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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
COMMISSION FILE NO. 1-8593
ALPHARMA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2095212
(State of Incorporation) (I.R.S. Employer Identification No.)
ONE EXECUTIVE DRIVE, 07024
FORT LEE, NEW JERSEY (Zip code)
(Address of principal executive offices)
(201) 947-7774
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Class A Common Stock, $.20 par value New York Stock Exchange
Subordinated Convertible Notes due 2005 New York Stock Exchange
Convertible Senior Subordinated Notes due 2006 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the act). Yes [X] No [ ]
The aggregate market value of the voting stock of the Registrant (Class A
Common Stock, $.20 par value) as of June 30, 2003 was $860,227,000 and as of
March 14, 2005 was $562,405,000.
The number of shares outstanding of each of the Registrant's classes of
common stock as of March 14, 2005 was:
Class A Common Stock, $.20 par value -- 40,961,761 shares;
Class B Common Stock, $.20 par value -- 11,872,897 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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This amendment to the annual report on Form 10-K for the year ended
December 31, 2004 (this "Form 10-K/A") of Alpharma Inc. (the "Company") is being
filed solely to include the information required by Part III of Form 10-K
pursuant to General Instruction G(3) of Form 10-K because the Company's
definitive proxy statement for its 2005 annual meeting of shareholders to be
held on June 23, 2005 (the "Proxy Statement") will be filed more than 120 days
after the end of the Company's fiscal year. The Company currently expects to
file the Proxy Statement on or about May 20, 2005. The original Form 10-K is
also amended hereby to delete the reference on the cover page thereof to the
incorporation by reference of the Proxy Statement in Part III of such report.
Except as set forth in the remainder of this Explanatory Note, no other
information in the original filing is amended hereby, and this Form 10-K/A does
not otherwise reflect events occurring after the original filing date of March
31, 2005.
The Company has determined that it was not in compliance at December 31,
2004 and 2003 with certain debt covenants related to its 8 5/8% Senior Notes due
2011(the "Senior Notes") relating to the timely payments of liquidated damages
due to its Senior Note holders and timely filing of certain certificates
required in the covenants to the Senior Notes at December 31, 2004 and 2003. The
Company has subsequently cured the defaults relating to the liquidated damages
and certain of the certificates and intends to cure the remaining certificate
defaults concurrent with the filing of the 10-K/A discussed below.
In addition, certain defaults under the Senior Notes were also defaults
under certain covenants under the Company's Senior Credit Facility ("Senior
Credit Facility"). However, since these triggering defaults under the Senior
Notes have now been cured, and the Company has notified the Bank Administrative
Agent of the existence and subsequent cure of such defaults, these defaults
under the Senior Credit Facility have been cured and such facility is not
currently callable.
In addition, in connection with its April 2005 review of debt covenants,
the Company discovered that it had not made a timely filing of its December 31,
2003 compliance certificate with the trustee for the 3.0% Convertible Senior
Subordinated Notes due 2006 ("06 Notes"). The Company has filed the required
certificate with the trustee for the 06 Notes and therefore has cured this
default.
As a result of these defaults, the Company intends to file, during the week
of May 2, 2005, a further Form 10-K/A (to amend Item 1 of Part I; Items 6, 7, 8,
and 9 of Part II; Part IV and such other Items as may be necessary) for the year
ended December 31, 2004 and amend its reports on Form 10-Q for the quarters
ended September 30, 2003 and March 31, June 30 and September 30, 2004 to, among
other things, update disclosures related to internal controls and compliance
with debt covenants and to revise the financial statements included therein to
reclassify certain debt as current on the Company's consolidated balance sheet
at December 31, 2003 and 2004 and at September 30, 2003 and March 31, June 30
and September 30, 2004 ($503,293,000 at December 31, 2004 and other amounts at
each of the other balance sheet dates). The Company expects that beginning with
the filing of the Form 10Q for the period ending March 31, 2005, the balance
sheet classification of the debt will reflect these debt instruments as
long-term based on the curing of the defaults described above.
