, ASTI shall have discretion to attempt to obtain, using Available
Funds, any Proprietary Rights from any third party that ASTI reasonably
determines to be necessary or useful to conduct any Product Research and
Development Program, Pre-Selection Work or related activities under this
Agreement. Such Proprietary Rights shall be included in the Developed
Technology. The costs of obtaining any such Proprietary Rights shall be included
in the calculation of Research and Development Costs paid by ASTI pursuant to
this Agreement.
3.6 DEVELOPMENT ASSETS. Allergan shall own and have the right to use any
clinical supplies, materials and other assets purchased, manufactured or
developed pursuant to approved Work Plans ("Development Assets") and, until such
time as the License Option is exercised with respect to the product to which any
particular Development Asset pertains, shall use such Development Assets solely
in the development of ASTI Products under approved Work Plans.
3.7 NO USE OF AVAILABLE FUNDS. After either (i) such time as the License
Option for an ASTI Product in a country expires unexercised as to such country
or (ii) an investigational new
6.
<PAGE> 7
drug application ("IND") is filed with the FDA with respect to a Pre-Selection
Product which has not been recommended by Allergan and accepted by ASTI's Board
of Directors as an ASTI Product, no additional Available Funds shall be expended
for the research or development of such ASTI Product for sale in such country or
such Pre-Selection Product, as applicable.
3.8 NOTICES. Allergan shall notify ASTI within three business days after
Allergan receives notice of clearance to market any ASTI Product in any country.
Allergan shall promptly notify ASTI of the first commercial sale of an ASTI
Product, Developed Technology Product or Pre-Selection Product in any country.
4. PAYMENT FOR SERVICES; TIMING OF PAYMENTS.
4.1 PAYMENT OF RESEARCH AND DEVELOPMENT COSTS. In consideration of the
work to be carried out by Allergan hereunder, ASTI shall reimburse Allergan for
all Research and Development Costs incurred by Allergan in accordance with
accepted Work Plans. ASTI shall also reimburse Allergan for (i) Research and
Development Costs incurred with respect to the initial ASTI Products referred to
in Section 1.4 and (ii) Pre-Selection Work described in Exhibit B, which costs
are incurred from the date on which ALRT ceased such funding (October 23, 1997)
through March 31, 1998 in accordance with the Allergan approved Work Plans
therefor in effect as of the date hereof.
4.2 TIMING OF PAYMENTS. ASTI shall pay to Allergan monthly, in arrears,
all such Research and Development Costs incurred by Allergan during the
preceding calendar month, within 30 days after Allergan's invoice therefor.
4.3 SUFFICIENCY OF FUNDS. Neither ASTI nor Allergan makes any warranty,
express or implied, that Available Funds will be sufficient to complete the
development of any or all ASTI Products or the other activities contemplated
hereunder.
5. REPORTS AND RECORDS.
5.1 PRODUCT RESEARCH AND DEVELOPMENT PROGRAM REPORTS. Within 45 days
after the end of each calendar quarter, Allergan shall provide to ASTI, and ASTI
shall require each third party engaged by ASTI pursuant to Section 3.1 to
provide to ASTI and to Allergan, a reasonably detailed report setting forth (a)
a summary of the work performed hereunder by Allergan or such third party, as
appropriate, and its employees and agents during such quarter; and (b) the total
Research and Development Costs of such activities during such quarter and
cumulatively to date, for each Work Plan.
5.2 AVAILABLE FUNDS STATEMENT. Within 45 days after the end of each
calendar quarter, ASTI shall provide to Allergan a statement setting forth, as
of the end of such quarter, the Available Funds remaining.
5.3 PAYMENT REPORTS. Within 90 days after the end of each calendar
quarter for which payments are due under Section 7.4, Allergan shall render an
accounting to ASTI, on a product-by-product and country-by-country basis, with
respect to all payments due for such quarter under Section 7.4. Such report
shall indicate, for such quarter, the quantity and dollar
7.
<PAGE> 8
amount of Net Sales of, and Sublicensing Revenues with respect to, each
Developed Technology Product and each Pre-Selection Product by Allergan and its
Affiliates, sublicensees, distributors and marketing partners (and their
Affiliates), with respect to which payments are due; provided, however, that if
Allergan shall not have received from any foreign sublicensee, distributor or
marketing partner a report of its (and its Affiliates') sales for such quarter,
then such sales shall be included in the next quarterly report, and payments
with respect to such report shall be due in the next quarter. In case no payment
is due for any calendar quarter, Allergan shall so report. Allergan shall keep
accurate records in sufficient detail to enable the payments due hereunder to be
determined.
5.4 RECORDS; REVIEW BY ACCOUNTANTS. Each of ASTI and Allergan shall keep
and maintain, in accordance with generally accepted accounting principles,
proper and complete records and books of account documenting all Research and
Development Costs and amounts paid or payable by Allergan to ASTI under this
Agreement, in the case of Allergan, and remaining Available Funds, in the case
of ASTI. Each of ASTI and Allergan shall have the right, once in each calendar
year during regular business hours and upon reasonable notice to the other
party, and at its own expense, to examine or to have examined by a certified
public accountant or similar person reasonably acceptable to the other party,
pertinent books and records of one another, for the sole purpose of determining
the correctness of amounts invoiced, paid or due under this Agreement and the
application of Available Funds by ASTI. Such examination shall take place not
later than two years following the year in question, and only one examination
may take place with respect to any period as to which such books and records are
examined. Each party shall obtain, for itself and for the other party, similar
reasonable rights to audit the Research and Development Costs of, and payments
with respect to Net Sales by, each third party engaged by ASTI pursuant to
Section 3.1 or appointed or permitted by Allergan to commercialize any product
as to which payments are due to ASTI hereunder.
6. TECHNOLOGY LICENSED FOR DEVELOPMENT.
6.1 LICENSE TO USE ALLERGAN TECHNOLOGY. ASTI hereby grants to Allergan a
sublicense to use the Allergan Technology and the Developed Technology solely
for the purpose of conducting the activities contemplated hereunder.
6.2 TERMINATION OF LICENSE. Termination of the license granted under the
Technology License Agreement automatically shall terminate the sublicense to the
Allergan Technology granted to Allergan pursuant to Section 6.1.
7. OWNERSHIP OF ASTI PRODUCTS AND DEVELOPED TECHNOLOGY; PATENTS; PAYMENTS TO
ASTI.
7.1 OWNERSHIP OF ASTI PRODUCTS. Unless ASTI agrees otherwise, all ASTI
Products will be owned by ASTI or, in the case of a product licensed from a
third party (or a product incorporating a Therapeutic Agent licensed from a
third party), exclusively licensed to ASTI on a worldwide basis, with the right
to sublicense, and otherwise on terms granting rights substantially similar to
those rights ASTI would have as an owner, in either case subject to the License
Option.
8.
<PAGE> 9
7.2 OWNERSHIP OF DEVELOPED TECHNOLOGY. As between Allergan and ASTI,
Allergan shall own all Developed Technology, subject to the Technology License
Agreement.
7.3 PATENTS COVERING DEVELOPED TECHNOLOGY. Allergan shall determine
whether and to what extent to seek and maintain United States and/or foreign
patents covering any Developed Technology. Any such patents and applications
therefor shall be in Allergan's name and shall be owned by Allergan. In the
event that Allergan declines to seek patent protection for any Developed
Technology, ASTI will not have the right to do so. ASTI and Allergan each shall
pay one-half of the costs of obtaining and maintaining any such patents during
the term of this Agreement.
7.4 PAYMENTS BASED ON SALES OF DEVELOPED TECHNOLOGY PRODUCTS AND
PRE-SELECTION PRODUCTS.
(a) Allergan shall pay Developed Technology Royalties to ASTI, on
a country-by-country basis, equal to the sum of (i) 1% of Allergan's Net Sales
in the relevant country of each Developed Technology Product plus (ii) 10% of
any Sublicensing Revenues with respect to such Developed Technology Product.
Only one payment under this Section 7.4 shall be payable by Allergan to ASTI
with respect to Net Sales of each Developed Technology Product in any country,
regardless of the number of patents covering such Developed Technology Product
in such country. Subject to Section 7.5, payments with respect to sales of a
Developed Technology Product in any country shall be made by Allergan until the
expiration of the last to expire of the patent or patents covering such
Developed Technology Product in any country.
(b) Allergan shall make Pre-Selection Product Payments to ASTI
equal to the sum of (i) 1% of Allergan's Net Sales of each Pre-Selection Product
plus (ii) 10% of any Sublicensing Revenues with respect to such Pre-Selection
Product. Subject to Section 7.5, payments with respect to sales of a
Pre-Selection Product shall be made by Allergan until seven years after the
first commercial sale of such Pre-Selection Product in the first Major Market
Country in which such product is commercially sold.
(c) In determining payments due under this Section 7.4, Net Sales
by Allergan shall be reduced by the dollar amount of any license or similar
payments made by or due from Allergan or its Affiliates to third parties with
respect to any such sales of such Developed Technology Product or Pre-Selection
Product. If license or similar payments are made to third parties with respect
to sales of such products and to sales of other products, Allergan shall
allocate such payments, if necessary, in a commercially reasonable manner.
(d) Notwithstanding the foregoing, if a product is both a
Developed Technology Product and a Pre-Selection Product, amounts payable under
this Section 7.4 with respect to such product for any period of time shall be
limited to the sum of (i) 1% of Allergan's Net Sales plus (ii) 10% of any
Sublicensing Revenues.
7.5 BUY-OUT OF PAYMENTS BASED ON SALES OF DEVELOPED TECHNOLOGY PRODUCTS
AND PRE-SELECTION PRODUCTS.
9.
<PAGE> 10
(a) Allergan shall have the option with respect to each Developed
Technology Product and each Pre-Selection Product, in its discretion, at any
time after the end of the twelfth calendar quarter during which such product was
commercially sold in a country, to buy out its remaining obligation to make
payments under Section 7.4 with respect to sales of such Developed Technology
Product or Pre-Selection Product in such country. The buy out price shall be an
amount equal to 15 times the payments made by or due from Allergan to ASTI under
Section 7.4 with respect to sales of such Developed Technology Product or
Pre-Selection Product in such country for the four calendar quarters immediately
preceding the quarter in which the buy out option is exercised.
(b) Allergan shall have the option with respect to each Developed
Technology Product and each Pre-Selection Product, in its discretion, at any
time after the end of the twelfth calendar quarter during which such product was
commercially sold in either the United States or two other Major Market
Countries, to buy out its remaining worldwide obligations to make payments under
Section 7.4 with respect to sales of such Developed Technology Product or
Pre-Selection Product. The buyout price shall be an amount equal to (i) 20 times
(A) the payments made by or due from Allergan to ASTI under Section 7.4 with
respect to sales of such Developed Technology Product or Pre-Selection Product,
plus (B) such payments as would have been made by or due from Allergan to ASTI
if Allergan had not exercised any country-specific buy-out option with respect
to such Developed Technology Product or Pre-Selection Product, in each case, for
the four calendar quarters immediately preceding the quarter in which the
buy-out option is exercised, less (ii) any amounts previously paid to exercise
any country- specific buy-out option with respect to such Developed Technology
Product or Pre-Selection Product.
7.6 PAYMENTS. Payments shown by each calendar quarter report described
in Section 5.3 to have accrued shall be due and payable on the date the report
is due and shall be paid in United States dollars. Any and all taxes due or
payable on such payments or with respect to the remittance thereof shall be
deducted from such payments and shall be paid by Allergan to the proper taxing
authorities, and proof of payment shall be secured and sent to ASTI as evidence
of such payment. The rate of exchange to be used in computing the amount of
United States dollars due to ASTI in satisfaction of payment obligations with
respect to sales in foreign countries shall be calculated by converting the
amount due in such foreign currency into United States dollars based on the rate
for the purchase of United States dollars with such currency as published in the
Wall Street Journal on the last business day of the calendar quarter for which
payment is being made.
7.7 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent
remittance from any foreign country of any amounts due under Section 7.4 with
respect to that country, Allergan shall so notify ASTI in writing, and the
obligation under this Agreement to make payments with respect to sales in that
country shall be suspended (but the amounts due but not paid shall continue to
accrue) until such remittances are possible. ASTI shall have the right, upon
written notice to Allergan, to receive payment in any such country in the local
currency.
7.8 LATE PAYMENTS. Any payments due hereunder that are not made when due
shall accrue interest at the lesser of 10% per annum or the maximum rate as may
be allowed by law, beginning on the date when ASTI notifies Allergan that such
payments are overdue.
10.
<PAGE> 11
8. ACCESS TO INFORMATION; CONFIDENTIALITY.
8.1 ACCESS. Subject to the terms of this Agreement, each party shall be
permitted access to the premises of the other during normal business hours, for
the purpose of monitoring the progress of activities under this Agreement. Each
party shall keep full and complete records and notebooks containing all
experiments performed during its work under this Agreement and the results
thereof. Such items and copies of all documentation shall be available during
normal business hours for inspection by the other party. In addition, each party
shall provide to the other such other information as reasonably may be
requested.
8.2 THIRD PARTIES. ASTI and Allergan shall cause each third party
engaged pursuant to Section 3.1 or 3.2 to provide access similar to that to be
provided pursuant to Section 8.1, for the benefit of both ASTI and Allergan.
8.3 PRODUCT LISTS. Allergan shall maintain a complete list of ASTI
Products, Developed Technology Products and Pre-Selection Products at all times.
Confirmation of the completeness and accuracy of such list shall be made at any
time upon the reasonable request of ASTI.
8.4 CONFIDENTIALITY. During the term of this Agreement and for a period
of ten years following its termination, each party shall maintain in confidence
all Proprietary Rights of the other; provided, however, that nothing contained
herein shall prevent either party from disclosing any Proprietary Rights to the
extent that such Proprietary Rights (a) are required to be disclosed in
connection with researching and developing ASTI Products, conducting
Pre-Selection Work, conducting related activities, securing necessary
governmental authorization for the marketing of ASTI Products or Pre-Selection
Products, or directly or indirectly making, using or selling ASTI Products or
Pre-Selection Products, as permitted or provided for in the agreements between
the parties, (b) are required to be disclosed by law for the purpose of
complying with governmental regulations, (c) are disclosed to sublicensees,
distributors or marketing partners or potential sublicenses, distributors or
marketing partners permitted under the agreements between the parties in
connection with the proposed or actual research, development, manufacturing or
marketing of ASTI Products or Pre-Selection Products, subject to similar
obligations of confidentiality on the part of such third parties as required by
the agreements between the parties, (d) are known to or used by the recipient
prior to the date hereof (other than through disclosure by or on behalf of the
other party) as evidenced by the recipient's written records, (e) are lawfully
disclosed to the recipient by a third party having the right to disclose such
information to the recipient, or (f) either before or after the time of
disclosure to the recipient, become known to the public other than by an
unauthorized act or omission of the recipient or any of the recipient's
employees or agents; provided that clause (d) does not give Allergan the right
to disclose Proprietary Rights that relate exclusively to ASTI Products;
provided further that, ASTI may disclose Allergan Proprietary Rights to third
parties only in accordance with the provisions of Section 10.3 hereof and in
accordance with the provisions of the Technology License Agreement. The
obligations of each of the parties pursuant to this Section 8.4 shall survive
the termination of this Agreement for any reason. Any breach of this Section 8.4
may result in irreparable harm, and in the event of a breach, the aggrieved
party shall be entitled to seek injunctive relief (without the need to post a
bond) in addition to any other remedies available at law or in equity.
11.
<PAGE> 12
9. PUBLIC DISCLOSURE.
9.1 PUBLIC DISCLOSURE. The parties will work together with respect to
public statements disclosing the status of and results under Product Research
and Development Programs and related matters. Except to the extent previously
disclosed pursuant to the terms hereof, neither party shall disclose to third
parties nor originate any publicity, news release or public announcement,
written or oral, whether to the public, the press, stockholders or otherwise,
referring to activities conducted, or the parties' performance under, this
Agreement, except such announcements, as in the opinion of the counsel for the
party making such announcement, are required by law, including United States
securities laws, rules or regulations, without the prior written consent of the
other party. If a party decides to make an announcement it believes to be
required by law with respect to this Agreement, it will give the other party
such notice as is reasonably practicable and an opportunity to comment upon the
announcement.
10. COVENANTS.
10.1 USE OF AVAILABLE FUNDS. Unless Allergan agrees otherwise, ASTI
agrees to expend all Available Funds for activities undertaken pursuant to this
Agreement. Pending application of all Available Funds as set forth above,
Available Funds shall be invested in securities issued or guaranteed as to
principal and interest by the United States, or by a person controlled or
supervised by or acting as an instrumentality of the government of the United
States pursuant to authority granted by the Congress of the United States, or
any certificate of deposit for any of the foregoing, or any other types of high
quality marketable investment securities that are proposed by ASTI and are
approved by Allergan in its sole discretion.
10.2 NEGATIVE PLEDGE. ASTI shall not create, incur, assume or suffer to
exist any lien upon or with respect to, or otherwise take any action with
respect to, Available Funds so as to prevent or interfere with full expenditure
of such funds for activities under this Agreement in accordance with Section
10.1.
10.3 NO INCONSISTENT AGREEMENTS. Without the written consent of
Allergan, ASTI shall not enter into any agreement or arrangement that is in any
way inconsistent with or that could adversely affect Allergan Technology or
Allergan's rights under any agreement between Allergan and ASTI, or that is in
any way inconsistent with or that could adversely affect Allergan's rights as
holder of the Class B Common Stock of ASTI. ASTI must include in any agreement
between ASTI and a third party relating to ASTI Products and/or activities
hereunder such provisions as Allergan reasonably deems appropriate to protect
Allergan Technology and to protect Allergan's rights under any agreement between
Allergan and ASTI and as a holder of the Class B Common Stock of ASTI (including
Allergan's rights under the Purchase Option).
11. EFFECTIVE DATE; TERM AND TERMINATION.
11.1 EFFECTIVE DATE. The effective date of this Agreement shall be the
date of the Distribution.
12.
<PAGE> 13
11.2 AUTOMATIC TERMINATION. This Agreement shall terminate upon exercise
or expiration of the Purchase Option, except that Allergan's obligations to make
payments to ASTI with respect to Developed Technology Products and Pre-Selection
Products shall continue after expiration of the Purchase Option as provided in
Section 7 hereof.
11.3 OTHER TERMINATION. Either party may, in its discretion, terminate
this Agreement in the event that the other party:
(a) breaches any material obligation hereunder or under the
Technology License Agreement, the License Option Agreement, or any license
thereunder, and such breach continues for a period of 60 days after written
notice thereof by the terminating party to the other party; or
(b) enters into any proceeding, whether voluntary or otherwise,
in bankruptcy, reorganization or arrangement for the appointment of a receiver
or trustee to take possession of its assets or any other proceeding under any
law for the relief of creditors, or makes an assignment for the benefit of its
creditors.
