<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sections 240.14a-11(c) or 240.14a-12
Watson Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
WATSON PHARMACEUTICALS, INC.
311 BONNIE CIRCLE
CORONA, CALIFORNIA 92880
April 10, 2000
Notice of Annual Stockholders' Meeting:
You are hereby notified that the 2000 Annual Meeting of Stockholders (the
"Meeting") of Watson Pharmaceuticals, Inc. (the "Company") will be held at the
Westin South Coast Plaza located at 686 Anton Boulevard, Costa Mesa, California
at 9:00 a.m. local time, on Tuesday, May 9, 2000, for the following purposes:
1. To elect two (2) directors to hold office until the 2003 Annual
Meeting.
2. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the year ending December 31, 2000.
3. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 20, 2000 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting.
You are urged to attend the Meeting in person. Whether or not you expect to
be present in person at the Meeting, please vote, sign and date the enclosed
proxy and return it in the envelope provided.
By Order of the Board of Directors
/s/ Robert C. Funsten
Robert C. Funsten
Secretary
<PAGE> 3
WATSON PHARMACEUTICALS, INC.
311 BONNIE CIRCLE
CORONA, CALIFORNIA 92880
------------------------
2000 ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 2000
------------------------
PROXY STATEMENT
------------------------
GENERAL
This Proxy Statement and the accompanying proxy are furnished to
stockholders of Watson Pharmaceuticals, Inc. (the "Company") in connection with
the solicitation of proxies by the Company's Board of Directors for use at the
2000 Annual Meeting of Stockholders (the "Meeting") to be held at the Westin
South Coast Plaza located at 686 Anton Boulevard, Costa Mesa, California at 9:00
a.m. local time, on May 9, 2000, for the purposes set forth in the accompanying
Notice of Meeting. This Proxy Statement, the form of proxy included herewith and
the Company's Annual Report to Stockholders for the fiscal year ended December
31, 1999 are being mailed to stockholders on or about April 10, 2000.
Stockholders of record at the close of business on March 20, 2000 are
entitled to notice of and to vote at the Meeting. On such date there were
outstanding 96,342,266 shares of the Company's common stock, par value $0.0033
per share (the "Common Stock"). The presence, in person or by proxy, of the
holders of a majority of the shares of Common Stock outstanding and entitled to
vote at the Meeting is necessary to constitute a quorum. In deciding all
questions, each holder of Common Stock shall be entitled to one vote, in person
or by proxy, for each share held on the record date.
The information contained in this Proxy Statement relating to the
occupations and security holdings of directors and officers of the Company and
their transactions with the Company is based upon information received from each
individual as of March 20, 2000. All shares of Common Stock and options or
warrants to acquire Common Stock reported in this Proxy Statement reflect the
two-for-one stock split, effected in the form of a 100% stock dividend on
October 29, 1997.
VOTING RIGHTS AND SOLICITATION OF PROXIES
All expenses incurred in the solicitation of proxies will be borne by the
Company. In addition to the use of the mails, proxies may be solicited on behalf
of the Company by directors, officers and employees of the Company. Following
the original mailing of the proxies and other soliciting materials, employees of
the Company will request brokers, custodians, nominees and other record holders
to forward copies of the proxy and other soliciting materials to persons for
whom they hold shares of Common Stock and to request authority for the exercise
of proxies. In such cases, the Company, upon the request of the record holders,
will reimburse such holders for their reasonable expenses.
Votes cast by proxy or in person at the Meeting will be tabulated by the
election inspector appointed for the Meeting who will determine whether or not a
quorum is present. Neither the Company's Articles of Incorporation, By-Laws nor
Nevada corporate statutes addresses the treatment and effect of abstentions and
broker non-votes; the election inspector will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum but as not voted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
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<PAGE> 4
A properly executed proxy will be voted in the manner directed by the
stockholder submitting the proxy. If no direction is made, such proxy will be
voted FOR the election of both nominees named under the caption "Election of
Directors" as set forth therein as directors of the Company and FOR the
ratification of the selection of PricewaterhouseCoopers LLP as independent
accountants. Any proxy may be revoked by the stockholder at any time prior to
the voting thereof by notice in writing to the Secretary of the Company. A proxy
will also be revoked if the stockholder attends the meeting in person and votes.
A later dated proxy will revoke a prior dated proxy.
As of the date of this Proxy Statement, the Board of Directors knows of no
other business that will be presented for consideration at the Meeting. If other
proper matters are presented to the Meeting, however, it is the intention of the
proxy holders named in the enclosed form of proxy to take such actions as shall
be in accordance with their best judgment.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Two directors are to be elected by a plurality of the stockholder votes
cast at the Meeting to serve until the 2003 Annual Meeting and until their
successors are elected and qualify. The Class II directors, Ronald R. Taylor and
Andrew L. Turner are nominees for directorship. Alec D. Keith, a Class II
director is not a nominee for directorship. The Board would like to extend its
thanks to Dr. Keith for all of his past contributions and dedication to the
Company. The Board would also like to announce the election of Fred G. Weiss as
a Class III director of the Company effective February 2000. The Class III
directors, Allen Y. Chao, Ph.D., Michel J. Feldman and Fred G. Weiss are
scheduled to serve as directors until the 2001 Annual Meeting. The Class I
directors, Michael J. Fedida and Albert F. Hummel are scheduled to serve as
directors until the 2002 Annual Meeting.