The Company has concluded that an additional material weakness in internal
control over financial reporting existed as of December 31, 2004 because it did
not maintain effective controls to ensure the appropriate review and monitoring
of compliance with certain of its debt covenants. While the Company has a
detailed quarterly process for reviewing its compliance with its Senior Credit
Facility covenants (the Senior Credit Facility contains the most restrictive
covenants and unlike the Senior Notes imposes "maintenance" covenants), a
comparable process did not exist as of December 31, 2004 for the Senior Notes
and the 06 Notes. This control deficiency resulted in the Company failing to
comply with certain of its debt covenants. As a result of this control
deficiency the Company will be restating its financial statements to reclassify
certain debt as current on the Company's consolidated balance sheet at December
31, 2003 and 2004 and at September 30, 2003 and March 31, June 30 and September
30, 2004 and to amend its disclosures related to debt covenant compliance. This
control deficiency could result in a misstatement of debt and the related
disclosures that would result in a material misstatement to the annual or
interim financial statements that would not be prevented or detected. Because of
the existence of other material weaknesses, the Company's management had
previously concluded that the Company did not maintain effective internal
control over financial reporting as of December 31, 2004.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
CLASS A DIRECTORS:
NAME AGE PRINCIPAL BUSINESS EXPERIENCE
---- --- -----------------------------
William I. Jacobs.............. 63 Director of the Company since May 2002. From 2000 to 2002,
Managing Director and Chief Financial Officer of NewPower
Holdings, Inc., a retail energy company that filed a
Chapter 11 bankruptcy petition in June 2002 and is
currently liquidating. Senior Executive Vice President of
MasterCard International, the credit card company, from
1995 to 2000. Director of Investment Technology Group, an
electronic trading resources company, Global Payments, a
payment processing services company, and Asset Acceptance
Capital Corp., a company that purchases and collects on
consumer debt from credit issuers. Chairman of the
Company's Audit and Corporate Governance Committee and
Member of the Company's Compensation Committee.
Finn Berg Jacobsen............. 64 Director of the Company since April 2005. Senior Advisor
since 2005 with Bahr Law, the Norwegian law firm. Engaged
by Telenor, a Norwegian telecom company that is traded on
the Oslo and NASDAQ Stock Exchanges, to build an internal
audit function to be compliant with the Sarbanes-Oxley Act
of 2002. Served as Group Executive Vice President and Chief
of Corporate Staff of Aker-Kvaerner ASA, the Norwegian oil
services company, from February 2002 to March 2005, and as
Acting Chief Financial Officer (from December 2003 to
November 2004) and Chief Financial Officer (from September
2001 to January 2002) for such Company. From 1967 to 2000,
served in a variety of positions, including Country
Managing Partner in Norway (from 1977 to 1999), for Arthur
Andersen & Co. Chairman and subsequently member of the
Accounting Advisory Council with the Oslo Stock Exchange,
from 1977 to 2000. Chairman and one of the founders of the
Norwegian Financial Accounting Standards Board, from 1990
to 2000. Chairman of the Control Committee of the Oslo
Stock Exchange from 2000 to 2004.
Peter G. Tombros............... 62 Director of the Company since August 1994. Chief Executive
Officer of VivoQuest, Inc., a private biopharmaceutical
company, since 2001. Former Director, President and Chief
Executive Officer of Enzon, Inc., a developer and marketer
of bio-pharmaceutical products, from April 1994 to June
2001. Served in a variety of senior management positions at
Pfizer, Inc., the pharmaceutical company, for 25 years,
including Vice President of Marketing, Senior Vice
President and General Manager of the Roerig Pharmaceuticals
Division, Executive Vice President of Pfizer
Pharmaceuticals Division, Director, Pfizer Pharmaceuticals
Division, Vice President-Corporate Strategic Planning, and
Vice President-Corporate Officer of Pfizer, Inc. Director
of NPS Pharmaceuticals, Inc., a biotechnology company,
Icoria, Inc., also a biotechnology company, and Cambrex
Corp., a supplier of human health and bioscience products
to the life sciences industry. Member of the Company's
Audit and Corporate Governance Committee, Executive and
Finance Committee and Compensation Committee.
1
NAME AGE PRINCIPAL BUSINESS EXPERIENCE
---- --- -----------------------------
Farah M. Walters............... 60 Director of the Company since February 2003. Former
President and Chief Executive Officer of University
Hospitals Health System, Inc. and University Hospitals of
Cleveland, from 1992 to 2002. Served as Executive Director,
Senior Executive Vice President and Member of three person
"Office of the President" of University Hospitals Health
System, Inc. and University Hospitals of Cleveland from
1986 to 2002. Director of Kerr-McGee Corporation, an oil
and gas exploration and production and chemical company,
and PolyOne Corporation, a specialty plastics and chemical
company. Member of the Company's Audit and Corporate
Governance Committee and Compensation Committee.