12. FORCE MAJEURE.
12.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for
failure or delay in the performance of any of its obligations hereunder, if such
failure or delay is due to causes beyond its reasonable control including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.
13. MISCELLANEOUS.
13.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of any other term or condition of this
Agreement. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be a
limitation of any other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a writing signed by
both parties.
13.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
13.
<PAGE> 14
13.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
13.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
13.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
13.6 HEADINGS. The section headings contained in sections of this
Agreement are included for convenience only and form no part of the Agreement
between the parties.
13.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92715
Facsimile: (714) 246-4774
Attention: Corporate Vice President, General
Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief Executive Officer
All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by facsimile (but only if followed by certified or
registered confirmation). Either party may change the address at which notice is
to be received by written notice pursuant to this Section 13.7.
13.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
14.
<PAGE> 15
13.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, coowners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume or be liable for any liabilities
or obligations of the other party, whether past, present or future.
13.10 SURVIVAL. The provisions of Sections 1, 7, 8.3, 8.4, 11, 13.1,
13.3, 13.5, 13.6, 13.7, 13.8, 13.9, and this Section 13.10, and of Sections 4
and 5 to the extent of obligations under such sections relating to periods prior
to termination of this Agreement, shall survive the termination for any reason
of this Agreement. Any payments due under this Agreement with respect to any
period prior to its termination shall be made notwithstanding the termination of
this Agreement. Neither party shall be liable to the other due to the
termination of this Agreement as provided herein, whether in loss of good will,
anticipated profits or otherwise.
15.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
ALLERGAN, INC.
By: /s/ LESTER J. KAPLAN
-------------------------------------------
Title: Corporate Vice President, Science &
Technology
----------------------------------------
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: /s/ LESTER J. KAPLAN
-------------------------------------------
Title: Chief Executive Officer
----------------------------------------
16.
<PAGE> 17
EXHIBIT A
CALCULATION OF RESEARCH AND DEVELOPMENT COSTS
Allergan shall charge ASTI for both "direct" and "indirect" Research and
Development Costs based on Allergan's internal R&D Project Accounting System or
such other comparable successor system as Allergan may use to gather such costs.
Direct costs include third party contract costs, such as those expenses paid to
outside vendors which can be directly identified to a specific research and
development program or project (see Exhibit A1). Indirect costs include the
fully absorbed cost of labor (labor plus overhead) which can be specifically
identified with or physically traced to a project using the Allergan Project
Reporting System. The allocation of such indirect costs is based on timecards
which all Allergan R&D employees who work directly on research and development
projects complete each month (see Exhibit A2).
In order to fully and fairly allocate all allocable overhead to projects
undertaken by Allergan hereunder, an amount equal to 10% of the total Research
and Development Costs determined in accordance with the above provisions
(exclusive of the costs charged to Allergan or ASTI pursuant to contracts with
third parties for the performance of services related to research and
development hereunder) will also be added to the amount charged to ASTI.
17.
<PAGE> 18
EXHIBIT A1
RESEARCH AND DEVELOPMENT DIRECT COSTS
The following is a list of the types of expenses which are considered as
"direct" in Exhibit A and would be billable to ASTI when they can be directly
identified with ASTI research and development:
Collaborative research agreement payments
Payments for compound supply
Payments for biologicals
Payments for chemical precursors
Payment for clinical studies
Payment for toxicological, pharmacokinetic studies and other outside services
Payment for other Allergan functions (non-R&D) which provide services
Payment for research grants Payment for consulting services
Hiring expenses for people who will work predominantly on ASTI projects
Milestone payments to third parties
Project travel, entertainment and related expenses
Capital equipment purchased exclusively for ASTI projects
Miscellaneous project expenses
Regulatory and filing fees
Telephone and communications
Patent and trademark expenses
Software
18.
<PAGE> 19
EXHIBIT A2
RESEARCH AND DEVELOPMENT INDIRECT COSTS
The following is a list of the types of expenses which are considered as
"indirect" in Exhibit A and would be billable to ASTI when they can be
identified with ASTI research and development:
Salaries and fringe benefits of people working directly on ASTI projects
Salaries and fringe benefits of people managing and supporting those working
directly on ASTI
projects
General supplies and chemicals
General Information Systems and communications support
General equipment depreciation
General facilities depreciation, utilities, rent
Miscellaneous indirect expenses
Miscellaneous general and administrative expenses
19.
<PAGE> 1
EXHIBIT 10.25
LICENSE OPTION AGREEMENT
This License Option Agreement (the "Agreement") is made as of the 6th
day of March, 1998 by and between Allergan, Inc., a Delaware corporation
("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation
("ASTI").
BACKGROUND
A. ASTI has been formed for the purpose of researching and developing
human pharmaceutical products, including products using Allergan Technology (as
defined herein) and commercializing such products, most likely through licensing
to Allergan.
B. As of the date hereof, Allergan and ASTI have entered into a
Technology License Agreement and a Research and Development Agreement.
C. ASTI desires to grant to Allergan an option to commercialize the
products developed by ASTI under the Research and Development Agreement as set
forth herein.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "ASTI Product" shall mean any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by ASTI's Board of Directors
for development as such under the Research and Development Agreement. Such
recommendations may be made on a Field of Use basis. The following compounds
have been selected as the initial ASTI Products as of the date hereof: (i)
Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be
selected from the RAR alpha-selective agonist class of retinoid compounds for
the treatment of various cancers.
1.3 "Distribution" shall mean Allergan's distribution of all of the
outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of
record on February 17, 1998.
1.4 "FDA" shall mean the United States Food and Drug Administration or
any successor agency whose clearance is necessary to market an ASTI Product in
the United States.
1.
<PAGE> 2
1.5 "Field of Use" shall mean a particular disease state or set of
related disease states.
1.6 "License Agreement" shall mean an exclusive license agreement for a
particular ASTI Product between Allergan and ASTI, in the form of Exhibit A to
this Agreement.
1.7 "License Option" shall mean the option granted to Allergan pursuant
to Section 2 of this Agreement.
1.8 "Product Payments" shall have the meaning set forth in Section 3.1
of the License Agreement.
1.9 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
claiming any of the foregoing, owned by, licensed to or controlled by a person
and which such person has the right to license or sublicense. Proprietary Rights
shall not include trademarks.
1.10 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all of the outstanding shares of ASTI Class A Common Stock.
1.11 "Research and Development Agreement" shall mean the Research and
Development Agreement dated as of the date hereof between Allergan and ASTI.
1.12 "Technology License Agreement" shall mean the Technology License
Agreement dated as of the date hereof between Allergan and ASTI.
2. LICENSE OPTION.
2.1 GRANT OF LICENSE OPTION. On the terms and subject to the conditions
of this Agreement, ASTI hereby grants to Allergan an option to obtain an
exclusive license with respect to each ASTI Product, exercisable on a
product-by-product and country-by-country basis as described in Section 2.2.
2.2 TIME FOR EXERCISE.
(a) Allergan may exercise the License Option with respect to any
ASTI Product on a country-by-country basis at any time during the period
beginning on the date hereof and ending (i) with respect to the United States,
30 days after clearance by the FDA to market such ASTI Product in the United
States, and (ii) with respect to any other country, 90 days after the earlier of
(A) clearance by the appropriate regulatory agency to market such ASTI Product
in such country and (B) clearance by the FDA to market such ASTI Product in the
United States. Notwithstanding the foregoing, the License Option shall expire,
to the extent not previously exercised, at the close of business on the 30th day
after the expiration of the Purchase Option or, with respect to a particular
ASTI Product, upon exercise by Allergan of the global buy-out option for such
ASTI Product under the License Agreement for such ASTI Product. In any case,
Allergan must exercise the License Option for a particular ASTI Product in a
particular country
2.
<PAGE> 3
prior to the first commercial sale of such product in such country by Allergan
or any of its Affiliates, sublicensees, distributors or marketing partners.
(b) The License Option for any ASTI Product in any country will
expire if not exercised within the time periods described above. In addition,
the License Option for any ASTI Product will expire, with respect to all
countries for which it has not yet been exercised, upon exercise by Allergan of
the global buy-out option for such ASTI Product under the License Agreement for
such ASTI Product.
(c) ASTI will notify Allergan in writing within 10 business days
of receipt of each clearance to market any ASTI Product in any country.
2.3 MANNER OF EXERCISE. Allergan shall exercise its License Option by
delivering to ASTI, within the time period described in Section 2.2 above, a
written notice of exercise specifying the ASTI Product and the country or
countries as to which the License Option is exercised. A License Agreement for
such ASTI Product shall be deemed to be effective in such country or countries
as of the date of such notice of exercise, without the necessity of any
additional action by the parties. For the convenience of the parties, however,
Allergan shall, promptly after delivery of such notice, forward to ASTI two
executed copies of a License Agreement dated the effective date thereof and
containing completed Attachments A and B. ASTI shall execute both copies and
return one to Allergan as soon as possible. Failure of either or both of the
parties to execute such License Agreement shall not, however, affect the
effectiveness of the license granted thereby. The parties shall enter into a
separate License Agreement for each ASTI Product as to which Allergan elects to
exercise a License Option. For convenience, the parties shall amend Attachment B
to a License Agreement to add a country or countries in cases where a License
Option is being exercised for an ASTI Product for which a License Option already
has been exercised in another country or countries. Such amendment shall set
forth the additional country or countries and the dates of exercise of the
License Option for such countries.
2.4 DEVELOPMENT ASSETS. If Allergan does not exercise the License Option
for any ASTI Product in any country prior to the expiration of such License
Option or, if Allergan notifies ASTI expressly in writing that it will not
exercise the License Option for an ASTI Product, Allergan shall make available
to ASTI for further development and commercialization activities at no charge,
all clinical supplies, materials and other assets purchased, manufactured or
developed for use in the development of such ASTI Product with respect to such
country to the extent such assets will not be used under the Research and
Development Agreement.
3. NO CONFLICT.
ASTI agrees that no license, sale or other commercialization of any ASTI
Product has been or shall be made or offered to any person or entity on any
basis that is or will be in conflict with this Agreement or any License
Agreement.
4. ACCESS TO INFORMATION.
4.1 INFORMATION AVAILABLE TO ALLERGAN. ASTI shall make available to
Allergan, at all reasonable times, all available information relating to all
ASTI Products as to which the License
3.
<PAGE> 4
Option remains exercisable so as to enable Allergan to determine whether and
when to exercise its License Option.
4.2 CONSULTATION WITH ALLERGAN. ASTI shall consult with Allergan and
inform Allergan on a continuing basis of the current state of research and
development of all ASTI Products as to which the License Option remains
exercisable and will review from time to time with Allergan the progress towards
completion of the ASTI Products.
4.3 CONSULTATION WITH ASTI. In the event that the License Option with
respect to one or more ASTI Products in one or more countries expires
unexercised, Allergan shall make available to ASTI all information reasonably
available to Allergan relating to such ASTI Products and Allergan's previous
contacts with potential sublicensees, distributors or marketing partners for
such ASTI Products in such countries.
5. EFFECTIVE DATE; TERMINATION.
5.1 EFFECTIVE DATE. This Agreement shall become effective on the date of
the Distribution.
5.2 TERMINATION. This Agreement shall terminate on the earlier of (a)
the date of expiration of the License Option for all of the ASTI Products and
(b) 30 days after expiration of the Purchase Option.
6. MISCELLANEOUS.
6.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of
a breach of any provisions of this Agreement shall not be implied and shall not
be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of such term or condition for any other term.
All rights, remedies, undertakings, obligations and agreements contained in this
Agreement shall be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of either party. This
Agreement may not be amended except in a writing signed by both parties.
6.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or any person
or entity with which Allergan is merged or consolidated or which acquires all or
substantially all of the assets of Allergan.
6.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such
4.
<PAGE> 5
executives are unable to resolve such dispute within such sixty (60) day period,
the parties shall submit their dispute to binding arbitration before a retired
California Superior Court Judge at J.A.M.S./Endispute located in Orange,
California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute
procedure rules for commercial disputes then in effect. The award of the
arbitrator shall include an award of reasonable attorneys' fees and costs to the
prevailing party.
6.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
6.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts wholly to be performed in that state.
6.6 HEADINGS. The section headings contained in this Agreement are
included for convenience only and form no part of the Agreement between the
parties.
6.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail and addressed as follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief Executive Officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by facsimile (but only if followed by certified
or registered confirmation). Either party may change the address at which notice
is to be received by written notice pursuant to this Section 6.7.
6.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
6.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, co owners, an
association or any entity separate and apart from each party itself, nor
5.
<PAGE> 6
shall this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.
6.10 SURVIVAL. The provisions of Sections 1, 2.4, 4.3, 6.1, 6.3, 6.5,
6.7, 6.8, 6.9 and this Section 6.10 shall survive the termination for any reason
of this Agreement. Any payments due under this Agreement with respect to any
period prior to its termination shall be made notwithstanding the termination of
this Agreement. Neither party shall be liable to the other due to the
termination of this Agreement as provided herein, whether in loss of good will,
anticipated profits or otherwise.
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
ALLERGAN, INC.
By:/s/ LESTER J. KAPLAN
--------------------------------------------
Title: Corporate Vice President, Science &
Technology
----------------------------------------
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: /s/ LESTER J. KAPLAN
--------------------------------------------
Title: Chief Executive Officer
----------------------------------------
7.
<PAGE> 8
EXHIBIT A
FORM OF LICENSE AGREEMENT
This License Agreement (the "Agreement") is made this ____ day of
_______________ , _____, by and between Allergan, Inc., a Delaware corporation
("Allergan"), and Allergan Specialty Therapeutics, Inc. ("ASTI"), a Delaware
corporation.
BACKGROUND
A. ASTI and Allergan have entered into a License Option Agreement and
certain other agreements dated as of March 6, 1998.
B. Section 2 of the License Option Agreement provides for a license, the
terms of which are to be set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Research and Development Cost(s)" shall mean the cost of activities
undertaken pursuant to the Research and Development Agreement with respect to
the Licensed Product, determined in accordance with Exhibit A thereto.
1.3 "Infringing Product" shall mean any product sold by a third party,
other than pursuant to an agreement with Allergan, (i) which incorporates the
same Therapeutic Agent or Agents as incorporated in the Licensed Product and
(ii) which infringes or is alleged to infringe any patent or patents owned by,
licensed to or controlled by Allergan.
1.4 "License Option Agreement" shall mean the License Option Agreement
between Allergan and ASTI dated as of March 6, 1998.
1.5 "Licensed Product" shall mean the product listed on Exhibit A
hereto.
1.6 "Major Market Country" shall mean any of the following countries:
the United States, France, Germany, Italy, Japan or the United Kingdom.
1.7 "Net Sales" shall mean, with respect to a product, the amount billed
by Allergan or its Affiliates to a third party which is not an Affiliate of the
selling party (unless such Affiliate is the end user of such product, in which
case the amount billed therefor shall be deemed to be the
8.
<PAGE> 9
amount that would be billed to a third party in an arm's length transaction) for
sales of such product to third parties less the following items, as allocable to
such product: (i) trade discounts, credits or allowances, (ii) credits or
allowances additionally granted upon returns, rejections or recalls (except
where any such recall arises out of Allergan's or its Affiliate's gross
negligence, willful misconduct or fraud), (iii) freight, shipping and insurance
charges specifically included in the billing amount, (iv) taxes, duties or other
governmental tariffs (other than income taxes) specifically included in the
billing amount and (v) government mandated rebates.
1.8 "Research and Development Agreement" shall mean the Research and
Development Agreement between Allergan and ASTI dated as of March 6, 1998.
1.9 "Specialty Royalty Payments" shall mean front-end distribution fees,
prepaid royalties or similar one-time, infrequent or special payments from a
sublicense to Allergan with respect to a Licensed Product.
1.10 "Sublicensing Revenues" shall mean percentage-of-sales payments and
Specialty Royalty Payments received by Allergan from sublicensees with respect
to a Licensed Product.
1.11 "Territory" shall mean the country or countries listed on Exhibit B
hereto, as amended from time to time by the parties in connection with the
exercise by Allergan of its option for additional countries under the License
Option Agreement or the surrender by Allergan of its rights to commercialize the
Licensed Product in any country or countries.
1.12 "Therapeutic Agent" shall mean a drug, protein, peptide, gene,
compound or other pharmaceutically active ingredient.
2. GRANT OF LICENSE.
2.1 GRANT. ASTI hereby grants to Allergan an exclusive, perpetual
license, with the right to sublicense, to research, develop, make, have made and
use the Licensed Product and to sell and have sold the Licensed Product in the
Territory. Allergan agrees to use diligent efforts to conduct or have conducted
any remaining activities necessary to complete the development of the Licensed
Product in the Territory through regulatory clearance to market the Licensed
Product in the Territory. Such activities will be undertaken at no cost to ASTI,
unless ASTI agrees otherwise in writing. Promptly after regulatory clearance,
Allergan shall commence and continue to use diligent efforts to commercialize
the Licensed Product in each Major Market Country of the Territory through the
manufacture and sale or the sublicensing of the Licensed Product, devoting to
the Licensed Product the same resources as other pharmaceutical companies of
similar size devote to products with similar market potential and with similar
relative importance to their product portfolios. Allergan may use reasonable
business discretion in the allocation of its technological and monetary
resources in performing its obligations hereunder, taking into account not only
the Licensed Product but also activities for its own account and its obligations
under its other agreements with third parties. ASTI acknowledges that Allergan
will continue to own and have the right to use any clinical supplies, materials
and other assets purchased, manufactured or developed for use in the development
of such Licensed Product, without any additional payment to or reimbursement of
ASTI.
9.
<PAGE> 10
2.2 NO OTHER COMMERCIALIZATION. Allergan shall not commercialize the
Licensed Product in any country except pursuant to this Agreement.
3. PRODUCT PAYMENTS.
3.1 PAYMENTS.
(a) Allergan shall make payments to ASTI ("Product Payments")
with respect to the Licensed Product as follows:
(i) if the Licensed Product is sold by Allergan,
royalties of up to a maximum of 6% of Allergan's Net Sales of the Licensed
Product determined as follows: (A) 1% of such Net Sales, plus (B) an additional
0.1% of such Net Sales for each full $1 million of Research and Development
Costs of the Licensed Product that have been paid by ASTI prior to such quarter
end; and
(ii) if the Licensed Product is sold by a third party,
sublicensing fees of up to a maximum of 50% of Sublicensing Revenues with
respect to such Licensed Product determined as follows: (A) 10% of such
Sublicensing Revenues, plus (B) an additional 1% of such Sublicensing Revenues
for each full $1 million of Research and Development Costs of the Licensed
Product that have been paid by ASTI prior to such quarter end.
Notwithstanding the foregoing, Product Payments for any quarter will not exceed
3% of Net Sales, on a quarterly basis, in the Territory for the first twelve
calendar quarters during which the Licensed Product is commercially sold in the
first Major Market Country.