The Articles of Incorporation provide that three directors will serve in
each of the three classes. There are only two directors in Class II who are
nominated for election at the Annual Meeting. The Board has been engaged in the
ongoing process of considering potential nominees for vacancies. When the Board
has located qualified candidates, it expects to either fill the remaining Class
I and II positions or to nominate appropriate candidates for election at a
subsequent meeting of stockholders.
THE ENCLOSED PROXY CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS THAN
TWO, BEING THE NUMBER OF NOMINEES NAMED IN THIS PROXY STATEMENT.
Information about the nominees for director and other directors whose term
of office will continue after the Annual Meeting is set forth in the following
paragraphs.
NOMINEES FOR TERMS EXPIRING AT THE 2000 MEETING:
RONALD R. TAYLOR Director since 1994
Ronald R. Taylor, 52, has been a consultant to Cardinal Health, Inc.
("Cardinal Health"), a leading provider of health-care products and services,
since May 1996. Mr. Taylor was a founder and was formerly Chairman of Pyxis
Corporation, a developer and marketer of systems designed to manage drugs and
supplies, from 1987 until 1996, at which time Pyxis Corporation became a wholly
owned subsidiary of Cardinal Health. Since April 1, 1998, Mr. Taylor has been a
general partner of Enterprise Partners Venture Capital, a venture capital firm.
He is a Board member of Cavanaugh's Hospitality Corporation, a hotel company,
and Medica Logic, Inc., a healthcare information company.
ANDREW L. TURNER Director since 1997
Andrew L. Turner, 53, is the founder of Sun Healthcare Group, Inc. ("Sun
Healthcare"), a diversified international long-term care provider, and has been
the Chairman and Chief Executive Officer of Sun Healthcare since its formation
in 1989. Sun Healthcare filed for Chapter 11 Bankruptcy in 1999. Mr. Turner also
founded and previously served as Chief Operating Officer of Horizon Healthcare
Corporation, also a health care services provider, from 1986 to 1989. Mr. Turner
is the President of Rio Ranchito, Inc. and serves
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<PAGE> 5
on the board of directors of The Sports Club Co., Sun Health Systems, Alpha
Healthcare (Australia), and The Armand Hammer United World College.
The Board of Directors knows of no reason why either of the foregoing
nominees will be unavailable to serve, but, in the event of any such
unavailability, the proxies received will be voted for such substitute nominees
as the Board of Directors may recommend.
DIRECTORS WHOSE TERMS EXPIRE IN 2001:
ALLEN Y. CHAO, PH.D. Director since 1985
Allen Y. Chao, 54, a co-founder of the Company, has been Chief Executive
Officer of the Company since 1985, Chairman of the Company since May 1996 and
President of the Company since February 1998. Dr. Chao also serves on the Board
of Directors of Somerset Pharmaceuticals, Inc. ("Somerset"), which is fifty
percent (50%) owned by the Company. Dr. Chao served as Director of
Pharmaceutical Technology and Packaging Development at Searle Laboratories, Inc.
from September 1979 to August 1983, where he had overall responsibility for new
product implementation and new pharmaceutical technology development. He
received a Ph.D. in industrial and physical pharmacy from Purdue University in
1973.
MICHEL J. FELDMAN Director since 1985
Michel J. Feldman, 57, is a member of the law firm of D'Ancona & Pflaum
LLC, Chicago, Illinois, where he has practiced since June 1991. D'Ancona &
Pflaum LLC provides legal services to the Company. Mr. Feldman served as the
Secretary of the Company from 1995 to 1998. From 1977 to 1981, Mr. Feldman was
President and Chief Executive Officer of Avanti Communications, a cellular
antenna manufacturer, which was acquired in 1981 by The Allen Group, Inc. Mr.
Feldman is also a director of Neff Motivation, Inc., a private corporation which
manufactures and markets award recognition products. Mr. Feldman received a
B.S.B.A. from Northwestern University in 1965 and a J.D. from Northwestern
University School of Law in 1968 and is a Certified Public Accountant.
FRED G. WEISS Director since 2000
Fred G. Weiss, 58, has been the managing director of FGW Associates since
1997. Mr. Weiss served as Vice President, Planning, Investment and Development
of Warner-Lambert from 1983 to 1996 and prior to that served as Vice President
and Treasurer of Warner-Lambert from 1979 to 1983 where he was involved in both
strategic planning and corporate development. Mr. Weiss is also a director of
numerous Merrill Lynch-sponsored mutual funds. Mr. Weiss was a member of the
board of Glaxo Wellcome/Warner-Lambert OTC Joint Venture, Warner-Chilcott plc
and Noven Pharmaceuticals, Inc. He received a B.S. from the Wharton School at
the University of Pennsylvania in 1963 and an M.B.A. from the University of
Chicago in 1967.