(b) In determining Product Payments, Research and Development
Costs shall be determined as of the last day of each calendar quarter, in order
to determine the rates payable with respect to Net Sales for the next calendar
quarter for all countries included in the Territory as of the first day of such
next calendar quarter, and for any country added to the Territory during such
next calendar quarter.
(c) In determining Product Payments, Net Sales by and
Sublicensing Revenues of Allergan shall be reduced by the dollar amount of any
license or similar payments made by or due from Allergan or its Affiliates to
third parties with respect to sales of such Licensed Product in the Territory.
If license or similar payments are made to third parties with respect to sales
of both the Licensed Product in the Territory and to sales of other products,
Allergan shall allocate such payments, if necessary, in a commercially
reasonable manner.
3.2 TERM OF PAYMENTS. The obligation to make Product Payments hereunder
shall continue until seven years after the date of the first commercial sale of
the Licensed Product in any Major Market Country, and shall terminate as to all
countries at the end of such seven-year period.
10.
<PAGE> 11
3.3 BUY-OUT OF PAYMENTS.
(a) Allergan shall have the option, in its discretion, at any
time after the end of the twelfth calendar quarter during which the Licensed
Product was commercially sold in any country, to buy out its remaining
obligations to make Product Payments with respect to Net Sales and Sublicensing
Revenues of such Licensed Product in such country. The buy-out price shall be an
amount equal to 15 times the Product Payments made by or due from Allergan to
ASTI with respect to Net Sales and Sublicensing Revenues of such Licensed
Product in such country for the four calendar quarters immediately preceding the
quarter in which the buy-out option is exercised, plus 15 times such additional
Product Payments as would have been made but for the 3% limit set forth in
Section 3.1 on Product Payments for such period.
(b) Allergan shall have the option, in its discretion, at any
time after the end of the twelfth calendar quarter during which the Licensed
Product was commercially sold in either the United States or two other Major
Market Countries, to buy out its remaining obligations to make Product Payments
with respect to Net Sales and Sublicensing Revenues of such Licensed Product in
the Territory. The buy-out price shall be an amount equal to (i) 20 times (A)
the Product Payments made by or due from Allergan to ASTI for such Licensed
Product in the Territory, plus (B) such payments as would have been made by or
due from Allergan to ASTI if Allergan had not exercised any country-specific
buy-out option with respect to Net Sales and Sublicensing Revenues of such
Licensed Product, plus (C) such additional Product Payments as would have been
made but for the 3% limit set forth in Section 3.1 on Product Payments for such
period, in each case, for the four calendar quarters immediately preceding the
quarter in which the buy-out option is exercised, less (ii) any amounts
previously paid to exercise any country-specific buy-out option with respect to
Net Sales and Sublicensing Revenues of such Licensed Product.
4. ACCOUNTING.
4.1 REPORTS. Within 90 days after the end of each calendar quarter for
which Product Payments are due, Allergan shall render an accounting to ASTI, on
a country-by-country basis, with respect to all Product Payments due for such
quarter. Such report shall indicate, for such quarter, the quantity and dollar
amount of Net Sales of the Licensed Product by Allergan and its Affiliates,
sublicensees, distributors and marketing partners (and their Affiliates), or
other consideration with respect to Net Sales, with respect to which payments
are due; provided, however, that if Allergan shall not have received from any
sublicensee, distributor or marketing partner a report of its (and its
Affiliates') sales for such quarter, then such sales shall be included in the
next quarterly report. In case no Product Payments are due for any calendar
quarter, Allergan shall so report
4.2 RECORDS; REVIEW BY ACCOUNTANTS. Allergan shall keep and maintain, in
accordance with generally accepted accounting principles, proper and complete
records and books of account documenting all amounts paid or payable by Allergan
to ASTI. ASTI shall have the right, once in each calendar year during regular
business hours and upon reasonable notice to Allergan, at ASTI's expense, to
examine or have examined by a certified public accountant or similar person,
such of the records of Allergan as may be necessary to verify the accuracy of
the reports and payments made under this Agreement. Such examination shall take
place not later
11.
<PAGE> 12
than two years following the year in question, and only one examination may take
place with respect to any period as to which such books and records are
examined. Allergan shall obtain, for itself and for ASTI, similar reasonable
rights to audit information pertaining to Net Sales from each party appointed to
commercialize any product as to which payments are due to ASTI hereunder.
5. TIMES AND CURRENCIES OF PAYMENTS.
5.1 PAYMENTS. Payments shown by each calendar quarter report to have
accrued shall be due and payable on the date such report is due and shall be
paid in United States dollars. Any and all taxes due or payable on such payments
or with respect to the remittance thereof shall be deducted from such payments
and shall be paid by Allergan to the proper taxing authorities, and proof of
payment shall be secured and sent to ASTI as evidence of such payment. The rate
of exchange to be used in computing the amount of the United States dollars due
to ASTI in satisfaction of payment obligations with respect to sales in foreign
countries shall be calculated by converting the amount due in such foreign
currency into United States dollars at the rate for the purchase of United
States dollars with such currency as published in The Wall Street Journal on the
last business day of the calendar quarter for which payment is being made.
5.2 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent
remittance from any foreign country of any amounts due under Section 3.1 in
respect of that country, Allergan shall so notify ASTI in writing, and the
obligation under this Agreement to make payments with respect to sales in that
country shall be suspended (but the amounts due but not paid shall continue to
accrue) until such remittances are possible. ASTI shall have the right, upon
written notice to Allergan, to receive payment in any such country in the local
currency.
5.3 LATE PAYMENTS. Any payments due hereunder that are not made when due
shall bear interest at the lesser of 10% per annum or the maximum rate as may be
allowed by law, beginning on the date when ASTI has notified Allergan that such
payments are overdue.
6. PATENT INFRINGEMENT.
6.1 NOTICE. Each party shall promptly notify the other party of use or
sale by a third party of an Infringing Product.
6.2 LEGAL ACTION. If a third party manufactures or sells an Infringing
Product, Allergan may, at its own expense, bring legal action to restrain such
infringement and for damages. Any recoveries resulting from any such action
shall be first applied to reimburse Allergan for its expenses (including
reasonable attorneys' fees) incurred in bringing the action. ASTI will be
entitled to a share of the remaining recoveries in the same percentage as the
percentage of Net Sales as to which Product Payments are due to ASTI during the
period of the infringement or alleged infringement. If (a) Allergan fails to
take the necessary steps to restrain such infringement or alleged infringement
by litigation or otherwise within 90 days after either party's notice described
in Section 6.1, (b) if the infringement or alleged infringement occurs during a
period for which ASTI is entitled to receive Product Payments hereunder, and (c)
if over a period of at least two calendar quarters such Infringing Product
achieves an annualized unit sales volume in the country of infringement equal to
25% of the annualized unit sales volume of
12.
<PAGE> 13
the Licensed Product sold by Allergan and its Affiliates, sublicensees,
distributors and marketing partners (and their Affiliates) in such country
during such year, then ASTI may institute, in its own name, at its own expense
and with the right to all recoveries, such litigation or other appropriate
action as it may deem appropriate to restrain such infringement, provided that
ASTI has first given to Allergan 60 days advance notice of its intention to take
such action, and provided further, that Allergan has not itself taken
appropriate action during such 60 day period.
6.3 COOPERATION. If either party desires to bring an action in
accordance with Section 6.2, the other party agrees to cooperate fully with the
party bringing such action in the pursuit thereof, at the expense of the party
bringing such action and to the extent reasonably requested by such party. If
the third party in any such action brought by ASTI brings a counteraction for
invalidation or misuse of a patent covering the Licensed Product, ASTI promptly
shall notify Allergan and Allergan may, within six months of the notification,
join and participate in such action at its own expense.
6.4 SETTLEMENT. Each party agrees not to settle any action it brings in
a manner that would adversely affect the other party without the other party's
prior written approval.
7. EFFECTIVE DATE AND TERM.
7.1 EFFECTIVE DATE AND TERM. This Agreement will become effective in
accordance with Section 2.3 of the License Option Agreement and, unless
terminated in accordance with any of the provisions hereof, shall remain in full
force and effect thereafter.
8. INDEMNIFICATION.
8.1 INDEMNITY. Allergan shall indemnify, defend and hold ASTI (and its
Affiliates) harmless from and against any and all liabilities, claims, demands,
damages, costs, expenses or money judgments incurred by or rendered against ASTI
and its Affiliates, which arise out of the use, design, labeling or manufacture,
processing, packaging, sale or commercialization of the Licensed Product by
Allergan, its Affiliates, subcontractors, sublicensees, distributors and
marketing partners (and their Affiliates). ASTI shall permit Allergan's
attorneys, at Allergan's discretion and cost, to control the defense of any
claims or suits as to which ASTI may be entitled to indemnification hereunder,
and ASTI agrees not to settle any such claims or suits without the prior written
consent of Allergan. ASTI shall have the right to participate, at its own
expense, in the defense of any such claim or demand to the extent it so desires.
8.2 NOTICE. ASTI shall give Allergan prompt notice in writing, in the
manner set forth in Section 11.7 below, of any claim or demand made against ASTI
for which ASTI may be entitled to indemnification under Section 8.1.
9. DISCLAIMERS.
ASTI DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (A) THAT THE LICENSED PRODUCT OR
ANY TECHNOLOGY INCORPORATED THEREIN, OR THE MANUFACTURE, USE OR SALE THEREOF,
WILL BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF
PROPRIETARY
13.
<PAGE> 14
INFORMATION OF ANY THIRD PARTY AND (B) OF THE ACCURACY, RELIABILITY,
TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE
LICENSED PRODUCT OR ANY TECHNOLOGY INCORPORATED THEREIN OR THEIR SUITABILITY OR
FITNESS FOR ANY PURPOSE WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE RESEARCH,
DESIGN, DEVELOPMENT, MANUFACTURE, USE OR SALE OF THE LICENSED PRODUCT. ASTI
DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE, EXPRESS OR IMPLIED.
10. TERMINATION.
10.1 TERMINATION BY ASTI. ASTI may, in its discretion, terminate this
Agreement in the event that Allergan:
(a) breaches any of its material obligations hereunder and such
breach continues for a period of 60 days after written notice thereof; or
(b) enters into any proceeding, whether voluntary or otherwise,
in bankruptcy, reorganization or arrangement for the appointment of a receiver
or trustee to take possession of Allergan's assets or any other proceedings
under any law for the relief of creditors or makes an assignment for the benefit
of its creditors.
10.2 TERMINATION BY ALLERGAN. Allergan may terminate this Agreement with
respect to one or more countries included in the Territory upon 30 days' prior
written notice to ASTI if Allergan elects for any reason to discontinue
commercialization of the Licensed Product in such country.
10.3 CONSEQUENCES OF TERMINATION. Termination of this Agreement for any
reason in accordance with the terms hereof shall be without prejudice to:
(a) ASTI's right to receive all payments accrued under Section 3
prior to the effective date of such termination; and
(b) any other remedies which either party may then or thereafter
have hereunder or otherwise. If this Agreement terminates pursuant to this
Section 10, Allergan shall immediately discontinue any promotion and sales of
the Licensed Product. Notwithstanding the foregoing, in the event of any
termination under this Section 10, Allergan may sell its inventory in stock on
the date of termination for a period of up to six months after the termination,
and shall remit payments to ASTI in respect thereto in accordance with this
Agreement.
11. MISCELLANEOUS.
11.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of
14.
<PAGE> 15
any such terms or conditions or of any other terms and conditions of this
Agreement. A waiver by either party of any term or condition of this Agreement
shall not be deemed or construed to be a waiver of such term or condition for
any other term. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be a
limitation of any other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a writing signed by
both parties.
11.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
11.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
11.6 HEADINGS. The headings set forth at the beginning of the various
sections of this Agreement are for convenience and form no part of the Agreement
between the parties.
11.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President, General
Counsel
15.
<PAGE> 16
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief Executive Officer
All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by facsimile (but only if followed by certified or
registered confirmation). Either party may change the address at which notice is
to be received by written notice pursuant to this Section 11.7.
11.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
11.9 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement,
ASTI and Allergan shall be deemed to be independent contractors and anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute ASTI and Allergan as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way to obligate the other party, except as expressly authorized
in writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.
11.10 SURVIVAL. The provisions of Sections 1, 4.2, 8, 9, 10.3, 11.1,
11.3, 11.5, 11.6, 11.7, 11.8, 11.9, and this Section 11.10 shall survive the
termination for any reason of this Agreement. Any payments due under this
Agreement with respect to any period prior to its termination shall be made
notwithstanding the termination of this Agreement. Neither party shall be liable
to the other due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or otherwise.
11.11 FORCE MAJEURE. Neither party to this Agreement shall be liable for
failure or delay in the performance of any of its obligations hereunder, if such
failure or delay is due to causes beyond its reasonable control including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.
16.
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
ALLERGAN, INC.
By:
--------------------------------------
Title:
-----------------------------------
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By:
--------------------------------------
Title:
-----------------------------------
17.
<PAGE> 18
ATTACHMENT A
LICENSED PRODUCT
18.
<PAGE> 19
ATTACHMENT B
TERRITORY
DATE OF EXERCISE COUNTRY
2.
<PAGE> 1
EXHIBIT 10.26
DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is made as of the 6th day
of March, 1998 between Allergan, Inc., a Delaware corporation ("Allergan"), and
Allergan Specialty Therapeutics, Inc., a Delaware corporation ("ASTI").
BACKGROUND
A. Allergan is the holder of all of the issued and outstanding shares of
capital stock of ASTI. Allergan intends to make a $200 million capital
contribution to ASTI, to license certain technology to ASTI, and to make other
arrangements in order to establish ASTI as a separate enterprise for the purpose
of researching and developing human pharmaceutical products and commercializing
such products, most likely through licensing to Allergan.
B. Allergan intends to distribute all of the ASTI Shares (as defined
below) to the holders of Allergan Common Stock.
Now, therefore, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal.
1.2 "Agent" shall mean First Chicago Trust Company of New York, as
distribution agent, appointed by Allergan to set up book entry accounts under
the Direct Registration System representing the ASTI Shares pursuant to the
Distribution.
1.3 "Allergan/ASTI Agreements" shall mean this Agreement, the Research
and Development Agreement, the Technology License Agreement, the License Option
Agreement, the Services Agreement and the Purchase Option.
1.4 "Allergan Common Stock" shall mean the Common Stock, par value $0.01
per share, of Allergan.
1.5 "Commission" shall mean the Securities and Exchange Commission.
1.6 "ASTI Shares" shall mean the Class A Common Stock, par value $0.01
per share, of ASTI.
1.
<PAGE> 2
1.7 "Distribution" shall mean the distribution of ASTI Shares to holders
of record on February 17, 1998 of Allergan Common Stock immediately following
completion of the transactions contemplated in Sections 2 and 3 hereof.
1.8 "Distribution Date" shall mean the proposed date of effecting the
Distribution, which is anticipated to occur on or about March 10, 1998.
1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.10 "Form 8-A" shall mean the registration statement on Form 8-A to be
filed by ASTI with the Commission to effect the registration of the ASTI Shares
pursuant to the Exchange Act.
1.11 "License Option Agreement" shall mean the License Option Agreement
dated as of the date hereof between Allergan and ASTI.
1.12 "Prospectus" shall mean the prospectus to be distributed to the
holders of Allergan Common Stock in connection with the Distribution.
1.13 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all, but not less than all, of the outstanding ASTI Shares.
1.14 "Record Date" shall mean the close of business on February 17, 1998
or such other date as is determined by the Allergan Board of Directors or any
committee thereof.
1.15 "Registration Statement" shall mean the registration statement on
Form S-1 registering the issuance of ASTI Shares pursuant to the Distribution.
1.16 "Research and Development Agreement" shall mean the Research and
Development Agreement dated as of the date hereof between Allergan and ASTI.
1.17 "Services Agreement" shall mean the Services Agreement dated as of
the date hereof between Allergan and ASTI.
1.18 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.19 "Technology License Agreement" shall mean the Technology License
Agreement dated as of the date hereof between Allergan and ASTI.
2. PRELIMINARY ACTION.
2.1 REGISTRATION STATEMENT AND PROSPECTUS. ASTI has prepared and filed
the Registration Statement with the Commission. Subject to the conditions set
forth herein, Allergan and ASTI shall use reasonable efforts to cause the
Registration Statement to become effective under the Securities Act. ASTI has
prepared, and Allergan shall cause to be mailed, the Prospectus to the record
holders on the Record Date of Allergan Common Stock.
2.
<PAGE> 3
2.2 FORM 8-A. ASTI has prepared and filed with the Commission a Form 8-A
which includes or incorporates by reference relevant portions of the
Registration Statement. Subject to the conditions set forth herein, ASTI shall
use reasonable efforts to cause the Form 8-A to become effective under the
Exchange Act.
2.3 BLUE SKY. ASTI shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the Distribution to permit
the ASTI Shares to be distributed as described in the Prospectus.
2.4 LISTING. ASTI has prepared and filed an application to effect the
listing of the ASTI Shares on the Nasdaq National Market. ASTI shall use
reasonable efforts to cause the ASTI Shares to be so listed.
2.5 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each party hereto
understands and agrees that no party hereto is, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any agreements or the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws. Notwithstanding the foregoing, the
parties shall use reasonable efforts to obtain all consents and approvals, to
enter into all agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all applicable regulatory filings or
consents under federal or state laws and all necessary consents, approvals,
agreements, filings and applications.
3. ISSUE AND SALE OF ASTI SHARES.
3.1 PURCHASE OF ASTI CLASS A COMMON STOCK. Prior to the Distribution
Date and in consideration of Allergan's contribution of $200 million in cash to
ASTI, ASTI will issue to Allergan that number of ASTI Shares such that Allergan
may distribute to holders of Allergan Common Stock one ASTI Share for every 20
shares of Allergan Common Stock held on the Record Date. Allergan and ASTI
acknowledge that all of the ASTI Shares held by Allergan will be distributed by
Allergan to the holders of outstanding shares of Allergan Common Stock.
4. THE DISTRIBUTION.
4.1 THE DISTRIBUTION. ASTI shall take all steps required by Allergan or
the Agent to effect the Distribution. Prior to the Distribution, and upon
receipt of the capital contribution described in Section 3 hereof, ASTI shall
cause to be issued to Allergan a certificate or certificates representing a
sufficient number of ASTI Shares so that Allergan may distribute one ASTI Share
for every 20 shares of Allergan Common Stock held on the Record Date.
4.2 EXPENSES OF DISTRIBUTION. All expenses related in any way to the
Distribution, including without limitation all legal, financial advisory and
accounting fees of Allergan and ASTI, shall be borne by ASTI.
3.
<PAGE> 4
5. ADDITIONAL ASSURANCES; INDEMNIFICATION.
5.1 MUTUAL ASSURANCES. Allergan and ASTI agree to cooperate with respect
to the implementation of the Allergan/ASTI Agreements and to execute such
further documents and instruments as may be necessary to confirm the
transactions contemplated thereby.