DIRECTORS WHOSE TERMS EXPIRE IN 2002:
MICHAEL J. FEDIDA Director since 1995
Michael J. Fedida, 53, a registered pharmacist, has served for the past
thirteen years as an officer and director of several retail pharmacies wholly or
partially owned by him. Mr. Fedida served on the Board of Directors of Circa
Pharmaceuticals, Inc. ("Circa"), from 1988 to 1995, at which time Circa was
acquired by the Company.
ALBERT F. HUMMEL Director since 1986
Albert F. Hummel, 55, has been a director of the Company since March 1986,
except for a period from July 1991 to October 1991, and is currently a partner
in Affordable Residential Communities, a property management firm. Additionally,
Mr. Hummel is President of Pentech Pharmaceuticals, Inc., a development stage
pharmaceutical company. Mr. Hummel received a B.S. from St. Joseph's College in
1967 and an M.B.A. from the University of Chicago in 1969.
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<PAGE> 6
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company held ten meetings, and executed one
Unanimous Consent in Lieu of Special Meeting, during the fiscal year ended
December 31, 1999. Each director attended at least 75% of all Board and
applicable Committee meetings except Mr. Hummel.
The Company has an Audit Committee composed of Michael J. Fedida, Albert F.
Hummel, Ronald R. Taylor and Andrew L. Turner. During the fiscal year ended
December 31, 1999, the Audit Committee met four times. The function of the Audit
Committee, as outlined in the Charter of the Audit Committee, is to assist the
Board in fulfilling its oversight responsibilities by reviewing: the financial
reports and other financial information provided by the Company to any
governmental body or the public; the Company's systems of internal controls
regarding finance, accounting, legal compliance and ethics that management and
the Board have established; and the Company's auditing, accounting and financial
report processes generally. The Audit Committee's primary duties and
responsibilities are to: (i) serve as an independent and objective party to
monitor the Company's financial reporting process and internal control systems;
(ii) review and appraise the audit efforts of the Company's independent
accountants and internal auditing department; and (iii) provide an open avenue
of communication among the independent accountants, financial and senior
management, the internal auditing department, and the Board.
The Company has a Compensation Committee composed of Michael J. Fedida,
Ronald R. Taylor and Andrew L. Turner. The Compensation Committee met five times
and executed ten Unanimous Consents in Lieu of Special Meetings during the
fiscal year ended December 31, 1999. The function of the Compensation Committee
as outlined in the Charter of the Compensation Committee is to (i) determine the
compensation policies applicable to the senior executive officers of the
Company; (ii) determine the actual compensation of the Chief Executive Officer
of the Company; (iii) administer the Company's 1991 Stock Option Plan ("1991
Plan"), including approval of stock options thereunder; and (iv) administer the
Company's 1995 Non-Employee Directors' Plan ("1995 Plan").
The Company does not have a Nominating Committee. Nominations of directors
by stockholders must be in writing and delivered to the Secretary of the Company
at the principal executive offices of the Company no more than 90 days and no
less than 60 days prior to the Annual Meeting and otherwise in accordance with
the By-Laws.
DIRECTORS' COMPENSATION
All Company directors who are not full-time employees of the Company
received a director's fee of $25,000 for 1999. In addition, directors were also
paid $500 for each Committee meeting of less than one-half day, and $1,000 for
each Committee meeting of more than one-half day. All directors were reimbursed
for expenses incurred in connection with attending Board and Committee meetings.
Michel J. Feldman's law firm receives his director's fee. Additionally, Alec D.
Keith has a consulting agreement with the Company in which Dr. Keith provides
two days of consulting services to the Company each month in exchange for
$2,000, plus an additional $1,000 for each additional day his services are
required.
Pursuant to the 1995 Plan, on the day following each annual Stockholders'
meeting of the Company, each non-employee director elected or re-elected at such
meeting receives nonstatutory options to purchase 10,000 shares of the Company's
common stock multiplied by the number of years for which such director was
elected or re-elected (the "Reoccurring Grants"). The purchase price is equal to
100% of the fair market value of the Company's common stock on the date of the
option grant. The Reoccurring Grants become exercisable at a rate of 10,000
shares after the completion of each full year of the director's elected term The
following table sets forth the options granted under the 1995 Plan from January
1, 1999 to December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS EXERCISE PRICE
NAME GRANTED(1) PER SHARE DATE OF GRANT
---- ------------------ -------------- -------------
<S> <C> <C> <C>
Michael J. Fedida............................ 30,000 $42.0625 5/4/99
Albert F. Hummel............................. 30,000 $42.0625 5/4/99
</TABLE>
- ---------------
(1) Reflects the amount of 10,000 shares for each year of the three-year term to
which the director was elected.
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<PAGE> 7
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's directors and officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") reports of ownership and changes in
ownership of common stock and other equity securities of the Company. Officers,
directors and greater-than-10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that during the 1999 fiscal year all filing requirements
applicable to its officers, directors and greater-than-10% beneficial owners
were complied with.
HOLDINGS OF STOCKHOLDERS, DIRECTORS
AND EXECUTIVE OFFICERS
The following table sets forth, as of March 20, 2000, the name, address
(where required) and holdings of each person (including any "group" as defined
in Section 13(d)(3) of the Exchange Act) known by the Company to be the
beneficial owner of more than 5% of the Company's Common Stock, and the amount
of Common Stock beneficially owned by each of the directors and Named Executive
Officers (as defined under "Executive Compensation") of the Company, and by all
directors and executive officers (including Named Executive Officers) of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
------------------------ ----------------- ----------
<S> <C> <C>
Brinson Partners, Inc. .................................. 5,410,400(2) 5.6%
209 South LaSalle
Chicago, IL 60604
UBS AG................................................... 5,533,730(2) 5.7%
Bahnhofstrasse 45
8021, Zurich, Switzerland
Allen Y. Chao, Ph.D. .................................... 4,240,426(3)(4) 4.4%
David C. Hsia, Ph.D. .................................... 2,152,922(3)(5) 2.2%
Alec D. Keith, Ph.D. .................................... 512,600(6) *
Albert F. Hummel......................................... 484,766(7) *
Michael J. Fedida........................................ 55,200(8) *
Michel J. Feldman........................................ 56,000(9) *
Ronald R. Taylor......................................... 30,000(10) *
Andrew L. Turner......................................... 45,120(11) *
Fred G. Weiss............................................ 0 *
G. Frederick Wilkinson................................... 124,908(12) *
Michael E. Boxer......................................... 35,557(10) *
Robert C. Funsten........................................ 14,999(10) *
All current directors and executive officers of the
Company (13 persons)................................... 7,539,641(4)-(13) 7.8%
</TABLE>
- ---------------
* Represents less than 1%
(1) Unless otherwise indicated in the footnotes to this table and pursuant to
applicable community property laws, the Company believes the persons named
in this table have sole voting and investment power with respect to all
shares of Common Stock reflected in this table.
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<PAGE> 8
(2) Based upon a Schedule 13G jointly filed with the SEC on February 4, 2000 by
Brinson Partners, Inc., an indirect wholly-owned subsidiary of UBS AG, and
UBS AG report holdings in accounts (each holding less than 5%) managed on a
discretionary basis and disclaiming group membership.
(3) Allen Y. Chao and Phylis Hsia are siblings. David C. Hsia is married to
Phylis Hsia.
(4) Includes 709,800 shares of Common Stock subject to exercisable options,
1,591,426 shares of Common Stock held by Allen Chao Interests, Ltd., a
partnership in which Dr. Chao is a controlling partner, 950,646 shares of
Common Stock held by MAL Investment Company, a corporation of which Dr.
Chao is a controlling stockholder, and 988,554 shares of Common Stock held
by the Allen Chao and Lee Hwa Chao Family Trust.
(5) Includes 171,000 shares of Common Stock subject to exercisable options and
60,000 shares of Common Stock held by Dr. Hsia, 40,000 shares of Common
Stock held by David and Phylis Hsia Charitable Remainder Trust, 1,095,468
shares of Common Stock held by Hsia Interests, Ltd., a family partnership,
and 786,454 shares of Common Stock held by the Hsia Family Trust. Excludes
87,750 shares of Common Stock held in irrevocable trusts for the benefit of
Dr. and Mrs. Hsia's children over which Dr. and Mrs. Hsia have no voting or
investment power.
(6) Includes 30,000 shares of Common Stock subject to exercisable options and
482,600 shares of Common Stock held by Dr. Keith. Mr. Hummel, a director of
the Company, also has an exercisable option to purchase 264,000 shares of
Common Stock from Dr. Keith.
(7) Includes 460,534 shares of Common Stock subject to exercisable options and
24,232 shares of Common Stock held by Mr. Hummel. Mr. Hummel has
exercisable options to purchase 264,000 and 132,000 shares of Common Stock
from Dr. Keith and Dr. Wallace C. Snipes (a former officer of the Company),
respectively.
(8) Includes 46,600 shares of Common Stock subject to exercisable options and
8,600 shares of Common Stock held by Mr. Fedida.
(9) Includes 55,000 shares of Common Stock subject to exercisable options and
1,000 shares of Common Stock held by Ercelle Feldman, the wife of Michel J.
Feldman, for which Mr. Feldman disclaims beneficial ownership.
(10) Comprises shares of Common Stock subject to exercisable options.
(11) Includes 20,000 shares of Common Stock subject to exercisable options and
25,120 shares of Common Stock held by the Andrew L. and Nora L. Turner
Trust, of which Andrew L. Turner is Trustee.