5.2 INDEMNIFICATION. If Allergan exercises the Purchase Option, from and
after such exercise, Allergan shall indemnify, defend and hold harmless ASTI's
officers and directors to the same extent as provided in ASTI's Restated
Certificate of Incorporation.
5.3 NOTICE. Any person entitled to indemnification pursuant to Section
5.2 shall give Allergan prompt notice in writing, in the manner set forth in
Section 7.7 below, of any claim or demand made against such person for which
such person may be entitled to indemnification under Section 5.2.
6. CONDITIONS TO EFFECTIVENESS OF DISTRIBUTION.
The Distribution shall be subject to the satisfaction or waiver by
Allergan of the following conditions and the satisfaction or waiver by ASTI of
the conditions in Sections 6.8 and 6.9:
6.1 BOARD APPROVAL. The Allergan/ASTI Agreements (including exhibits and
schedules) shall have been approved by the Board of Directors of Allergan and
ASTI and shall have been executed and delivered by appropriate officers of
Allergan and ASTI, and the Allergan Board of Directors (or a committee thereof)
shall have declared a dividend of the ASTI Shares as of the Record Date to the
holders of record of the Allergan Common Stock.
6.2 SECURITIES LAW COMPLIANCE. The transactions contemplated hereby
shall be in compliance with applicable federal and state securities laws, and
the Registration Statement shall have been declared effective and no stop orders
shall have been instituted with respect thereto under the Securities Act.
6.3 RESTATED CERTIFICATE OF INCORPORATION. The Restated Certificate of
Incorporation of ASTI shall have been adopted by the Board of Directors,
approved by Allergan as sole stockholder of ASTI, and filed with the Delaware
Secretary of State.
6.4 FORM 8-A EFFECTIVE. The Form 8-A shall have become effective under
the Exchange Act.
6.5 LISTING APPLICATION APPROVED. The ASTI Shares shall be approved for
quotation on the Nasdaq National Market.
6.6 FAIRNESS OPINION. Allergan shall have received an opinion of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, investment advisor to Allergan, in
form and substance satisfactory to Allergan, to the effect that (i) from a
financial point of view, the Distribution provides a reasonable structure to
pursue the financial objectives described in the Prospectus of Allergan and (ii)
from a financial point of view, the Distribution is fair to the stockholders of
Allergan.
4.
<PAGE> 5
6.7 PERMITS AND LICENSES. ASTI shall have received such permits and
licenses as may be necessary for the purpose of commencing operations
contemplated by the Allergan/ASTI Agreements.
6.8 CONSENTS. Each of Allergan and ASTI shall have received such
consents, and shall have received executed copies of such agreements or
amendments of agreements, as it shall deem necessary in connection with the
completion of the transaction contemplated by this Agreement.
6.9 OTHER INSTRUMENTS. All actions and other documents and instruments
deemed necessary or advisable in connection with the transactions contemplated
hereby shall have been taken or executed, as the case may be, in form and
substance satisfactory to Allergan and ASTI.
6.10 LEGAL PROCEEDINGS. No legal proceedings affecting or arising out of
the transactions contemplated hereby or which could otherwise affect Allergan or
ASTI in a materially adverse manner shall have been commenced or threatened
against Allergan, ASTI or the directors or officers of either Allergan or ASTI.
6.11 MATERIAL CHANGES. No material adverse change shall have occurred
with respect to Allergan or ASTI, the securities markets (either generally or
with respect to Allergan or ASTI) or general economic or financial conditions
which shall, in the reasonable judgment of Allergan, make the transactions
contemplated by this Agreement inadvisable.
6.12 OTHER CONDITIONS. Such other conditions as may be set by the
Allergan Board of Directors or any committee thereof in the resolutions
authorizing the Distribution shall have been satisfied.
7. MISCELLANEOUS.
7.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of
a breach of any provisions of this Agreement shall not be implied and shall not
be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of such term or condition for any other term.
All rights, remedies, undertakings, obligations and agreements contained in this
Agreement shall be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of either party. This
Agreement may not be amended except in a writing signed by both parties.
7.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
5.
<PAGE> 6
7.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the Chief Executive Officer ("CEO") of ASTI and the CEO of
Allergan for attempted resolution by good faith negotiations within sixty (60)
days after such referral is made. During such period of good faith negotiations,
any applicable time periods under this Agreement shall be tolled. In the event
such executives are unable to resolve such dispute within such sixty (60) day
period, the parties shall submit their dispute to binding arbitration before a
retired California Superior Court Judge at J.A.M.S./Endispute located in Orange,
California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute
procedure rules for commercial disputes then in effect. The award of the
arbitrator shall include an award of reasonable attorneys' fees and costs to the
prevailing party.
7.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
7.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
7.6 HEADINGS. The headings set forth at the beginning of the various
sections of this Agreement are for convenience and form no part of the Agreement
between the parties.
7.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief Executive Officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by facsimile (but only if followed by certified
or registered confirmation). Either party may change the address at which notice
is to be received by written notice pursuant to this Section 7.7.
7.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent
6.
<PAGE> 7
necessary to make it valid and enforceable or, if such modification is not
possible, it shall be stricken and the remaining provisions shall remain in full
force and effect.
7.9 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement,
ASTI and Allergan shall be deemed to be independent contractors and anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute ASTI and Allergan as partners, joint venturers, coowners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way to obligate the other party, except as expressly authorized
in writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.
7.10 SURVIVAL. The provisions of Sections 1, 5, 7.1, 7.3, 7.5, 7.6, 7.7,
7.8 and this Section 7.10 shall survive the termination for any reason of this
Agreement. Any payments due under this Agreement with respect to any period
prior to its termination shall be made notwithstanding the termination of this
Agreement. Neither party shall be liable to the other due to the termination of
this Agreement as provided herein, whether in loss of good will, anticipated
profits or otherwise.
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ALLERGAN, INC.
By:/s/ LESTER J. KAPLAN
---------------------------------------------
Title: Corporate Vice President, Science &
Technology
-----------------------------------------
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: /s/ LESTER J. KAPLAN
---------------------------------------------
Title: Chief Executive Officer
-----------------------------------------
8.
<PAGE> 1
EXHIBIT 13
ALLERGAN 1997 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1997
This financial review presents the Company's operating results for each of the
three years in the period ended December 31, 1997, and its financial condition
at December 31, 1997. This review should be read in connection with the
information presented in the Consolidated Financial Statements and the related
Notes to the Consolidated Financial Statements.
In 1997 and 1996, the Company entered into three research and development
collaboration agreements:
In September 1997, the Company and Acadia Pharmaceuticals entered into a
collaboration of discovery efforts on five potential drug targets including the
prostanoid and alpha adrenergic receptors. The Company invested $6 million in
Acadia Pharmaceuticals, and will pay Acadia up to $12.5 million for the first
product developed for each receptor target. Upon commercialization of products,
the Company will pay Acadia royalties on product sales.
In November 1996, the Company and Cambridge NeuroScience, Inc. entered into
a collaboration to develop treatments for glaucoma and other ophthalmic diseases
based on ion channel blocking technology. The Company invested $3 million in
Cambridge NeuroScience common stock, and will pay Cambridge NeuroScience $3
million for collaborative research over a three year period.
In October 1996, the Company and SUGEN, Inc. entered into an exclusive
collaboration to identify compounds for the treatment of ophthalmic diseases
utilizing SUGEN's proprietary signal transduction inhibition technology. The
Company invested $7 million in SUGEN common stock, and paid SUGEN $2 million in
technology fees which were charged to research and development in 1996. In
addition, the Company will pay $4.5 million in collaborative research fees over
a three year period.
In 1995, the Company acquired four businesses:
Optical Micro Systems Inc. (OMS), a manufacturer of phacoemulsification
equipment, in North Andover, Massachusetts, in January 1995.
Laboratorios Frumtost SA (Frumtost), the largest manufacturer of eye care
pharmaceuticals in Brazil, in June 1995.
Herald Pharmacal (Herald) skin care product line based in Colonial Heights,
Virginia, in August 1995.
Pilkington Barnes Hind contact lens care product line (Barnes Hind) marketed
worldwide with a leading product in Japan, in November 1995.
In addition, the Company acquired the minority ownership portion of its
Santen-Allergan joint venture, which markets contact lens care products in
Japan, in August 1995.
RESULTS OF OPERATIONS
>Net Sales
Net sales for 1997 were $1.138 billion, which was a decrease of $9.0 million or
1% from 1996. Foreign currency fluctuations in 1997 decreased sales by $46.0
million or 4% as compared to average rates in effect through 1996. Excluding the
impact of foreign currency fluctuations, sales increased by $37.0 million or 3%
over 1996.
Net sales for 1996 were $1.147 billion, which was an increase of $79.8
million or 7% over 1995. Foreign currency fluctuations in 1996 decreased sales
by $13.9 million or 2% as compared to average rates in effect through 1995.
Excluding the impact of foreign currency fluctuations, sales increased by $93.7
million or 9% over 1995. Sales in 1996 of products of acquired businesses in
their first twelve months after acquisition contributed $78.4 million to 1996
sales.
The following table sets forth, for the periods indicated, net sales by
major product line.
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Specialty Pharmaceuticals:
Eye Care Pharmaceuticals $ 408.5 $ 425.1 $ 415.1
Skin Care 80.6 64.7 44.7
Botox/Neuromuscular 90.1 67.2 48.9
------------------------------------------
Total 579.2 557.0 508.7
Medical Devices and OTC
Product Lines:
Ophthalmic Surgical 182.2 184.0 188.7
Optical Contact
Lens Care 376.6 406.0 369.8
------------------------------------------
Total 558.8 590.0 558.5
------------------------------------------
Total Product Net Sales $ 1,138.0 $ 1,147.0 $ 1,067.2
==========================================
Domestic 42.8% 41.4% 43.6%
International 57.2% 58.6% 56.4%
------------------------------------------
</TABLE>
25
<PAGE> 2
ALLERGAN 1997 ANNUAL REPORT
Historically, the Company has used special sales and promotional incentives
to distributors to promote the sale of eye care pharmaceuticals and skin care
pharmaceuticals. A curtailment of these special programs in the United States in
1997 reduced wholesaler inventories and net sales by approximately $17 million
or 1.5% of net sales for 1997 in comparison with comparable 1996 amounts.
>Eye Care Pharmaceutical Sales
Eye Care pharmaceutical sales include a broad range of products for glaucoma
therapy, ocular inflammation, infection, allergy and dry eye. Eye Care
pharmaceutical sales decreased by 4% in 1997 compared to 1996 after increasing
2% in 1996 compared to 1995.
United States sales decreased by $5.0 million while international sales
decreased $11.6 million in 1997 compared to 1996. Excluding the impact of
foreign currency changes, international sales were unchanged in 1997 compared to
1996. The decrease in U.S. sales was primarily the result of the reduction in
1997 in inventories held by wholesalers. In addition, sales of certain glaucoma
and anti-infective products decreased significantly due to generic competition.
The decreases were offset by growth in sales of a new glaucoma product,
Alphagan, introduced in late 1996. Alphagan sales in the United States were
$46.3 million compared to $5.0 million in 1996.
United States sales in 1996 decreased by $22.9 million or 11% compared to
1995. Such decrease was the result of decreases in sales unit volumes of
glaucoma therapy products. Sales in international markets increased by $32.9
million or 16% in 1996 compared to 1995 as a result of increased sales of
Frumtost products and growth in other international markets.
>Skin Care Sales
Skin Care sales include products for acne, psoriasis and other prescription and
over the counter dermatological products. Sales increased by $15.9 million or
25% in 1997 compared to 1996, and by $20.0 million or 45% in 1996 compared to
1995. Sales growth in 1997 was driven by $16.2 million in sales of Tazorac
(Zorac), a topical gel used to treat psoriasis and acne, which was introduced in
1997. Growth in 1997 was negatively impacted by the reduction in wholesaler
inventories and a decrease in sales of anti-fungal products. Sales in 1996
included a full year of Herald product sales compared to five months sales in
1995. In addition, the Company introduced Azelex (azelaic acid) cream in 1996.
Sales of Azelex accounted for the remainder of the increase in sales in 1996.
>Botox/Neuromuscular Sales
Botox (Botulinum Toxin Type A) purified neurotoxin complex is the Company's
product for movement disorders. Botox sales growth was 34% in 1997 and 37% in
1996. Sales growth in both years was the result of increased market penetration
in both the U.S. and international markets.
>Ophthalmic Surgical Sales
Surgical sales represent products for the ophthalmic surgical market, including
intraocular lenses (IOLs), pharmaceuticals and other products related to
cataract surgery. Surgical sales decreased by 1% in 1997 compared to 1996 and by
2% in 1996 compared to 1995. Domestic sales increased by 2% in 1997 and
decreased by 15% in 1996, while sales in international markets decreased by 3%
in 1997 and increased by 9% in 1996. Total IOL unit sales in the U.S. market
increased 14% in 1997 after decreasing 5% in 1996. During 1996, surgical sales
were negatively impacted by the initiation of a limited voluntary recall of
certain IOLs in the first quarter. Silicone IOL unit sales in the U.S. market
increased by 24% in 1997 and 5% in 1996. Competitive pressures have resulted in
declines in average selling prices of IOLs in 1997 and 1996 in both the United
States and international markets. In addition, sales in international markets
decreased by 8 percentage points in 1997 and 5 percentage points in 1996 by the
impact of foreign currency fluctuations.
>Optical Contact Lens Care Sales
Optical Lens Care sales decreased by 7% from 1996 to 1997 and increased by 10%
from 1995 to 1996. Domestic sales decreased by 10% in 1997 and increased by 13%
in 1996. Domestic sales decreased in 1997 as a result of decreases in sales of
ancillary contact lens care products. This decrease is the result of increasing
use of disposable and frequent replacement contact lenses. Sales of Barnes Hind
products, acquired in 1995, account for most of the increase in United States
sales in 1996. International lens care product sales decreased
26
<PAGE> 3
ALLERGAN 1997 ANNUAL REPORT
by 6% in 1997 compared to 1996 and increased by 9% in 1996 compared to 1995.
Currency fluctuations had a negative impact on 1996 and 1997 international sales
growth. Excluding currency fluctuations, international sales increased by 5%
from 1996 to 1997 and by 11% from 1995 to 1996. Sales of Barnes Hind products
increased international sales in 1997 and 1996. These increases were offset by
decreases in sales of peroxide based disinfection products as consumers
increased use of lower priced one bottle cold chemical disinfection systems.
>Income and Expenses
The following table sets forth the relationship to sales of various income
statement items:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Product net sales 100.0% 100.0% 100.0%
Cost of sales 35.1 33.5 30.7
---------------------------------
Product gross margin 64.9 66.5 69.3
Research services margin 0.1 0.1 0.0
Other operating costs and
expenses:
Selling, general and
administrative 40.3 39.8 41.5
Research and
development 11.5 10.3 10.9
Restructuring charge -- 6.1 --
Asset write-offs -- 0.6 --
Contribution to ALRT -- -- 4.7
---------------------------------
Operating income 13.1 9.6 12.1
Nonoperating income (expense) 0.7 (0.2) (0.4)
---------------------------------
Earnings before income taxes
and minority interest 13.8 9.4 11.7
==================================
Net earnings 11.3% 6.7% 6.8%
==================================
</TABLE>
>Gross Margins
The Company's gross margin percentage decreased by 1.6 percentage points from
66.5% in 1996 to 64.9% in 1997. The decrease in gross margin was primarily the
result of the negative impact of currency fluctuations. Partially offsetting the
decrease, the gross margin percentage was increased by sales of newly introduced
higher margin products offset by increased royalty costs. The Company's gross
margin percentage decreased by 2.8 percentage points from 69.3% in 1995 to 66.5%
in 1996. The decrease in gross margin percentage was primarily the result of the
shift in sales mix to include lower margin products of businesses acquired in
1995. In addition, margins declined as global pricing pressures decreased
selling prices in 1996. Pricing pressures were the result of competitor actions,
governmental cost control measures, and reductions in net realized prices of
products sold to managed care organizations.
>Selling, General and Administrative
Selling, general and administrative expenses as a percentage of product net
sales increased in 1997 to 40.3% from 39.8% in 1996. The percentage decreased in
1996 from a rate of 41.5% in 1995. The percentage increase in 1997 was primarily
the result of product launch costs relating to Alphagan and Tazorac (Zorac)
estimated at in excess of $23.0 million. The increased costs were partially
offset by certain transactions including $9.6 million in income from sales of
product rights, $7.5 million in income from settlement of a product related
lawsuit, and $4.5 million in income from Ligand Pharmaceuticals Incorporated
(Ligand) from the sale of rights to certain compounds in connection with the
dissolution of Allergan Ligand Retinoid Therapeutics, Inc. (ALRT). The
percentage decrease in 1996 was primarily the result of decreases in product
launch expenses from 1995 and overhead related to acquisitions in 1995 and the
favorable effect of currency changes, offset by an increase in amortization of
goodwill related to recent acquisitions. In addition, restructuring activities
in 1996 reduced the Company's administrative cost structure lowering selling,
general and administrative costs in the second half of the year.
>Research and Development
Research and development expenses increased by 11% in 1997 to $131.2 million
compared to $118.3 million in 1996 and $116.7 million in 1995. In addition, in
1995 the Company contributed $50.0 million to ALRT to conduct research related
to small molecule retinoid products. Beginning in 1995, Allergan research and
development costs related to retinoid products were reimbursed by ALRT. Research
and development spending in 1995 and 1996 does not include the $50.0 million
contribution to ALRT in 1995, or research and development spending performed
under contracts with ALRT in 1995, 1996 and 1997. The 1997 and 1996 increases in
research and development spending are the result of increased
27
<PAGE> 4
ALLERGAN 1997 ANNUAL REPORT
spending on selected research opportunities. In addition, 1997 spending includes
$3.4 million in net cost to acquire a portion of the assets of ALRT at its
dissolution, and approximately $4.0 million in costs of research which would
have been reimbursed by ALRT had it not been dissolved. Research and development
expenditures are allocated to each product line, with higher rates of
investments allocated to Eye Care pharmaceuticals, Botox and Skin Care.
>Special Charges
Results for 1996 and 1995 include three special charges disclosed on specific
lines in the Consolidated Statements of Earnings.
During 1996, the Company recorded a $70.1 million restructuring charge,
$49.7 million after taxes. The restructuring charge related to a comprehensive
program anticipated to streamline operations and reduce costs through management
restructuring and facilities consolidation resulting in a workforce reduction of
approximately 500 people. The restructuring and facilities consolidation
activities affected employees in various activities in 22 locations worldwide.
The restructuring charge was recorded over the last three quarters of 1996 as
employees at each location were notified of the restructuring plan and its
effect on their location. The restructuring charge was originally estimated to
consist of $34.0 million of employee severance costs, $29.6 million of facility
consolidation costs and $6.5 million of other costs. During 1997, $7.6 million
was paid to approximately 140 terminated employees and $10.1 million was paid
for facilities consolidation and other costs. During 1996, $9.9 million was paid
to approximately 300 terminated employees and $26.5 million was paid for
facility consolidation and other costs.