(12) Includes 123,558 shares of Common Stock subject to exercisable options and
1,350 shares of Common Stock held by Mr. Wilkinson.
(13) Excludes Mr. Hummel's options to acquire 264,000 shares from Dr. Keith.
PROPOSAL NO. 2 -- RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP has audited the books and records of
the Company since its inception and the Board of Directors will recommend at the
Meeting that the stockholders ratify the selection of PricewaterhouseCoopers LLP
to audit the accounts of the Company for the current fiscal year.
Representatives of that firm are expected to be present at the Meeting with the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION
OF PRICEWATERHOUSECOOPERS LLP.
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<PAGE> 9
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued to Allen Y.
Chao, Ph.D., for services rendered for the year ended December 31, 1999 as the
Company's Chairman of the Board, Chief Executive Officer and President, and to
each of the other executive officers of the Company whose total annual salary
and bonus exceeded $100,000 ("Named Executive Officers") for services in the
capacity indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ------------------- UNDERLYING ALL OTHER
POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION
------------------ ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Allen Y. Chao, Ph.D.................... 1999 $710,133 $ 0 100,000 $16,618
Chairman of the Board, Chief
Executive 1998 500,000 400,000 100,000 15,392
Officer and President(1)(2)(3)(4) 1997 400,000 400,000 100,000 8,650
David C. Hsia, Ph.D.................... 1999 213,479 0 15,000 6,518
Senior Vice President, Scientific
Affairs and 1998 219,475 35,000 10,000 5,911
Generic Product Development(1)(2)(5) 1997 200,000 50,000 0 4,750
G. Frederick Wilkinson................. 1999 261,173 0 130,000 11,548
Chief Operating Officer and Senior
Vice- 1998 211,000 52,750 25,000 10,828
President, Sales and
Marketing(1)(3)(6) 1997 200,000 100,000 60,000 10,750
Michael E. Boxer....................... 1999 226,923 0 95,000 21,646
Senior Vice President 1998 88,462 30,000 100,000 86,269
and Chief Financial Officer(1)(7)
Robert C. Funsten...................... 1999 207,115 0 40,000 5,329
Senior Vice President, 1998 81,827 22,000 50,000 59
General Counsel and Secretary(1)(8)
</TABLE>
- ---------------
(1) Dr. Chao, Dr. Hsia, Mr. Wilkinson, Mr. Boxer, and Mr. Funsten have entered
into employment agreements with the Company. Please refer to "Employment
Agreements" below for details.
(2) Pursuant to bonus formulas established by the Company's Compensation
Committee, Dr. Chao received annual bonuses in 1998 and 1997, based upon net
after-tax earnings of the Company and at the discretion of the Compensation
Committee. Bonuses paid to Dr. Hsia in 1998 and 1997 were based on the
satisfaction of certain criteria set by the Company's Chief Executive
Officer.
(3) Dr. Chao and Mr. Wilkinson serve on the Board of Directors of Somerset, a
joint venture which is 50% owned by the Company. Dr. Chao has served on the
Somerset Board of Directors since 1995 and received director fees of $12,000
in each of 1999, 1998 and 1997. In 1997, Mr. Wilkinson joined the Board of
Directors of Somerset. In 1997 he received director fees from Somerset in
the amount of $6,000 and in each of 1999 and 1998 received director fees
from Somerset in the amount of $12,000. These fees to Dr. Chao and Mr.
Wilkinson were not paid by the Company and so have not been included in the
Summary Compensation Table.
(4) Salary reported in 1999 includes $109,748 cash in lieu of accrued vacation.
Other compensation to Dr. Chao in 1999, 1998 and 1997 includes the Company's
401(k) contributions on behalf of Dr. Chao. Additionally, other compensation
in 1999, 1998 and 1997 to Dr. Chao includes car allowances of $8,450, $7,800
and $3,900, respectively.
(5) Salary reported in 1998 includes $11,267 cash in lieu of accrued vacation.
Other compensation to Dr. Hsia in 1999, 1998 and 1997 includes the Company's
401(k) contributions on behalf of Dr. Hsia.
(6) Mr. Wilkinson became an officer of the Company effective July 14, 1997. He
has been employed by the Company since June 24, 1996. Other compensation in
1999, 1998 and 1997 to Mr. Wilkinson includes the Company's 401(k)
contributions on his behalf, and car allowances of $6,038, $5,500 and
$6,000, respectively.
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<PAGE> 10
(7) Mr. Boxer has been employed by the Company since July 27, 1998. Other
compensation in 1999 and 1998 paid to Mr. Boxer includes the imputed value
of interest on an interest free loan taken by Mr. Boxer from the Company in
the amount of $600,000 for the purpose of purchasing a home. Other
compensation paid to Mr. Boxer in 1999 and 1998 also includes the Company's
401(k) contributions on his behalf, as well as a reimbursement in 1998 of
$60,000 for relocation expenses in connection with his employment by the
Company.