As the Company implemented its streamlined business plan, certain assets
were determined to be of limited or no future value. The Company recorded $7.4
million in write-offs, $5.3 million after taxes, of computer hardware and
software and certain intangible assets in 1996.
Since 1992, the Company and Ligand operated a joint venture for the purpose
of performing certain research and development activities. In December 1994,
Allergan and Ligand formed a new research and development company, ALRT, to
function as the successor to the joint venture. In June 1995, Ligand contributed
$17.5 million to ALRT for a right to acquire all of the stock of ALRT at
specified future dates and amounts. At the same time, the Company contributed
$50.0 million to ALRT in exchange for rights to acquire one half of all
technologies and other assets, or a similar right to acquire all of the stock of
ALRT if Ligand did not exercise its right. The Company also purchased $6.0
million of Ligand common stock at the time of its contribution to ALRT. The
Company accounted for its $50.0 million contribution as a charge to operating
expense at the time of the contribution.
>Operating Income
Operating income was $149.0 million or 13.1% of product net sales in 1997, and
$110.6 million or 9.6% of product net sales in 1996. The 1996 amount included
special charges for restructuring costs of $70.1 million and asset write-offs of
$7.4 million. Operating income in 1995 was $129.6 million or 12.1% of product
net sales. The 1995 amount included the special charge for the $50.0 million
contribution to ALRT. Excluding the special charges in 1996 and 1995, operating
income was $188.1 million or 16.4% of product net sales in 1996 and $179.6
million or 16.8% of product net sales in 1995. Operating income and the
operating income percentage, excluding special charges, decreased by $39.1
million from $188.1 million or 16.4% of product net sales in 1996 to $149.0
million or 13.1% of product net sales in 1997. Such decreases were primarily the
result of the decrease in gross margin of $23.6 million and the increase in
research and development costs of $12.9 million. Operating income, excluding
special charges, increased in 1996 as a result of the increase in net sales. The
operating income percentage, excluding special charges, declined in 1996 as a
result of the decline in gross margin percentage offset by the reduction in
selling, general and administrative costs as a percentage of net sales.
>Net Earnings
Net earnings were $128.3 million in 1997 compared to $77.1 million in 1996. The
1996 results include the restructuring charge of $49.7 million net of income
28
<PAGE> 5
ALLERGAN 1997 ANNUAL REPORT
taxes, and asset write-offs of $5.3 million net of income taxes. Excluding the
after tax effect of special charges, net earnings were $128.3 million in 1997
compared to $132.1 million in 1996. The decrease in 1997 was the result of the
$39.1 million decrease in operating income, offset by a $12.4 million ($8.8
million net of income taxes) gain on sale of an investment included in other
non-operating expense and a $16.5 million one-time reduction in income taxes.
Income taxes were reduced by a tax benefit resulting from the termination of
ALRT in 1997. Such reduction was related to a portion of the $50.0 million
contributed to ALRT in 1995.
Net earnings were $77.1 million in 1996 compared to $72.5 million in 1995.
The increase in net earnings in 1996 was primarily the result of the increase in
operating income excluding the effect of the special charges in 1996 and 1995.
Such increase was offset by the increase in the effect of the special charges in
1996 compared to 1995. The contribution to ALRT in 1995 reduced net earnings by
$50 million.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
SFAS No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options.
Diluted earnings per share is very similar to the previously reported primary
earnings per share. All earnings per share amounts for all periods have been
restated to conform to SFAS No. 128 requirements.
Diluted net earnings per common share increased to $1.95 in 1997 from $1.17
in 1996. The 1996 amount was reduced by $0.75 for the after tax effect of the
restructuring charge, and by $0.08 for the after tax effect of asset write-offs.
Excluding the effects of the special charges for restructuring costs and asset
write-offs in 1996, diluted net earnings per common share decreased $0.05 or
2.5% from $2.00 in 1996 to $1.95 in 1997.
Diluted earnings per common share increased to $1.17 in 1996 from $1.12 in
1995. The 1995 amount was reduced by $0.77 for the effect of the contribution to
ALRT. Excluding the effect of the special charges for restructuring costs and
asset write-offs in 1996 and the contribution to ALRT in 1995, diluted net
earnings per common share increased $0.11 or 6% to $2.00 in 1996 from $1.89 in
1995.
Basic earnings per common share were $1.97 in 1997, $1.18 in 1996 and $1.13
in 1995. Excluding special charges of $0.76 for restructuring and $0.08 for
asset write-offs in 1996 and $0.78 for the contribution to ALRT in 1995, basic
earnings per common share were $2.03 in 1996 and $1.91 in 1995.
Results for the second quarter, third quarter, fourth quarter, and total
year of 1996 include special charges in operating costs and expenses for
restructuring costs and asset write-offs. Excluding the charges, the following
amounts would have been reported:
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating
income $ 33.2 $ 43.6 $ 51.6 $ 59.7 $ 188.1
Net earnings 23.1 29.8 37.7 41.5 132.1
Basic earnings
per share 0.36 0.46 0.58 0.63 2.03
Diluted earnings
per share 0.35 0.45 0.57 0.63 2.00
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company's liquidity by its ability to generate cash to
fund its operations. Significant factors in the management of liquidity are:
funds generated by operations; levels of accounts receivable, inventories,
accounts payable and capital expenditures; the extent of the Company's stock
repurchase program; adequate lines of credit; and financial flexibility to
attract long-term capital on satisfactory terms.
Historically, the Company has generated cash from operations in excess of
working capital requirements. The net cash provided by operating activities was
$209.8 million in 1997 compared to $175.2 million in 1996 and $76.7 million in
1995. Operating cash flow in 1997 was increased due to a reduction in accounts
receivable balances. Operating cash flow in 1995 was reduced by the $50.0
million contribution to ALRT. In addition, the Company reduced income taxes
pay-able in 1995 as a result of acceleration of certain tax payments as required
by taxation provisions of the new United States GATT legislation enacted in
December 1994.
29
<PAGE> 6
ALLERGAN 1997 ANNUAL REPORT
Cash used in investing activities was $83.9 million in 1997 including $64.4
million in expenditures for plant and equipment, more fully described under
"Capital Expenditures" below, and $17.4 million to acquire software. Cash used
in investing activities of $74.4 million in 1996 included $23.5 million to
acquire software, and $59.7 million of expenditures for plant and equipment.
Such expenditures were partially offset by proceeds from sales of investments
and other assets. Cash used in investing activities totaled $277.8 million in
1995. The acquisitions of OMS, Frumtost, and the Herald Pharmacal and Barnes
Hind product lines, along with acquisition of the minority ownership portion of
the Santen-Allergan joint venture represent $162.0 million of such activities.
Cash utilized for investing activities in 1995 also includes $17.5 million used
to prepay product royalties, $30.7 million used primarily to acquire software,
and $62.5 million of expenditures for plant and equipment.
Cash used in financing activities was $54.5 million in 1997, composed
primarily of $33.4 million for payment of dividends, $34.0 million for purchases
of treasury stock and $37.6 million in net repayments of debt including notes
payable and long-term debt. Cash was provided by $31.9 million in net borrowings
under commercial paper obligations and long-term debt, and $18.6 million in
proceeds from sales of stock to employees. Cash used in financing activities was
$93.5 million in 1996, composed primarily of $31.5 million for payment of
dividends and $100.1 million in net repayments of debt including commercial
paper, notes payable and long-term debt. Cash was provided from $18.2 million in
proceeds from sales of stock to employees and $19.9 million in long-term
borrowings. Net cash provided by financing activities was $175.7 million in
1995. Cash was provided primarily by net borrowings under commercial paper
obligations of $64.0 million, and long-term debt borrowings of $129.1 million.
The primary financing activity use of cash was $29.9 million in payment of
dividends.
As of December 31, 1997, the Company had three long-term credit facilities
and a medium term note program. The credit facilities allow for borrowings of up
to $44.6 million through 1999, $252.0 million through 2001, and $39.1 million
through 2003. The note program allows the Company to issue up to an additional
$115 million in notes on a non-revolving basis. Borrowings under the credit
facilities are subject to certain financial and operating covenants, including a
requirement that the Company maintain certain financial ratios and other
customary covenants for credit facilities of similar kind. As of December 31,
1997, the Company had $93.7 million in borrowings under certain of the credit
facilities, $65.0 million under the note program, and commercial paper
borrowings of $40.6 million. As of December 31, 1997, the Company classified
$10.6 million of its commercial paper borrowings as long-term debt based upon
the Company's ability to refinance such debt on a long-term basis under terms of
the credit facilities described above.
A substantial portion of the Company's existing cash and equivalents are
held by non-U.S. subsidiaries. These funds are planned to be utilized in the
Company's operations outside the United States. The Company has approximately
$295.8 million in unremitted earnings outside the United States for which
withholding and U.S. taxes have not been provided. Tax costs could be incurred
if these funds were remitted to the United States.
The Company believes that the net cash provided by operating activities,
supplemented as necessary with borrowings available under the Company's existing
credit facilities, will provide it with sufficient resources to meet current and
long-term working capital requirements, debt service and other cash needs.
>Capital Expenditures
Expenditures for property, plant and equipment totaled $64.4 million for 1997,
$59.7 million for 1996 and $62.5 million for 1995. Expenditures for 1997 include
expansion of manufacturing facilities and a variety of other projects designed
to improve productivity.
>Inflation
Although at reduced levels in recent years, inflation continues to apply upward
pressure on the cost of goods and services used by the Company. The competitive
and regulatory environments in many markets substantially limit the Company's
ability to fully recover these higher costs through increased selling prices.
The Company continually seeks to
30
<PAGE> 7
ALLERGAN 1997 ANNUAL REPORT
mitigate the adverse effects of inflation through cost containment and improved
productivity and manufacturing processes.
>Foreign Currency Fluctuations
Approximately 57% of the Company's revenues in 1997 were derived from operations
outside the U.S., and a portion of the Company's international cost structure is
denominated in currencies other than the U.S. dollar. As a result, the Company
is subject to fluctuations in sales and earnings reported in U.S. dollars as a
result of changing currency exchange rates. The Company routinely monitors its
transaction exposure to currency rates and implements certain hedging strategies
to limit such exposure, as appropriate. The impact of foreign currency
fluctuations on the Company's sales was as follows: a $46.0 million decrease in
1997; a $13.9 million decrease in 1996; and a $33.0 million increase in 1995.
The 1997 sales decrease included decreases of $31.3 million related to European
currencies and $9.7 million related to the Japanese Yen. The 1996 sales decrease
included decreases of $6.3 million related to European currencies and $7.7
million related to the Japanese Yen. The 1995 sales increase included increases
of $30.6 million related to European currencies and $2.6 million related to the
Japanese Yen. See Note 1 to the Consolidated Financial Statements relative to
the Company's accounting policy on foreign currency translation.
In the normal course of business, operations of the Company are exposed to
risks associated with fluctuations in currency exchange rates and interest
rates. The Company addresses these risks through controlled risk management that
includes the use of derivative financial instruments to hedge these exposures.
The Company does not enter into financial instruments for trading or speculative
purposes. See Note 10 to the Consolidated Financial Statements for activities
relating to foreign currency risk management. The recent economic instability in
Asia has not had, and is not expected to have, a material impact on the
Company's operations, cash flows, or financial position. The Company believes
its assets in Asia have suffered no permanent impairment in value as a result of
recent economic events.
>Allergan Specialty Therapeutics, Inc.
In 1997 the Company formed a new subsidiary, Allergan Specialty Therapeutics,
Inc. (ASTI), to conduct research and development of potential pharmaceutical
products based on the Company's retinoid and neuroprotective technologies. In
November, the Company filed a registration statement with the Securities and
Exchange Commission on behalf of ASTI relating to a proposed special
distribution of ASTI Class A Common Stock to the Company's stockholders. The
distribution is expected to occur on or about March 10, 1998 to stockholders of
record on February 17, 1998.
Prior to the distribution, the Company will contribute $200 million to ASTI.
The market value of ASTI stock is anticipated to be approximately $23 to $35
million at the date of distribution. The Company will record a dividend for the
amount of the market value of ASTI stock at the distribution. The remainder of
the $200 million will be recorded as a charge against operating income. The
Company's stockholders will receive one share of ASTI Class A Common Stock for
each 20 shares of common stock held as of the record date. Based on 65,292,628
shares of common stock outstanding as of December 31, 1997, approximately
3,264,600 shares of ASTI Class A Common Stock are expected to be issued in the
distribution. The Company's stockholders will not be required to pay any cash or
other consideration for the ASTI Class A Common Stock received in the
distribution. The distribution is expected to be taxable as a dividend to each
holder in the amount of the fair market value of ASTI Shares distributed to such
holder.
As the sole holder of ASTI's outstanding Class B Common Stock following the
distribution, the Company will have the option to repurchase all of the
outstanding ASTI Shares under specified conditions. The Company has also granted
certain technology licenses and agreed to make specified payments on sales of
certain products in exchange for the payment by ASTI of a technology fee and the
option to independently develop certain compounds funded by ASTI prior to the
filing of an Investigational New Drug application with the U.S. Food and Drug
Administration with respect thereto and to license any products and technology
developed by ASTI. The Company will recognize the technology fee as revenue as
it is earned and received.
31
<PAGE> 8
ALLERGAN 1997 ANNUAL REPORT
ASTI's technology and product research and development activities will take
place under a research and development agreement with the Company. The Company
will recognize revenues and related costs as services are performed under such
contracts. It is currently expected that substantially all of ASTI's funds will
be directed toward continuing the research and development of products based on
retinoid and neuroprotective technologies. In addition, ASTI may fund the
research and development of pharmaceutical products in therapeutic categories of
interest to the Company, other than those based on retinoid and neuroprotective
technologies, that complement the Company's product pipeline or otherwise are
believed to provide a potential commercialization opportunity for the Company.
>Year 2000
The Company has developed plans to address issues related to the impact on its
computer systems of the year 2000. Financial and operational systems have been
assessed and plans have been developed to address systems modification
requirements. The financial impact of making the required systems changes is not
expected to be material to the Company's consolidated financial position,
results of operations or cash flows.
>Forward Looking Statements
Any of the above statements that refer to the Company's estimated or anticipated
future results are forward looking and reflect the Company's current analysis of
existing trends and information. Actual results may differ from current
expectations based on a number of factors affecting the Company's businesses,
including new product performance and related introduction and launch expenses,
competitive conditions, changing market conditions, the timing and uncertainty
of results of the research, development and regulatory processes, the
performance, including consumer acceptance of higher margin products, and the
realization of the favorable gross profit margin resulting from product mix
shifts and efforts to control expenses. In addition, matters affecting the
economy generally, such as currency exchange rates and the state of the economy
worldwide and in certain regions, can affect the Company's results. These
forward looking statements represent the Company's judgment only as of the date
of this Annual Report. Actual results could differ materially, and, as a result,
the reader is cautioned not to rely on these forward looking statements. The
Company disclaims, however, any intent or obligation to update these forward
looking statements.
32
<PAGE> 9
ALLERGAN 1997 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
In millions, except share data 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 180.9 $ 112.0
Trade receivables, net 187.0 242.5
Inventories 147.8 130.1
Other current assets 120.7 115.1
--------------------------
Total current assets 636.4 599.7
Investments and other assets 191.3 163.0
Property, plant and equipment, net 357.8 348.5
Goodwill and intangibles, net 213.4 238.6
--------------------------
Total assets $ 1,398.9 $ 1,349.8
==========================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 80.5 $ 66.6
Accounts payable 83.3 75.4
Accrued compensation 46.2 41.7
Other accrued expenses 120.8 144.4
Income taxes 32.5 47.2
--------------------------
Total current liabilities 363.3 375.3
Long-term debt 142.5 170.0
Other liabilities 51.4 54.1
Commitments and contingencies
Minority interest 0.3 0.6
Stockholders' equity
Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized 150,000,000 shares;
issued 67,196,000 and 67,244,000 shares 0.7 0.7
Additional paid-in capital 208.1 205.6
Foreign currency translation adjustment (5.0) 4.0
Other 16.7 3.1
Retained earnings 670.8 574.8
--------------------------
891.3 788.2
Less treasury stock, at cost (1,903,000 and 1,731,000 shares) (49.9) (38.4)
--------------------------
Total stockholders' equity 841.4 749.8
Total liabilities and stockholders' equity $ 1,398.9 $ 1,349.8
==========================
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 10
ALLERGAN 1997 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
In millions, except per share data 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Product sales
Net sales $ 1,138.0 $ 1,147.0 $ 1,067.2
Cost of sales 399.3 384.7 328.0
---------------------------------------------
Product gross margin 738.7 762.3 739.2
---------------------------------------------
Research services
Research service revenues 11.0 9.9 6.4
Cost of research services 10.4 9.2 5.9
---------------------------------------------
Research services margin 0.6 0.7 0.5
---------------------------------------------
Selling, general and administrative 459.1 456.6 443.4
Research & development 131.2 118.3 116.7
Restructuring charge -- 70.1 --
Asset write-offs -- 7.4 --
Contribution to ALRT -- -- 50.0
---------------------------------------------
Operating income 149.0 110.6 129.6
Interest income 8.9 13.1 10.0
Interest expense (8.9) (12.5) (13.9)
Other, net 8.1 (3.2) (0.5)
---------------------------------------------
Earnings before income taxes and minority interest 157.1 108.0 125.2
Provision for income taxes 29.0 31.3 51.7
Minority interest (0.2) (0.4) 1.0
---------------------------------------------
Net earnings $ 128.3 $ 077.1 $ 72.5
=============================================
Basic earnings per common share $ 1.97 $ 1.18 $ 1.13
=============================================
Diluted earnings per common share $ 1.95 $ 1.17 $ 1.12
=============================================
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 11
ALLERGAN 1997 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Unearned
Par Paid-In Compen- Retained Treasury Stock
In millions Shares Value Capital sation Other Earnings Shares Amount Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 67.4 $0.7 $223.1 $(26.4) $4.2 $485.3 (3.7) $(83.6) $603.3
Net earnings 72.5 72.5
Foreign currency translation
adjustment 0.5 0.5
Change in unrealized gain (loss)
on investments (0.6) (0.6)
Additional minimum liability
for qualified pension plan (0.8) (0.8)
Dividends ($0.47 per share) (30.2) (30.2)
Stock options exercised 2.4 (1.2) 0.7 17.1 18.3
Activity under other stock plans (0.1) (1.4) (2.0) 1.0 0.2 4.3 1.9
Expense of compensation plans 4.0 4.0
--------------------------------------------------------------------------------------------
Balance December 31, 1995 67.3 0.7 224.1 (24.4) 3.3 527.4 (2.8) (62.2) 668.9
Net earnings 77.1 77.1
Foreign currency translation
adjustment (0.7) (0.7)
Change in unrealized gain (loss)
on investments 3.7 3.7
Adjust minimum liability
for qualified pension plan 0.8 0.8
Dividends ($0.49 per share) (31.9) (31.9)
Stock options exercised 5.7 (0.2) 0.9 19.7 25.2
Activity under other stock plans (0.1) (2.1) (1.5) 2.4 0.2 4.1 2.9
Expense of compensation plans 3.8 3.8
--------------------------------------------------------------------------------------------
Balance December 31, 1996 67.2 0.7 227.7 (22.1) 7.1 574.8 (1.7) (38.4) 749.8
Net earnings 128.3 128.3
Foreign currency translation
adjustment (9.0) (9.0)
Change in unrealized gain (loss)
on investments 13.6 13.6
Dividends ($0.52 per share) (33.8) (33.8)
Stock options exercised 1.0 0.1 0.8 18.3 19.4
Activity under other stock plans (1.0) (1.3) 1.5 0.2 4.2 3.4
Adjustment in reporting of
foreign subsidiaries
(see Note 1) (0.1) (0.1)
Purchases of treasury stock (1.2) (34.0) (34.0)
Expense of compensation plans 3.8 3.8
--------------------------------------------------------------------------------------------
Balance December 31, 1997 67.2 $0.7 $227.7 $(19.6) $11.7 $670.8 (1.9) $(49.9) $841.4
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 12
ALLERGAN 1997 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by operating activities
Net earnings $ 128.3 $ 77.1 $ 72.5
Non-cash items included in net earnings
Depreciation and amortization 68.8 72.9 60.5
Amortization of prepaid royalties 11.0 7.4 8.2
Deferred income taxes (7.1) (8.1) 1.3
Gain on sale of investments (12.4) -- --
Loss on sale of assets 2.2 4.1 0.1
Expense of compensation plans 7.2 5.5 2.5
Minority interest (0.2) (0.4) 1.0
Restructuring charge -- 70.1 --
Asset write-offs -- 7.4 --
Changes in assets and liabilities
Trade receivables 44.4 (45.3) (14.9)
Inventories (18.7) (15.0) (6.3)
Accounts payable 9.0 19.6 (4.6)
Income taxes (12.8) 16.5 (28.9)
Accrued liabilities (3.6) (28.0) 1.3
Other (6.3) (8.6) (16.0)
------------------------------------
Net cash provided by operating activities 209.8 175.2 76.7
------------------------------------
Cash flows from investing activities
Additions to property, plant and equipment (64.4) (59.7) (62.5)
Disposals 10.4 7.2 0.9
Proceeds from sale of investments 12.4 -- --
Investment in Ligand Pharmaceuticals -- -- (6.0)
Prepayment of royalties -- -- (17.5)
Acquisitions of businesses, net of cash acquired -- -- (162.0)
Other (42.3) (21.9) (30.7)
------------------------------------
Net cash used in investing activities (83.9) (74.4) (277.8)
------------------------------------
Cash flows from financing activities
Dividends to stockholders (33.4) (31.5) (29.9)
Increase (decrease) in notes payable (35.0) (12.3) 8.1
Sale of stock to employees 18.6 18.2 15.4
Net borrowings (repayments) under commercial paper obligations 25.6 (76.5) 64.0
Long-term debt borrowings 6.3 19.9 129.1
Repayments of long-term debt (2.6) (11.3) (11.0)
Payments to acquire treasury stock (34.0) -- --
------------------------------------
Net cash provided by (used in) financing activities (54.5) (93.5) 175.7
Effect of exchange rates on cash and equivalents (2.5) 2.4 (3.0)
------------------------------------
Net increase (decrease) in cash and equivalents 68.9 9.7 (28.4)
Cash and equivalents at beginning of year 112.0 102.3 130.7
------------------------------------
Cash and equivalents at end of year $ 180.9 $ 112.0 $ 102.3
====================================
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest (net of amount capitalized) $ 13.5 $ 16.2 $ 13.8
====================================
Income taxes $ 46.1 $ 28.6 $ 70.4
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 13
ALLERGAN 1997 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Allergan and all
of its subsidiaries. All significant transactions among the consolidated
entities have been eliminated from the financial statements. The accounts of
most non-U.S. subsidiaries are included on the basis of their fiscal years ended
November 30.
The Company is in the process of changing financial systems in its
significant non-U.S. subsidiaries. Future results of such operations will be
accounted for on a calendar year basis. Certain non-U.S. subsidiaries underwent
this system conversion in 1997. Subsidiaries undergoing this conversion in 1997
had revenues of $4.8 million and a net loss of $0.1 million for the month of
December 1997, which was recorded as an adjustment to retained earnings.
>Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Actual results could differ from those estimates.
>Foreign Currency Translation
The financial position and results of operations of the Company's foreign
subsidiaries are generally determined using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation adjustment account
in stockholders' equity. Gains and losses resulting from foreign currency
transactions and translation adjustments relating to foreign entities deemed to
be operating in U.S. dollar functional currency in highly inflationary economies
are included in earnings. Foreign currency transaction and translation losses
totaled $5.6 million in 1997, $3.3 million in 1996 and $1.8 million in 1995.
>Cash and Equivalents
The Company considers cash and equivalents to include cash in banks and deposits
with financial institutions which can be liquidated without prior notice or
penalty.
>Inventories
Inventories are valued at the lower of cost or market (net realizable value).
Cost is determined by the first-in, first-out method.
>Long-Lived Assets
Property, plant and equipment are stated at cost. Additions, major renewals and
improvements are capitalized, while maintenance and repairs are expensed. Upon
disposition, the net book value of assets is relieved and resulting gains or
losses are reflected in earnings. For financial reporting purposes, depreciation
is generally provided on the straight-line method over the useful life of the
related asset. Accelerated depreciation methods are generally used for income
tax purposes.
Goodwill represents the excess of acquisition costs over the fair value of
net assets of purchased businesses and is being amortized on a straight-line
basis over periods from 7 to 30 years. Intangibles include patents, licensing
agreements and marketing rights which are being amortized over their estimated
useful lives. Amortization expense was $20.0 million in 1997, $21.6 million in
1996 and $14.3 million in 1995.
Long-lived assets and certain identifiable intangibles are reviewed for
impairment in value based upon undiscounted future operating cash flows, and
appropriate losses are recognized, whenever the carrying amount of an asset may
not be recovered.
>Revenue Recognition
The Company recognizes revenue from product sales when the goods are shipped to
the customer. Research service revenue is recognized and related costs are
recorded as services are performed under research service agreements.
>Stock-Based Compensation
The Company measures stock based compensation using a method which assumes that
options granted at market price at the date of grant have no intrinsic value.
Pro forma net income and earnings per share are
37
<PAGE> 14
ALLERGAN 1997 ANNUAL REPORT
presented in Note 9 as if the fair value method had been applied.
>Reclassifications
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform them to the 1997 presentation.
>New Accounting Standards
In June 1997, Statement of Financial Accounting Standards No. 130 - "Reporting
Comprehensive Income" (SFAS No. 130) and SFAS No. 131 - "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131) were issued
and are effective for periods beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting comprehensive income and its components.
SFAS No. 131 establishes standards for reporting financial and descriptive
information regarding an enterprise's operating segments. These standards
increase disclosure in the financial statements, and will have no impact on the
Company's financial position or results of operations.
>Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss and credit carryforwards. The impact on deferred taxes of changes
in tax rates and laws, if any, are applied to the years during which temporary
differences are expected to be settled and reflected in the financial statements
in the period of enactment. No provision is made for taxes on unremitted
earnings of certain non-U.S. subsidiaries which are or will be reinvested
indefinitely in such operations.
NOTE 2 ACQUISITIONS
In 1995, the Company acquired four businesses:
Optical Micro Systems Inc. (OMS), a manufacturer of phacoemulsification
equipment, in North Andover, Massachusetts, in January 1995.
Laboratorios Frumtost SA (Frumtost), the largest manufacturer of eye care
pharmaceuticals in Brazil, in June 1995.
Herald Pharmacal (Herald) skin care product line based in Colonial Heights,
Virginia, in August 1995.
Pilkington Barnes Hind contact lens care product line (Barnes Hind) marketed
worldwide with a leading product in Japan, in November 1995.
The cost of the acquisitions totaled $149.8 million. The acquisitions were
accounted for using the purchase method. Goodwill related to the acquisitions of
$139.6 million is being amortized over periods of 7 to 30 years. Results of
operations of each of the acquisitions have been included in the Company's
income statements since their respective dates of acquisition. On the basis of
an unaudited pro forma consolidation of the results of operations as if the
acquisitions had taken place at the beginning of 1995, the Company would have
reported net sales of $1,148.5 million, net earnings of $73.0 million, basic
earnings per common share of $1.14 and diluted earnings per common share of
$1.12.
The unaudited pro forma results of operations are not necessarily indicative
of the results of operations that would have occurred had the acquisitions
occurred at the beginning of 1995, or of future results of operations.
In addition to the acquisitions discussed above, the Company acquired the
minority ownership of the Santen-Allergan joint venture, which markets contact
lens care products in Japan, for $25.7 million in August 1995.
NOTE 3 SPECIAL CHARGES
During 1996, the Company recorded a $70.1 million restructuring charge, $49.7
million after taxes. The restructuring charge related to a comprehensive program
anticipated to streamline operations and reduce costs through management
restructuring and facilities consolidation resulting in a workforce reduction of
approximately 500 people. The restructuring and facilities consolidation
activities affected employees in various activities in 22 locations worldwide.
The restructuring charge was recorded over the last three quarters of 1996 as
employees at each location were notified of the restructuring plan and its
effect on their location. The restructuring charge was originally estimated to
consist of $34.0 million of employee severance costs, $29.6 million of facility
consolidation costs and $6.5 million of other costs. During 1997, $7.6 million
was paid to approximately 140 terminated employees and $10.1 million was paid
for facilities consolidation and other costs. During 1996, $9.9 million was paid
to approximately 300 terminated employees and $26.5 million was paid for
facility consolidation and other costs.
38
<PAGE> 15
ALLERGAN 1997 ANNUAL REPORT
As the Company implemented its streamlined business plan, certain assets
were determined to be of limited or no future value. The Company recorded $7.4
million in write-offs, $5.3 million after taxes, of computer hardware and
software and certain intangible assets in 1996.
NOTE 4 ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
Since 1992, the Company and Ligand Pharmaceuticals Incorporated (Ligand)
operated a joint venture for the purpose of performing certain research and
development activities. In December 1994, Allergan and Ligand formed a new
research and development company, Allergan Ligand Retinoid Therapeutics, Inc.
(ALRT) to function as the successor to the joint venture. In June 1995, Ligand
contributed $17.5 million to ALRT for a right to acquire all of the stock of
ALRT at specified future dates and amounts. At the same time, the Company
contributed $50.0 million to ALRT in exchange for rights to acquire one half of
all technologies and other assets, or a similar right to acquire all of the
stock of ALRT if Ligand did not exercise its right. The Company also purchased
$6.0 million of Ligand common stock at the time of its contribution to ALRT. The
Company accounted for its $50.0 million contribution as a charge to operating
expense at the time of the contribution.
In November 1997 Ligand acquired all of the stock of ALRT. At the same time,
Allergan paid $8.9 million to Ligand to acquire one-half of all technologies and
cash of approximately $5.5 million. The net cost of assets acquired was charged
to research and development. At that time, Allergan and Ligand changed their
agreements so that, among other things, ALRT compounds and development programs
were divided between Allergan and Ligand, and each party received exclusive
rights to ALRT technology for use with their respective compounds and programs.
The Company performed contract research services for ALRT from 1995 to 1997.
Revenues from such services represent a recovery of the research and development
costs incurred with an amount added to compensate the Company for general
corporate overhead costs. The Company recognized revenues and related costs as
services were performed under such contracts.
NOTE 5 COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
December 31,
In millions 1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
Trade receivables, net
Trade receivables $ 193.8 $ 250.0
Less allowance for doubtful accounts 6.8 7.5
---------------------
$ 187.0 $ 242.5
=====================
Inventories
Finished products $ 96.8 $ 87.5
Work in process 15.7 11.1
Raw materials 35.3 31.5
---------------------
$ 147.8 $ 130.1
=====================
Other current assets
Prepaid expenses $ 54.4 $ 42.3
Deferred taxes 44.8 41.7
Other 21.5 31.1
---------------------
$ 120.7 $ 115.1
=====================
Property, plant and equipment, net
Land $ 13.0 $ 14.7
Buildings 293.8 275.0
Machinery and equipment 297.3 289.1
---------------------
604.1 578.8
Less accumulated depreciation 246.3 230.3
---------------------
$ 357.8 $ 348.5
=====================
Goodwill and intangibles, net
Goodwill $ 288.5 $ 297.1
Intangibles 37.3 36.0
---------------------
325.8 333.1
Less accumulated amortization 112.4 94.5
---------------------
$ 213.4 $ 238.6
=====================
</TABLE>
39
<PAGE> 16
ALLERGAN 1997 ANNUAL REPORT
NOTE 6 NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
Average Average
Effective Effective
Interest December Interest December
In millions Rate 31, 1997 Rate 31, 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank loans 8.24% $ 16.1 6.47% $ 26.7
Commercial paper 7.08% 40.6 6.86% 15.0
Capitalized leases 5.8 7.3
5.93% - 6.92%
medium term
notes due from
1998 - 2002 6.54% 65.0 6.50% 85.0
Yen denominated
notes due from
1999 - 2003 1.55% 78.6 1.57% 80.3
ESOP loan
due 2003 4.82% 15.8 4.73% 18.2
Other 1.1 4.1
-------------------------------------
$ 223.0 $ 236.6
Less current
maturities 80.5 66.6
-------------------------------------
Total long-term
debt $ 142.5 $ 170.0
=====================================
</TABLE>
At December 31, 1997 and 1996, the Company had $250 million of domestic
unused committed lines of credit which support general corporate purposes and
domestic commercial paper borrowing arrangements. The commitment fees under the
agreements are nominal. In addition, the Company had foreign unused committed
lines of credit of approximately $6.1 million in 1997 and $16.3 million in 1996.
At December 31, 1997, $10.6 million of commercial paper was classified as
long-term debt because the Company had the ability to refinance these debts on a
long term basis under terms of its unused committed lines of credit.
The credit facilities and medium term note program entered into by the
Company provide that the Company will maintain certain financial and operating
covenants which include, among other provisions, maintaining minimum debt to
capitalization ratios and minimum consolidated net worth. Certain covenants also
limit subsidiary debt and restrict dividend payments. The Company was in
compliance with these covenants as of December 31, 1997. The Employee Stock
Ownership Plan and related loan is discussed in Note 9 and three interest rate
swap agreements totaling $40.0 million are described in Note 10.
The aggregate maturities of debt for each of the next five years and
thereafter are as follows: 1998, $80.5 million; 1999, $61.0 million; 2000, $2.6
million; 2001, $16.8 million; 2002, $23.0 million; and $39.1 million thereafter.
Interest incurred of $1.1 million in 1997, $1.0 million in 1996 and $1.2 million
in 1995 has been capitalized and included in property, plant and equipment.
Noncash additions to capitalized leases and capital lease obligations of $1.7
million in 1997 and $0.8 million in 1996 were recorded on the Company's balance
sheet and excluded from the Consolidated Statements of Cash Flows.
NOTE 7 INCOME TAXES
The components of earnings before income taxes and minority interest were:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes
and minority interest
U.S $ 44.3 $ 31.9 $ 46.5
Non-U.S 112.8 76.1 78.7
--------------------------------------
Earnings before income taxes
and minority interest $ 157.1 $ 108.0 $ 125.2
======================================
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit)
Current
U.S. federal $ (4.2) $ 9.9 $ 12.3
Non-U.S 28.3 22.7 26.8
U.S. state and
Puerto Rico 3.8 6.8 11.3
-----------------------------------------
Total current 27.9 39.4 50.4
-----------------------------------------
Deferred
U.S. federal (3.5) (11.5) 1.7
Non-U.S 4.9 5.9 (1.8)
U.S. state and
Puerto Rico (0.3) (2.5) 1.4
-----------------------------------------
Total deferred 1.1 (8.1) 1.3
-----------------------------------------
Total $ 29.0 $ 31.3 $ 51.7
=========================================
</TABLE>
40
<PAGE> 17
ALLERGAN 1997 ANNUAL REPORT
The reconciliations of the U.S. federal statutory tax rate to the combined
effective tax rate follow:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of U.S.
tax benefit 0.7 (0.7) 1.3
Ireland and Puerto Rico
income (10.7) (13.7) (13.9)
U.S. tax effect of foreign
earnings and dividends,
net of foreign tax credits 1.3 5.4 --
Other credits (1.7) (0.5) (0.8)
Taxes on unremitted
earnings of subsidiaries 9.7 7.8 8.0
Valuation allowance, federal
& state, on ALRT
contribution (10.9) -- 15.6
Other (4.9) (4.3) (3.9)
---------------------------------
Effective tax rate 18.5% 29.0% 41.3%
=================================
</TABLE>
The Company's effective tax rate, exclusive of the impact of reversing the
valuation allowance associated with the deferred tax benefit on the ALRT
contribution, would have been 29.0% in 1997.
The Company's effective tax rate, exclusive of the impact of the one-time
charge to earnings for the contribution to ALRT, would have been 29.5% for 1995.
Withholding and U.S. taxes have not been provided on approximately $295.8
million of unremitted earnings of certain non-U.S. subsidiaries because such
earnings are or will be reinvested in operations or will be offset by
appropriate credits for foreign income taxes paid. Such earnings would become
taxable upon the sale or liquidation of these non-U.S. subsidiaries or upon the
remittance of dividends. It is not practicable to estimate the amount of the
deferred tax liability on such unremitted earnings. Upon remittance, certain
foreign countries impose withholding taxes that are then available, subject to
certain limitations, for use as credits against the Company's U.S. tax
liability, if any.
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have been audited and settled through the year
1993. The Company and its consolidated subsidiaries are not currently under
examination.
At December 31, 1997, the Company has net operating loss carryforwards in
certain non-U.S. subsidiaries, with various expiration dates, of approximately
$44.9 million.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Net operating loss
carryforwards (foreign) $ 10.5 $ 13.0 $ 11.7
Accrued expenses 23.4 16.0 17.1
Foreign tax credit
carryforwards -- 2.0 1.4
Capitalized expenses 7.9 13.4 11.9
Pension expense 7.1 7.4 4.9
Medicaid rebates 4.2 4.9 4.7
Postretirement medical
benefits 6.7 6.1 5.7
Intercompany profit in
inventory 8.2 7.0 3.6
ALRT contribution 15.5 19.5 19.5
All other 17.4 24.8 14.5
-------------------------------------
100.9 114.1 95.0
Less: valuation allowance (16.9) (35.8) (33.9)
-------------------------------------
Total deferred tax asset 84.0 78.3 61.1
-------------------------------------
Deferred tax liabilities
Depreciation 13.0 13.4 10.9
All other 25.1 17.9 11.3
-------------------------------------
Total deferred tax liabilities 38.1 31.3 22.2
-------------------------------------
Net deferred tax asset $ 45.9 $ 47.0 $ 38.9
=====================================
</TABLE>
The balances of net current deferred tax assets and net non-current deferred
tax assets at December 31, 1997 were $44.8 million and $1.1 million,
respectively. The balances of net current deferred tax assets and net
non-current deferred tax assets at December 31, 1996 were $41.7 million and $5.3
million, respectively. Such amounts are included in other current assets and
investments and other assets in the consolidated balance sheets.