(8) Mr. Funsten has been employed by the Company since July 27, 1998. Salary
reported in 1999 includes $3,846 cash in lieu of accrued vacation. Other
compensation to Mr. Funsten for 1999 includes the Company's 401(k)
contributions on his behalf.
EMPLOYMENT AGREEMENTS
Effective June 30, 1999, the Company entered into employment agreements
with each of the Named Executive Officers. These agreements replaced earlier
employment agreements with certain of these individuals. The agreements provide
that among other things, (i) employment shall be at will; (ii) Dr. Chao, Dr.
Hsia, Mr. Wilkinson, Mr. Boxer, and Mr. Funsten ("Executives") shall receive an
initial base salary of $600,000, $218,618, $300,000, $226,991, and $211,154,
respectively; (iii) the Executives shall be eligible to receive a bonus targeted
at 25% (in the case of Mr. Wilkinson, 35%) of the Executive's then current
salary; (iv) annual increases to the base salary and determination of bonuses
are at the discretion of the Chief Executive Officer of the Company or the
Compensation Committee of the Board, as appropriate; and (v) each Executive is
eligible to receive stock option grants as determined by the Compensation
Committee of the Board in accordance with the policies regarding stock option
grants to executive employees generally (See "Report of the Compensation
Committee on Executive Compensation").
Each Executive's employment may be terminated at any time with or without
cause, or by reason of death or disability, or executive may voluntarily resign
at any time with or without good reason. In the event of termination of
employment for reasons other than death, disability, cause or without good
reason, and if such termination is not related to a change in control, the
Company shall provide Executive with severance pay and benefits consisting of a
lump sum severance payment, subject to standard withholdings or deductions, in
an amount equal to the sum of: (a) two times twelve (12) months of Executive's
then base salary; (b) two times Executive's bonus to be earned for the year in
which the termination occurs or two times the bonus amount paid to Executive in
the prior year, whichever is greater; plus (c) Executive's prorated bonus (based
on Executive's target bonus amount) for the year in which the termination
occurs. In addition, the Company will provide Executive with continued group
health insurance benefits (medical, dental and vision) for Executive and
Executive's eligible dependents for a period of up to eighteen (18) months under
COBRA, and if Executive is not covered under the Company's group health
insurance plan at the end of eighteen (18) months, the Company shall use its
best efforts to provide Executive and Executive's eligible dependents with
comparable health insurance coverage for an additional period of up to six (6)
months, but the Company shall not be obligated to pay more than one hundred
fifty percent (150%) of the cost of COBRA coverage for such comparable coverage
("Severance Benefits"). In the event of termination without cause following a
change of control or resignation for good reason within thirteen (13) months
following a change of control, Executive shall be entitled to receive Severance
Benefits, and any unvested options held by Executive shall become one hundred
percent (100%) vested and immediately exercisable as of the date of termination.
8
<PAGE> 11
OPTIONS
The following table sets forth certain information concerning individual
grants of stock options made during the year ended December 31, 1999 to each
Named Executive Officer of the Company who received such a grant under the
Company's 1991 Plan.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SHARES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM(1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION -----------------------
NAME GRANTED YEAR PER SHARE DATE 5% 10%
---- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allen Y. Chao, Ph.D. ......... 100,000 5.75% $35.88 8/31/09 $2,256,145 $5,717,541
David C. Hsia, Ph.D. ......... 15,000 0.86% $33.38 7/20/09 $ 314,838 $ 797,865
G. Frederick Wilkinson........ 30,000 1.73% $45.25 2/24/09 $ 853,719 $2,163,501
100,000 5.75% $33.38 7/20/09 $2,098,923 $5,319,107
Michael E. Boxer.............. 30,000 1.73% $45.25 2/24/09 $ 853,719 $2,163,501
50,000 2.88% $43.19 4/27/09 $1,358,011 $3,441,482
15,000 0.86% $33.38 7/20/09 $ 314,838 $ 797,866
Robert C. Funsten............. 25,000 1.44% $45.25 2/24/09 $ 711,432 $1,802,917
15,000 0.86% $33.38 7/20/09 $ 314,838 $ 797,865
</TABLE>
- ---------------
(1) The assumed annual rates of stock price appreciation of 5% and 10% are set
by SEC rules and are not intended as a forecast of possible future
appreciation in stock prices.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information with respect to each
Named Executive Officer concerning the exercise of options during the fiscal
year ended December 31, 1999, as well as unexercised options held as of the end
of such fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allen Y. Chao, Ph.D.......... 0 $ 0 689,800 340,000 $5,164,861 $2,539,999
David C. Hsia, Ph.D.......... 60,000 $1,878,750 171,000 69,000 $2,948,562 $ 856,436
G. Frederick Wilkinson....... 0 $ 0 110,002 249,998 $1,743,725 $1,907,210
Michael E. Boxer............. 0 $ 0 20,000 175,000 -- $ 36,562
Robert C. Funsten............ 0 $ 0 10,000 80,000 -- $ 36,562
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
This Report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating this Proxy Statement into
any filing under the Securities Act of 1933 ("Securities Act") or under the
Exchange Act, except to the extent that the Company specifically incorporates
the information contained herein by reference, and shall not otherwise be deemed
filed under those Acts.