The 1997 decrease of $18.9 million in the valuation allowance relates
substantially to the reversal of the valuation allowance associated with the
deferred tax benefit on the ALRT contribution.
The 1996 increase of $1.9 million in the valuation allowance relates
substantially to increased future net operating loss benefits in foreign
jurisdictions.
Based on the Company's current and historical pre-tax earnings, management
believes it is more likely than not that the Company will realize the benefit of
the existing net deferred tax asset at December 31, 1997. Management believes
the existing net deductible temporary differences will reverse during periods in
which the Company generates net taxable income, however, there can be no
assurance that the Company
41
<PAGE> 18
ALLERGAN 1997 ANNUAL REPORT
will generate any earnings or any specific level of continuing earnings in
future years. Certain tax planning or other strategies could be implemented, if
necessary, to supplement income from operations to fully realize recorded tax
benefits.
NOTE 8 EMPLOYEE RETIREMENT AND OTHER BENEFIT PLANS
>Pension Plans
The Company sponsors qualified defined benefit pension plans covering
substantially all of its employees. In addition, the Company sponsors two
supplemental nonqualified plans, covering certain management employees and
officers. U.S. pension benefits are based on years of service and compensation
during the five highest consecutive earnings years. Combined pension expense was
$10.5 million in 1997, $12.7 million in 1996 and $7.4 million in 1995.
Components of pension expense under the Company's U.S. and major non-U.S.
plans for 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 9.0 $ 8.8 $ 6.8
Interest cost 10.8 9.8 8.2
Actual return on assets (17.7) (9.1) (12.3)
Net amortization and deferral 8.4 3.2 4.7
---------------------------------------
Total pension expense $ 10.5 $ 12.7 $ 7.4
=======================================
</TABLE>
The Company's funding policy for its U.S. qualified plan is to provide
currently for accumulated benefits, subject to federal regulations. Plan assets
of the qualified plan consist primarily of fixed income and equity securities.
Benefits for the nonqualified plans are paid as they come due. Funded status of
the Company's U.S. and major non-U.S. plans' pension liabilities and assets at
December 31 are presented as follows.
<TABLE>
<CAPTION>
December 31,
1997 1996
----------------------- -----------------------
Non- Non-
In millions Qualified Qualified Qualified Qualified
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair
market value $ 124.0 $ -- $ 101.4 $ --
-------------------------------------------------
Accumulated benefit
obligation
Vested $ 98.6 $ 10.1 $ 83.9 $ 8.5
Nonvested 7.1 0.1 7.4 0.2
-------------------------------------------------
105.7 10.2 91.3 8.7
-------------------------------------------------
Plan assets in excess
of (less than)
accumulated benefit
obligations 18.3 (10.2) 10.1 (8.7)
Projected compensation
increases 30.8 2.8 33.3 5.0
-------------------------------------------------
Projected benefit
obligation in excess
of plan assets 12.5 13.0 23.2 13.7
Unrecognized transition
asset 2.3 -- 2.8 --
Unrecognized net loss (2.2) (0.8) (13.5) (2.6)
Unrecognized prior
service cost 0.3 (1.4) 0.3 (1.7)
Fourth quarter plan
contributions (1.2) (0.1) -- --
-------------------------------------------------
Accrued pension cost $ 11.7 $ 10.7 $ 12.8 $ 9.4
================================================
</TABLE>
The funded status of the qualified and non-qualified plans presented as of
December 31, 1997 includes the U.S. plan which was measured as of September 30,
1997 and adjusted to reflect amounts paid during the fourth quarter. The Company
adopted this measurement date to conform to its internal cost management
systems. The effect of changing the measurement date is immaterial to the
financial statements.
The expected long-term rate of return on plan assets ranged from 2.5% to
9.0% in 1997 and 3.5% to 9.5% in 1996. The discount rate used in determining
obligations ranged from 3.0% to 7.75% in 1997 and 3.5% to 8% in 1996, and the
assumed average rate of increase in future compensation levels ranged from 3.0%
to 5.14% in 1997 and 3% to 5.2% in 1996.
42
<PAGE> 19
ALLERGAN 1997 ANNUAL REPORT
>Postretirement Benefits
The Company has one retiree health plan that covers United States retirees and
dependents. Retiree contributions are required depending on the year of
retirement and the number of years of service at the time of retirement.
Disbursements exceed retiree contributions and the plan currently has no assets.
The accounting for the health care plan anticipates future cost-sharing changes
to the written plan that are consistent with the Company's past practice and
management's intent to manage plan costs. The Company's history of retiree
medical plan modifications indicates a consistent approach to increasing the
cost sharing provisions of the plan.
The following table sets forth the plan's funded status reconciled with the
amount shown in the Company's balance sheet at December 31:
<TABLE>
<CAPTION>
December 31,
In millions 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Retirees $ 2.4 $ 2.2
Fully eligible plan participants 0.2 0.1
Other active plan participants 9.5 6.9
-----------------------
Accumulated postretirement benefit
obligation $ 12.1 $ 9.2
=======================
Plan assets at fair value $ -- $ --
Accumulated postretirement benefit
obligation in excess of plan assets 12.1 9.2
Unrecognized net income from past
experience different from that assumed
and from changes in assumptions 3.0 4.8
Past service costs 1.7 1.8
-----------------------
Accrued postretirement benefit cost $ 16.8 $ 15.8
=======================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits
attributed to service
during the period $ 0.8 $ 0.9 $ 0.9
Interest cost on accumulated
postretirement
benefit obligation 0.7 0.7 0.8
Net amortization and deferral (0.3) (0.2) (0.2)
------------------------------
Net periodic postretirement
benefit cost $ 1.2 $ 1.4 $ 1.5
==============================
</TABLE>
Cost increases of 2.5% were assumed for the indemnity medical plan and 4.5%
for the HMO medical plan in 1997. Annual cost increases were assumed to increase
gradually to 5.5% for the medical plans by 1999 and remain level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. A one percentage point increase in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1997 by $2.6
million and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $0.3 million.
The discount rates used in determining the accumulated postretirement benefit
obligation and the net periodic postretirement benefit cost were 7.25% and 8.0%,
respectively.
>Savings and Investment Plans
In May 1989, the Company established Savings and Investment Plans, which provide
for all U.S. and Puerto Rico employees to become participants upon employment.
In general, participants' contributions, up to 5% of compensation, qualify for a
50% Company match. Company contributions are generally used to purchase Allergan
common stock. The Company's costs of the Plans were $3.2 million in 1997, $3.1
million in 1996, and $2.8 million in 1995.
NOTE 9 EMPLOYEE STOCK OWNERSHIP PLAN AND INCENTIVE COMPENSATION PLANS
>Employee Stock Ownership Plan
In May 1989, the Company established an Employee Stock Ownership Plan (ESOP) for
U.S. employees. The ESOP was funded by a $31.7 million loan borrowed by the ESOP
in July 1989. The loan is guaranteed by the Company as to payment of principal
and interest and, accordingly, the unpaid balance of the loan is included in the
Company's consolidated financial statements as debt, offset by unearned
compensation included in stockholders' equity. The ESOP trust purchased
1,335,000 shares from the Company using the proceeds of the loan. Participants
receive an allocation of shares held in the plan based on the amortization
schedule of the loan borrowed by the ESOP to purchase the shares, and generally
become vested over five years of Company service. Allocated shares are divided
among participants based on relative compensation. Allocated and unallocated
shares in the ESOP as of December 31, 1997 and 1996 are:
<TABLE>
<CAPTION>
Number of Shares
In thousands 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Allocated shares 681 582
Shares committeed to be allocated 99 99
Unallocated shares 555 654
---------------------
Total ESOP shares 1,335 1,335
=====================
</TABLE>
43
<PAGE> 20
ALLERGAN 1997 ANNUAL REPORT
The loan has a fifteen year maturity, with quarterly principal and interest
payments. Under the current repayment plan, the loan will be repaid in October
2003. Interest rates are determined at the Company's option based upon a percent
of prime or the LIBOR and the Company's consolidated debt to capitalization
ratio. The Company has entered into an interest rate swap agreement, maturing in
1999, to reduce the impact that interest rate changes have on $10 million of the
ESOP loan (see Note 10).
Dividends accrued on unallocated shares held by the ESOP are used to repay
the loan and totaled $0.4 million for each of the three years presented.
Dividends received on allocated shares held by the ESOP are allocated directly
to participants' accounts. Interest incurred on ESOP debt in 1997, 1996 and 1995
was $0.8 million, $1.2 million and $1.3 million, respectively. Compensation
expense is recognized based on the amortization of the related loan.
Compensation expense for 1997, 1996 and 1995 was $2.0 million, $1.9 million and
$1.9 million, respectively.
>Incentive Compensation Plans
The Company has an incentive compensation plan and a nonemployee director stock
plan. The incentive compensation plan provides for the granting of non-qualified
stock options, restricted stock and other stock-based incentive awards for
officers and key employees. As of December 31, 1997, an aggregate of 5,878,000
shares of stock have been authorized for issuance under the incentive
compensation plan and 50,000 shares have been authorized for issuance under the
nonemployee director stock plan.
Options become exercisable 25% per year beginning twelve months after the
date of grant. Options generally expire ten years after their original date of
grant. Options granted under the Company's incentive compensation plan provide
that an employee holding a stock option may exchange stock which the employee
already owns as payment against the exercise of their option. This provision
applies to all options outstanding at December 31, 1997.
Stock option activity under the Company's incentive compensation plan was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- ---------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
In thousands, except option price data Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 3,978 $ 25.18 4,084 $ 22.55 4,189 $ 21.35
Options granted 1,486 27.25 870 35.13 767 27.68
Options exercised (839) 21.97 (866) 22.54 (747) 21.02
Options cancelled (154) 29.86 (110) 27.05 (125) 23.20
----------------------------------------------------------------------
Outstanding, end of year 4,471 26.30 3,978 25.18 4,084 22.55
======================================================================
Exercisable, end of year 2,149 23.64 2,423 22.13 2,384 21.21
======================================================================
Weighted average fair value of options granted
during the year $ 10.61 $ 14.84 $ 11.49
======= ======= =======
</TABLE>
The fair value of each option granted during 1997, 1996 and 1995 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 1.9% in 1997, 1.4% in 1996 and 1.7%
in 1995, expected volatility of 39% for 1997 and 43% for 1996 and 1995,
risk-free interest rate of 6.7% in 1997 and 1996 and 6.95% in 1995, and expected
life of 7 years for 1997, 1996 and 1995 grants.
The following table summarizes stock options outstanding at December 31,
1997 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13.50 - $20.16 224 2.2 years $16.74 224 $16.74
$20.34 - $29.75 3,453 6.6 years 24.93 1,708 23.09
$33.19 - $35.13 794 8.2 years 34.98 217 35.13
----- -----
4,471 2,149
===== =====
</TABLE>
44
<PAGE> 21
ALLERGAN 1997 ANNUAL REPORT
No compensation expense has been recognized for stock-based incentive
compensation plans other than for the restricted stock award plan and the
nonemployee director stock plan. Had compensation expense for the Company's
incentive compensation plan been recognized based upon the fair value for awards
granted, as prescribed under SFAS No. 123, the Company's net earnings would have
been reduced by $6.6 million or $0.10 for both basic and diluted earnings per
share in 1997, $5.3 million or $0.08 for both basic and diluted earnings per
share in 1996, and $2.1 million or $0.03 basic earnings per share and $0.04
diluted earnings per share in 1995. These proforma effects are not indicative of
future amounts. The Company expects to grant additional awards in future years.
Under the terms of the incentive compensation plan, the restricted stock
awards are subject to restrictions as to sale or other disposition of the shares
and to restrictions which require continuous employment with the Company. The
restrictions generally expire, and the awards become fully vested, four years
from the date of grant. The Company granted 64,000, 89,000 and 92,000 shares of
stock under the plan in 1997, 1996 and 1995, respectively. The weighted average
grant date exercise price of the restricted stock grants was $27.97 in 1997,
$35.13 in 1996 and $27.68 in 1995. Grants of restricted stock are charged to
unearned compensation in stockholders' equity at their fair value and recognized
in expense over the vesting period. Compensation expense recognized under the
restricted stock award plan was $1.3 million, $1.4 million and $1.7 million in
1997, 1996 and 1995, respectively.
Under the terms of the nonemployee director stock plan, each eligible
director received an initial grant of restricted stock and will receive
additional grants upon re-election to the Board. As of December 31, 1997, there
were 12,000 shares issued and outstanding under the plan.
NOTE 10 FINANCIAL INSTRUMENTS
In the normal course of business, operations of the Company are exposed to risks
associated with fluctuations in currency exchange rates and interest rates. The
Company addresses these risks through controlled risk management that includes
the use of derivative financial instruments to hedge these exposures. The
Company does not enter into financial instruments for trading or speculative
purposes.
The Company has a policy of only entering into contracts with parties that
have at least an "A" or equivalent credit rating. The counterparties to these
contracts are major financial institutions and the Company does not have
significant exposure to any one counterparty. Even though the Company may be
exposed to losses in the event of non-performance by these counterparties,
management believes that risk of loss is remote and in any event would be
immaterial.
>Foreign Exchange Risk Management
The Company enters into foreign currency forward and option contracts to reduce
the effect of fluctuating currency exchange rates on two types of foreign
currency exposures. These contracts generally have maturities of less than 12
months. Exposures arising from non-U.S. Dollar intercompany borrowings are
managed principally through the use of forward contracts. The Company has
forward contracts outstanding at year-end in various currencies, principally in
Australian Dollars, Singapore Dollars, Deutsche Marks, and Spanish Pesetas.
Gains and losses on forward contracts are deferred and recognized into income
upon settlement. Foreign currency forward contracts do not subject the Company
to market risk from exchange rate movements because such gains and losses offset
losses and gains, respectively on the assets, liabilities or transactions being
hedged.
The Company also enters into option contracts to hedge anticipated foreign
currency cash flows. Premiums paid on option contracts are capitalized as other
current assets and are charged to non-operating expense using the straight-line
method over the life of the option. Gains and losses on purchased options are
recognized in income as incurred.
At December 31, the notional amounts of the Company's outstanding foreign
currency derivative financial instruments were as follows:
<TABLE>
<CAPTION>
(in millions) 1997 1996
- -----------------------------------------------
<S> <C> <C>
Forward exchange contracts $28.3 $27.7
Foreign currency options 8.9 --
</TABLE>
>Interest Rate Swaps
The Company has entered into interest rate swap agreements with commercial banks
to reduce the impact of interest rate changes on its floating rate long-term
debt. These derivative financial instruments allow the Company to make long-term
borrowings at floating rates and then swap them into fixed rates that are
anticipated to be lower than those available to the
45
<PAGE> 22
ALLERGAN 1997 ANNUAL REPORT
Company if fixed-rate borrowings were made directly. Under interest rate swaps,
the Company exchanges at specified intervals, certain notional amounts of its
floating rate debt which are indexed based on LIBOR, with fixed rates.
The following illustrates the notional amounts, maturity dates, and the
effective floating and fixed interest rates as of December 31, 1997:
<TABLE>
<CAPTION> Interest Rate
Notional Maturity -------------------
(in millions) amount date Floating Fixed
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Swaps $10.0 1999 4.89% 4.75%
10.0 2000 5.75% 7.00%
20.0 1999 5.88% 6.95%
</TABLE>
Gains or losses incurred as a result of the swap agreements are deferred and
recorded as interest expense. The Company would be required to pay $0.5 million
to terminate the swap agreements based upon their fair value at December 31,
1997.
>Fair Value of Financial Instruments
The carrying amount of cash and equivalents approximates fair value due to the
short-term maturities of these instruments. The fair value of marketable
investments, notes payable, long-term debt and foreign currency contracts were
estimated based on quoted market prices at year-end. The fair values of
nonmarketable equity investments, which represent either equity investments in
start-up technology companies or partnerships that invest in start-up technology
companies, are estimated based on the fair value information provided by these
ventures. The fair value and carrying amount of risk management instruments were
not material at December 31, 1997 and 1996.
The estimated fair value of the Company's financial instruments at December
31 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents $ 180.9 $ 180.9 $ 112.0 $ 112.0
Non-current investments:
Marketable equity 42.5 42.5 19.7 19.7
Non-marketable
equity 32.5 32.5 28.7 28.7
Notes payable 80.5 80.5 66.6 66.6
Long-term debt 142.5 142.5 170.0 170.0
</TABLE>
Marketable equity amounts include unrealized holding gains of $25.6 million
at December 31, 1997 and $4.8 million at December 31, 1996; and unrealized
holding losses of $1.3 million at December 31, 1997.
>Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
principally consist of trade receivables. Wholesale distributors, major retail
chains, and managed care organizations account for a substantial portion of
trade receivables. This risk is limited due to the number of customers
comprising the Company's customer base, and their geographic dispersion. Ongoing
credit evaluations of customers' financial condition are performed and,
generally, no collateral is required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
NOTE 11 COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities, office equipment and automobiles and
provides for payment of taxes, insurance and other charges on certain of these
leases. Rental expense was $23.0 million in 1997, $18.3 million in 1996 and
$13.4 million in 1995.
Future minimum rental payments under non-cancelable operating lease
commitments with a term of more than one year as of December 31, 1997, are as
follows: $23.0 million in 1998; $14.9 million in 1999; $7.7 million in 2000;
$3.4 million in 2001; $2.4 million in 2002; and $12.5 million thereafter.
The Company is involved in various litigation and claims arising in the
normal course of business. Management believes that recovery or liability with
respect to these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
NOTE 12 BUSINESS SEGMENT INFORMATION
The Company operates primarily in one business segment engaged in the
development, manufacture and marketing of a broad range of specialty health care
products for specific disease areas.
The table on the next page represents the Company's business segment
information by geographic area.
All research service revenues are derived in the United States (see Note 4).
46
<PAGE> 23
ALLERGAN 1997 ANNUAL REPORT
Geographic Areas
<TABLE>
<CAPTION>
Year Ended December 31,
In millions 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Product net sales(a)
United States $ 571.1 $ 547.8 $ 530.6
------------------------------------------
Europe 451.4 426.2 432.6
Asia 169.9 151.0 102.7
Latin America 122.4 112.7 61.8
Other 82.7 83.0 83.9
------------------------------------------
Total international 826.4 772.9 681.0
Transfers between areas(a)
United States (84.0) (73.2) (59.2)
Europe (112.9) (42.4) (43.1)
Latin America (18.6) (15.0) --
Other (44.0) (43.1) (42.1)
------------------------------------------
Total transfers
between areas (259.5) (173.7) (144.4)
------------------------------------------
Total product
net sales $ 1,138.0 $ 1,147.0 $ 1,067.2
==========================================
Operating income (expense)
United States before
research and
development and
contribution to ALRT $ 151.0 $ 157.2 $ 212.1
Research and
development expenses(b) (104.3) (92.8) (91.7)
Contribution to ALRT -- -- (50.0)
------------------------------------------
United States 46.7 64.4 70.4
------------------------------------------
Europe 157.1 100.1 117.4
Asia 0.1 (2.8) (4.3)
Latin America 16.6 16.7 6.4
Other (8.7) (6.1) (4.7)
------------------------------------------
Total international 165.1 107.9 114.8
------------------------------------------
211.8 172.3 185.2
Corporate expenses (62.8) (61.7) (55.6)
------------------------------------------
Total operating
income(c) $ 149.0 $ 110.6 $ 129.6
==========================================
Identifiable assets(d)
United States $ 482.1 $ 494.6 $ 505.9
------------------------------------------
Europe 351.7 351.8 362.6
Asia 123.6 123.1 104.5
Latin America 96.5 103.5 90.5
Other 164.1 164.8 150.5
------------------------------------------
Total international 735.9 743.2 708.1
Corporate 180.9 112.0 102.3
------------------------------------------
Total assets $ 1,398.9 $ 1,349.8 $ 1,316.3
==========================================
</TABLE>
(a) Net sales include both sales to unaffiliated customers and transfers between
geographic areas. Transfers between geographic areas are made at terms that
allow for a reasonable profit to the seller.
(b) The Company's principal research and development efforts are performed in
the United States.
(c) Results in 1996 include special charges totaling $77.5 million. Such charges
include $70.1 million in restructuring charges and $7.4 million in asset
write-offs. By geographic segment the special charges were $37.3 million in
the United States, $36.7 million in Europe, $2.1 million in Asia, $1.2
million in Latin America, and $0.2 million in Other.
d) Identifiable assets are those used by the operations in each geographic
location. Corporate assets consist of cash, time deposits and short-term
investments.
NOTE 13 SUBSEQUENT EVENTS
On January 27, 1998, the Board of Directors declared a cash dividend of $0.13
per share, payable March 10, 1998, to stockholders of record on February 17,
1998.
In 1997 the Company formed a new subsidiary, Allergan Specialty
Therapeutics, Inc. (ASTI), to conduct research and development of potential
pharmaceutical products based on the Company's retinoid and neuroprotective
technologies. In November, the Company filed a registration statement with the
Securities and Exchange Commission on behalf of ASTI relating to a proposed
special distribution of ASTI Class A Common Stock to the Company's stockholders.
The distribution is expected to occur on or about March 10, 1998 to stockholders
of record on February 17, 1998.
Prior to the distribution, the Company will contribute $200 million to ASTI.
The market value of ASTI stock is anticipated to be approximately $23 to $35
million at the date of distribution. The Company will record a dividend for the
amount of the market value of ASTI stock at the distribution. The remainder of
the $200 million will be recorded as a charge against operating income. The
Company's stockholders will receive one share of ASTI Class A Common Stock for
each 20 shares of common stock held as of the record date. Based on 65,292,628
shares of common stock outstanding as of December 31, 1997, approximately
3,264,600 shares of ASTI Class A Common Stock are expected to be issued in the
distribution. The Company's stockholders will not be required to pay any cash or
other consideration for the ASTI Class A Common Stock received in the
distribution. The distribution is expected to be taxable as a dividend to each
holder in the amount of the fair market value of ASTI Shares distributed to such
holder.
As the sole holder of ASTI's outstanding Class B Common Stock following the
distribution, the Company will have the option to repurchase all of the
outstanding ASTI Shares under specified conditions. The Company has also granted
certain technology licenses and agreed to make specified payments on sales of
certain products in exchange for the payment by ASTI of a technology fee and the
option to independently develop certain compounds funded by ASTI prior to the
filing of an Investigational New Drug application with the U.S. Food and Drug
Administration with respect thereto and to license any products and technology
developed by ASTI. The Company will recognize the technology fee as revenue as
it is earned and received.
47
<PAGE> 24
ALLERGAN 1997 ANNUAL REPORT
ASTI's technology and product research and development activities will take
place under a research and development agreement with the Company. The Company
will recognize revenues and related costs as services are performed under such
contracts. It is currently expected that substantially all of ASTI's funds will
be directed toward continuing the research and development of products based on
retinoid and neuroprotective technologies. In addition, ASTI may fund the
research and development of pharmaceutical products in therapeutic categories of
interest to the Company, other than those based on retinoid and neuroprotective
technologies, that complement the Company's product pipeline or otherwise are
believed to provide a potential commercialization opportunity for the Company.
NOTE 14 EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
per Share" (EPS). SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options. Diluted earnings per share is very similar to the previously
reported primary earnings per share. All earnings per share amounts for all
periods have been restated to conform to SFAS No. 128 requirements.
The reconciliations of the numerators and denominators of the basic and
diluted earnings per share computations are as follows:
<TABLE>
<CAPTION>
For the Year Ended 1997 For the Year Ended 1996
------------------------------------- -----------------------------------
(In millions, except per Income Shares Per-Share Income Shares Per-Share
share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computation of basic EPS:
Income available to
common stockholders $128.3 65.2 $1.97 $77.1 65.1 $1.18
----- -----
Effect of dilutive options 0.6 1.0
---- ----
Computation of diluted EPS:
Income available to
common stockholders
assuming conversions $128.3 65.8 $1.95 $77.1 66.1 $1.17
==== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended 1995
--------------------------------------
(In millions, except per Income Shares Per-Share
share data) (Numerator) (Denominator) Amount
- ------------------------------------------------------------------
<S> <C> <C> <C>
Computation of basic EPS:
Income available to
common stockholders $72.5 64.2 $1.13
------
Effect of dilutive options 0.7
----
Computation of diluted EPS:
Income available to
common stockholders
assuming conversions $72.5 64.9 $1.12
==== =====
</TABLE>
Options to purchase 733,000 shares of common stock at $35.13 per share were
outstanding since April 22, 1996 and options to purchase 61,000 shares of common
stock at $33.19 were granted on December 31, 1997. These options were not
included in the computation of diluted earnings per share at December 31, 1997
because the options' exercise price was greater than the average market price of
the common shares and, therefore, the effect would be antidilutive.
48
<PAGE> 25
ALLERGAN 1997 ANNUAL REPORT
REPORT OF MANAGEMENT
Management is responsible for the preparation and integrity of the consolidated
financial statements appearing in this Annual Report. The financial statements
were prepared in conformity with generally accepted accounting principles
appropriate in the circumstances and, accordingly, include some amounts based on
management's best judgments and estimates. Financial information in this Annual
Report is consistent with that in the financial statements.
Management is responsible for maintaining a system of internal control and
procedures to provide reasonable assurance, at an appropriate cost/benefit
relationship, that assets are safeguarded and that transactions are authorized,
recorded and reported properly. The internal control system is augmented by a
program of internal audits and appropriate reviews by management, written
policies and guidelines, careful selection and training of qualified personnel
and a written Business Ethics Policy adopted by the Board of Directors,
applicable to all employees of the Company and its subsidiaries. Management
believes that the Company's system of internal control provides reasonable
assurance that assets are safeguarded against material loss from unauthorized
use or disposition and that the financial records are reliable for preparing
financial statements and other data and maintaining accountability for assets.
The Audit Committee of the Board of Directors, composed solely of Directors
who are not officers or employees of the Company, meets with the independent
auditors, management and internal auditors periodically to discuss internal
accounting controls, auditing and financial reporting matters. The Committee
reviews with the independent auditors the scope and results of the audit effort.
The Committee also meets with the independent auditors and the chief internal
auditor without management present to ensure that the independent auditors and
the chief internal auditor have free access to the Committee.
The independent auditors, KPMG Peat Marwick LLP, were recommended by the
Audit Committee of the Board of Directors and selected by the Board of
Directors. KPMG Peat Marwick LLP were engaged to audit the 1997, 1996 and 1995
consolidated financial statements of Allergan, Inc. and subsidiaries and
conducted such tests and related procedures as they deemed necessary in
conformity with generally accepted auditing standards. The opinion of the
independent auditors, based upon their audits of the consolidated financial
statements, is contained in this Annual Report.
/s/ DAVID E. I. PYOTT
- ----------------------------------
David E. I. Pyott
President, Chief Executive Officer
/s/ A. J. MOYER
- -----------------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
/s/ DWIGHT J. YODER
- ------------------------------------
Dwight J. Yoder
Senior Vice President,
Controller and Principal
Accounting Officer
49
<PAGE> 26
ALLERGAN 1997 ANNUAL REPORT
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Allergan, Inc.:
We have audited the accompanying consolidated balance sheets of Allergan, Inc.
and subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Allergan,
Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Costa Mesa, California
January 27, 1998
50
<PAGE> 27
ALLERGAN 1997 ANNUAL REPORT
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Total
In millions, except per share data Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997(a)
Product net sales $256.2 $284.5 $287.7 $309.6 $1,138.0
Product gross margin 163.6 184.4 187.1 203.6 738.7
Research service revenues 3.1 2.9 2.9 2.1 11.0
Research services margin 0.2 0.2 0.1 0.1 0.6
Operating income 24.3 31.5 49.3 43.9 149.0
Net earnings 17.8 21.4 43.6 45.5 128.3
Basic earnings per share 0.27 0.33 0.67 0.70 1.97
Diluted earnings per share 0.27 0.33 0.66 0.69 1.95
Primary net earnings per share,
as previously reported(b) 0.27 0.33 0.66
1996
Product net sales $258.1 $289.6 $287.5 $311.8 $1,147.0
Product gross margin 172.4 192.3 187.8 209.8 762.3
Research service revenues 2.1 2.2 3.0 2.6 9.9
Research services margin 0.2 0.1 0.2 0.2 0.7
Operating income 33.2 2.7 22.8 51.9 110.6
Net earnings 23.1 0.7 17.3 36.0 77.1
Basic earnings per share 0.36 0.01 0.27 0.55 1.18
Diluted earnings per share 0.35 0.01 0.26 0.55 1.17
Primary net earnings per share,
as previously reported(b) 0.35 0.01 0.26 0.55 1.17
</TABLE>
(a) Fiscal quarters in 1997 ended on March 28, June 27, September 26 and
December 31. In 1996, all quarters were calendar quarters.
(b) Amounts for the first three quarters of 1997 and all four quarters of 1996
have been restated to comply with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (see Note 14 in the consolidated
financial statements).
51
<PAGE> 28
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
In millions, except per share data 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Product net sales $ 1,138.0 $ 1,147.0 $ 1,067.2 $ 947.2 $ 858.9
Research service revenues 11.0 9.9 6.4 -- --
Operating costs and expenses:
Cost of product sales 399.3 384.7 328.0 286.6 249.6
Cost of research services 10.4 9.2 5.9 -- --
Selling, general & administrative 459.1 456.6 443.4 392.5 362.2
Research and development 131.2 118.3 116.7 111.5 102.5
Restructuring charge -- 70.1 -- -- --
Asset write-offs -- 7.4 -- -- --
Contribution to ALRT -- -- 50.0 -- --
--------------------------------------------------------------------------
Operating income 149.0 110.6 129.6 156.6 144.6
Nonoperating income (expense) 8.1 (2.6) (4.4) (2.3) (1.0)
Earnings from continuing operations before
income taxes and minority interest 157.1 108.0 125.2 158.9 143.6
Earnings from continuing operations 128.3 77.1 72.5 110.7 104.5
Earnings from discontinued operations -- -- -- -- 4.4
Net earnings 128.3 77.1 72.5 110.7 108.9
Cash dividends per share 0.52 0.49 0.47 0.42 0.40
Basic earnings per share:
Earnings per share from continuing operations 1.97 1.18 1.13 1.74 1.59
Earnings per share from discontinued operations -- -- -- -- 0.07
Basic earnings per share 1.97 1.18 1.13 1.74 1.66
Diluted earnings per share:
Earnings per share from continuing operations 1.95 1.17 1.12 1.73 1.58
Earnings per share from discontinued operations -- -- -- -- 0.07
Diluted earnings per share 1.95 1.17 1.12 1.73 1.65
Primary earnings per share,
as previously reported:(a)
Earnings per share from continuing operations 1.17 1.12 1.73 1.58
Earnings per share from discontinued operations -- -- -- 0.07
Net earnings per share 1.17 1.12 1.73 1.65
Financial Position
Current assets $ 636.4 $ 599.7 $ 522.3 $ 485.5 $ 443.9
Working capital 273.1 224.4 190.7 161.8 167.5
Total assets 1,398.9 1,349.8 1,316.3 1,059.8 939.8
Long-term debt 142.5 170.0 266.7 83.7 104.6
Total stockholders' equity 841.4 749.8 668.9 603.3 514.5
</TABLE>
(a) Prior year amounts have been restated to comply with Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (see Note 14 in the
consolidated financial statements).
52
<PAGE> 29
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
The following table shows the quarterly price range of the common stock and
the cash dividends declared per share during the period listed.
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Calendar
Quarter Low High Div. Low High Div.
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 28-3/4 36-1/4 $.13 30-5/8 39-1/4 $.12
Second 25-7/8 33 $.13 34 41-1/4 $.12
Third 29-3/4 36-1/2 $.13 36-3/4 42 $.12
Fourth 31-1/8 37-3/16 $.13 30 38-1/8 $.13
</TABLE>
Allergan Common Stock is listed on the New York Stock Exchange and is traded
under the symbol "AGN". In newspapers, stock information is frequently listed
as "Alergn."
The approximate number of stockholders of record was 12,000 as of January 16,
1998.
For the fourth quarter of 1997, the Board declared a cash dividend of $0.13 per
share, payable March 10, 1998 to stockholders of record on February 17, 1998.
See Note 6 to the Consolidated Financial Statements relative to restrictions on
dividend payments.
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
ENTITIES OF ALLERGAN, INC.
PLACE OF INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
------------------ ---------------
<S> <C>
Allergan-Loa S.A.I.C. y F. Argentina
Allergan S.A.I.C. y F. Argentina
Allergan Australia Pty Limited Australia
Allergan Holdings Pty Limited Australia
Amawind Pty Limited Australia
Pacific Eyecare Pty Limited Australia
Allergan N.V. Belgium
Allergan-Lok Produtos Brazil
Farmaceuticos Ltda.
Allergan Inc. Canada
CrownPharma Canada Inc. Canada
Allergan Laboratorios Limitada Chile
Allergan Pharmaceutical China
(Hangzhou) Co. Ltd.
Allergan de Colombia S.A. Colombia
Allergan A/S Denmark
Allergan France S.A. France
Pharm-Allergan GmbH Germany
Allergan Asia Limited Hong Kong
Allergan Botox Limited Ireland
Allergan Sales, Limited Ireland
Allergan Services Ireland
International, Limited
Allergan Trading Ireland
International, Limited
Allergan Treasury Services Ireland
Limited
CrownPharma Limited Ireland
Allergan S.p.A. Italy
Allergan K.K. Japan
Allergan Korea Ltd. Korea
Allergan Afrasia Limited Malta
Allergan S.A. de C.V. Mexico
Pharmac, S.A.M. Monaco
Allergan B.V. Netherlands
Allergan New Zealand Limited New Zealand
Allergan AS Norway
Allergan Pakistan (Private) Pakistan
Limited
Allergan Pharmaceuticals Panama
(Ireland) Ltd., Inc.
Allergan Pte. Ltd. Singapore
Allergan South Africa South Africa
(Proprietary) Limited
Allergan Pharmaceuticals South Africa
(Proprietary) Limited
Allergan, S.A. Spain
Allergan Norden AB Sweden
Allergan AG Switzerland
Allergan Optik Mamulleri Turkey
Sanayi Ve Ticaret Limited
Allergan Farnborough Limited United Kingdom
Allergan Holdings Limited United Kingdom
Allergan Limited United Kingdom
Allergan Elite, Inc. United States/CA
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
Allergan Optical Irvine, Inc. United States/CA
Allergan Sales, Inc.(formerly United States/CA
Allergan Medical Optics)
Allergan Services, Inc. United States/CA
AMO Puerto Rico, Inc. United States/CA
(formerly Allergan America)
Herbert Laboratories United States/CA
Allergan America, Inc. United States/DE
(formerly Allergan Caribe,
Inc.)
Allergan General, Inc. United States/DE
Allergan Holdings, Inc. United States/DE
Allergan Optical Inc. United States/DE
AMO Holdings, Inc. United States/DE
Optical Micro Systems, Inc. United States/DE
Pacific I Limited, Inc. United States/DE
Pacific General, Inc. United States/DE
Pacific Vision Limited, Inc. United States/DE
Allergan de Venezuela, S.A. Venezuela
(inactive)
Allergan India Limited (Joint India
Venture)
Pacific Pharma L.P. (Limited Texas
Partnership)
Vision Pharmaceuticals L.P. Texas
(Limited Partnership)
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' REPORT AND CONSENT
To the Board of Directors and Stockholders
Allergan, Inc.
The audits referred to in our report dated January 27, 1998, included
the related financial statement schedule for each of the years in the three-year
period ended December 31, 1997, included in the registration statement of
Allergan, Inc. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We consent to incorporation by reference in the registration statements
Nos. 33-29527, 33-29528, 33-44770, 33-48908, 33-66874, 333-09091, 333-04859 and
333-25891 on Form S-8 and the registration statements Nos. 33-55061 and 33-69746
on Form S-3 of Allergan, Inc. of our reports dated January 27, 1998, relating to
the consolidated balance sheets of Allergan, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of earnings,
stockholders' equity and cash flows and related schedule for each of the years
in the three-year period ended December 31, 1997, which reports appear in the
December 31, 1997 annual report on Form 10-K of Allergan, Inc.
KPMG Peat Marwick LLP
Costa Mesa, California
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND BALANCE SHEETS OF ALLERGAN, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 180,900
<SECURITIES> 0
<RECEIVABLES> 193,800
<ALLOWANCES> 6,800
<INVENTORY> 147,800
<CURRENT-ASSETS> 636,400
<PP&E> 604,100
<DEPRECIATION> 246,300
<TOTAL-ASSETS> 1,398,900
<CURRENT-LIABILITIES> 363,300
<BONDS> 142,500
0
0
<COMMON> 700
<OTHER-SE> 840,700
<TOTAL-LIABILITY-AND-EQUITY> 1,398,900
<SALES> 1,138,000
<TOTAL-REVENUES> 1,149,000
<CGS> 399,300
<TOTAL-COSTS> 409,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,800
<INTEREST-EXPENSE> 8,900
<INCOME-PRETAX> 157,100
<INCOME-TAX> 29,000
<INCOME-CONTINUING> 128,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,300
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.95
</TABLE>