9
<PAGE> 12
The Compensation Committee of the Board of Directors is responsible for
determining the compensation policies for the senior executive officers of the
Company including Dr. Allen Chao, its Chief Executive Officer, and the actual
compensation of Dr. Chao. It also administers the 1991 Plan and the 1995 Plan.
COMPENSATION PHILOSOPHY
The Company does business in a highly competitive and dynamic industry. The
Company's continued success in such an environment depends, in large part, on
its ability to attract and retain talented senior executives. The Company must
provide executives with long- and short-term incentives to maximize corporate
performance, and reward successful efforts to do so. As a result, the
Committee's compensation policies are designed to:
1. Provide a competitive level of compensation to attract and retain
talented management;
2. Reward senior executives for corporate performance by linking a
substantial portion of total compensation to the achievement of
measurable performance objectives; and,
3. Align the interests of senior executives with the stockholders in order
to maximize stockholder value.
The Committee's goal is to provide a competitive compensation package based
on a review of publicly available information about the compensation paid to
similarly situated executives of selected pharmaceutical companies (the "Peer
Group"). The Committee believes that a substantial portion of compensation
should be tied to the attainment of long- and short-term objectives.
To achieve these compensation objectives, the Committee has developed a
compensation philosophy for senior executive officers consisting of base salary,
a contingent bonus arrangement tied to after-tax earnings or other goals and
awards of stock options.
BASE COMPENSATION
From time to time, the Committee conducts a review of the executive
compensation paid by members of the Peer Group. The Committee reviews the salary
data for the average and median levels of compensation. However, the Committee
does not rely exclusively on statistical compilations. Certain members of the
group reviewed are considered to be very similar to the Company in terms of
market capitalization, length of time as a publicly held company, number of
employees, and overall prospects for short- and long-term growth. The
compensation paid by these Peer Group companies is given substantially more
weight in setting base compensation. In prior years, the Committee has raised
the compensation levels of its senior executives to competitive levels in
relation to the other members of the Peer Group.
Based on its compensation review and the Committee's compensation
philosophy, and taking into account the Company's actual and projected revenues
and income, the Committee has determined that Dr. Chao's 2000 base compensation
should be increased to $750,000.
BONUS
The Committee awarded no cash bonus to Dr. Chao in 2000 for the 1999 fiscal
year. The Committee has granted to Dr. Chao a special grant of 100,000 option
shares in recognition of his performance for the 1999 fiscal year. See "Stock
Options" below.
The Committee has decided that a formula should be used in determining the
2000 cash bonus for Dr. Chao. For 2000, Dr. Chao will receive a bonus of up to
$400,000 to be determined based upon the Company satisfying certain established
earnings per share goals for the 2000 fiscal year. The Committee also determined
that Dr. Chao should be eligible for an additional 2000 bonus of up to $300,000
at the discretion of the Committee. Whether or not this discretionary bonus will
be paid will be determined after the end of 2000, based on factors determined by
the Committee.
10
<PAGE> 13
STOCK OPTIONS
The Committee believes that stock options provide a valuable tool for
aligning the interests of management with stockholders and focusing management's
attention on the long-term growth of the Company. The Committee expects to
continue granting options.
The Committee granted 100,000 option shares to Dr. Chao in 1999. The
Committee has granted 200,000 option shares to Dr. Chao in 2000 of which 100,000
option shares were granted as a special grant in recognition of Dr. Chao's
performance for the 1999 fiscal year.
POLICY ON DEDUCTIBILITY OF COMPENSATION
The Internal Revenue Code provides a $1,000,000 deduction limit on
compensation paid to the reporting executives of publicly held corporations. An
exception to the limit applies to certain types of performance-based awards
granted under plans approved by the Company's stockholders, which may include
stock options. The Company's 1991 Plan has previously been amended to comply
with the performance-based compensation requirements.
The Committee's policy is to qualify bonus and option grants for the
performance-based compensation exception to the $1,000,000 deduction limitation
whenever possible.
CONCLUSION
The Committee will continue to establish base compensation at levels that
are competitive with selected members of the Peer Group. The Committee intends
for performance compensation to constitute a substantial portion of overall
compensation, and for compensation to be linked to the achievement of the
Company's short- and long-term goals as established by the Company. The
Committee intends to create incentives at the levels necessary to maintain
above-average performance within the Company's industry.
Michael Fedida
Ronald R. Taylor
Andrew L. Turner
11
<PAGE> 14
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
stockholder return on the Company's Common Stock during the period from December
30, 1994 through December 31, 1999, with the cumulative total return on the
Standard & Poor's ("S&P") 500 Composite Index, and the Dow Jones Pharmaceutical
Index over the same period. The following graph shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or the Exchange Act, except
to the extent the Company specifically incorporates the information contained
therein by reference, and shall not otherwise be deemed filed under such Acts.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
WATSON PHARMACEUTICALS, INC.,
THE S&P 500 COMPOSITE INDEX, AND THE DOW JONES PHARMACEUTICAL INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
WATSON PHARMACEUTICALS, DOW JONES PHARMACEUTICAL
INC. COMMON STOCK S&P 500 COMPOSITE INDEX INDEX
----------------------- ----------------------- ------------------------
<S> <C> <C> <C>
12/30/94 100.00 100.00 100.00
12/29/95 186.67 138.05 163.72
12/31/96 171.19 169.18 205.70
12/31/97 247.14 225.82 319.56
12/31/98 480.00 290.60 475.22
12/31/99 272.86 349.84 423.86
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases a portion of its facilities from a trust and other
entities of which Drs. Chao, Hsia and certain family members are among the
beneficiaries. The aggregate rent expense for 1999, 1998, and 1997 was $360,000,
$345,000, and $330,000 respectively, and was allocated to cost of sales,
research and development and selling, general and administrative expenses.
During 1998, Mr. Boxer entered into an agreement to borrow $600,000 from
the Company, interest free, for the purpose of purchasing a home. The loan was
paid in full in July 1999.
Theratech, Inc. (now know as Watson Laboratories, Inc. -- Utah), prior to
its acquisition by the Company, loaned $162,106 to Charles D. Ebert, Ph.D., the
Company's Senior Vice President, Proprietary Research and Development, pursuant
to a promissory note bearing interest at the rate of 8.0 percent. The principal
and interest on such note were repaid in full in May 1999.
Mr. Feldman is a member of the law firm of D'Ancona & Pflaum LLC, which
provides legal services to the Company.
12
<PAGE> 15
STOCKHOLDERS' PROPOSALS FOR THE 2001 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders under SEC Rule 14a-8 must be made in accordance with the
Company's By-Laws, and must be received by the Secretary of the Company at the
Company's principal executive offices for inclusion in the Company's Proxy
Statement and form of proxy relating to that meeting no later than December 1,
2000.
Notice of stockholder matters intended to be submitted at the next annual
meeting outside the processes of Rule 14a-8 will be considered untimely if not
received by the Company by February 13, 2001.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors knows of no
other business that will be presented for consideration at the Meeting. If other
proper matters are presented at the Meeting, however, it is the intention of the
proxy holders named in the enclosed form of proxy to take such actions as shall
be in accordance with their best judgment.
By Order of the Board of Directors.
/s/ Robert C. Funsten
Robert C. Funsten
Secretary
13
<PAGE> 16
WATSON PHARMACEUTICALS, INC.
311 BONNIE CIRCLE
CORONA, CALIFORNIA 92880
PROXY -- SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS -- MAY 9, 2000
The undersigned hereby appoints Allen Y. Chao, Ph.D. and Michel J.
Feldman, or either of them, as proxies with full power of substitution, and
authorizes them to represent and to vote on behalf of the undersigned all shares
which the undersigned would be entitled to vote if personally present at the
2000 Annual Meeting of Stockholders of WATSON PHARMACEUTICALS, INC. to be held
on May 9, 2000, and any adjournments or postponements thereof, with respect to
the following.
A majority of the proxies or substitutes present at the meeting, or if only
one person shall be present then that one, may exercise all powers granted
hereby.
(PLEASE SIGN ON THE REVERSE SIDE)
<PAGE> 17
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
WATSON PHARMACEUTICALS, INC.
MAY 9, 2000
Please Detach and Mail in the Envelope Provided.
Please mark your
A [X] votes as in this
examples.
<TABLE>
<S> <C> <C> <C>
VOTE FOR both
nominees (except
as indicated to the VOTE WITHHELD NOMINEES: Ronald R. Taylor
contrary below) from both nominees Andrew L. Turner
1. Election [ ] [ ]
of the following
nominees as
Directors:
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the following space:
______________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the selection of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as
independent accountants for the
2000 fiscal year.
THIS PROXY IF PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
STOCKHOLDER. THE COMPANY'S DIRECTORS RECOMMEND A VOTE FOR BOTH PROPOSALS. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR
AND WILL BE VOTED FOR APPROVAL OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT ACCOUNTANTS. IN ADDITION, THE PROXIES MAY VOTE IN THEIR
DISCRETION ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE COMPLETE, DATE, SIGN AND RETURN THE PROXY IN THE ENVELOPE PROVIDED.
Signature or Signature(s)_____________________________________ Date ____________
NOTE: Please date and sign above exactly as your name or names appear hereon. If
more than one name appears, all should sign. Joint owners each sign
personally. Corporate proxies should be signed in full corporate name by
an authorized officer and attested. Persons signing in a fiduciary
capacity should indicate their full title and authority.