CLASS B DIRECTORS:
NAME AGE PRINCIPAL BUSINESS EXPERIENCE
---- --- -----------------------------
Glen E. Hess................... 63 Director of the Company since October 1983. Partner in the
law firm of Kirkland & Ellis LLP since 1973. Member of the
Company's Executive and Finance Committee.
Jill Kanin-Lovers.............. 53 Director of the Company since February 2003. From 1998 to
2004, Senior Vice President, Human Resources of Avon
Products, Inc., the cosmetics and gifts company, and member
of Avon Products, Inc.'s Chairman's Council, Avon's
internal executive committee, and a member of the Board of
Directors for the Avon Foundation. Vice-President, Human
Resources, Global Operations from 1997 to 1998 and Vice
President, Human Resources, U.S. from 1995 to 1997 at IBM
Corp., the computer company. Senior Vice President,
Worldwide Compensation and Benefits at American Express,
the credit card company, from 1991 to 1995. From 1974 to
1991, held a series of senior positions, including managing
the Seattle office and serving as the functional head for
all global consulting and support activities, for the total
compensation practice of Towers Perrin, a global management
consulting firm. Director of Heidrick & Struggles
International, Inc., a global executive search and
leadership company. Chairman of the Company's Compensation
Committee.
Ramon M. Perez................. 52 Director of the Company since May 2004. Managing Director
of Vela Management Group, Ltd., a consulting practice
focused in the healthcare industry. Formerly served in
executive and senior management positions at Cardinal
Health Inc., a global provider of products and services to
healthcare providers and manufacturers, including
President, Specialty Pharmaceutical Products & Services
from 2000 to 2003, Executive Vice President, Supply Chain
Services from 1996 to 1999, and Senior Vice President,
Purchasing from 1994 to 1995. Formerly served in senior
management positions at Baxter International, Inc., a
global developer, manufacturer and distributor of products
and services for healthcare and related fields, including
Vice President, Reengineering Team from 1993 to 1994, Vice
President, Corporate Alliances from 1991 to 1993, Vice
President, Purchasing, Hospital Supply Division from 1990
to 1991, Vice President, Marketing, Hospital Supply
Division from 1987 to 1990, and various other positions in
its Dietary Products Division from 1978 to 1987, including
Director of Marketing. Member of the Company's Executive
and Finance Committee.
2
NAME AGE PRINCIPAL BUSINESS EXPERIENCE
---- --- -----------------------------
Einar W. Sissener.............. 76 Chairman of the Board since 1975. Consultant to the Company
since July 1999. Chief Executive Officer of the Company
from June 1994 to June 1999. Member of the Office of the
Chief Executive of the Company from July 1991 to June 1994.
Chairman of the Office of the Chief Executive from June
1999 to December 1999. President, Alpharma AS, from October
1994 to March 2000. President, Apothekernes Laboratorium AS
(now A. L. Industrier ASA), from 1972 to 1994. Chairman of
A. L. Industrier ASA since November 1994. Chairman of the
Company's Executive and Finance Committee.
Robert Thong................... 44 Director of the Company since February 2003. Managing
Director of Datamonitor Healthcare, a division of
Datamonitor plc, a global strategic market analysis
company, since June 2004. Co-Founder, Director and Officer
of NovaSecta, a management advisory and executive coaching
group, since 2002. Since 1999, Managing Director of Phizz
Rx Limited, a provider of executive advice and consulting
to the life sciences, medical technology and fine chemicals
sectors in the U.K. and the U.S. Vice President of
Renaissance Worldwide Strategy Limited, a global consulting
company, and its subsidiary COBA Consulting Limited and
leader of the European Biosciences Consulting Team, from
1997 to 1999. Vice President of Gemini Consulting (now Cap
Gemini Ernst & Young), providers of information technology
consulting services, from 1990 to 1997. Member of the
Company's Executive and Finance Committee.
Ingrid Wiik.................... 60 Vice Chairman of the Board since May 2004 and President,
Chief Executive Officer and Director of the Company since
January 2000. President of Alpharma's International
Pharmaceuticals Division from 1994 to January 2000.
President, Pharmaceutical Division of Apothekernes
Laboratorium A.S. (now A. L. Industrier ASA) from 1986 to
1994. Director of A. L. Industrier ASA since June 2004.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of the Company's stock on Forms 3, 4 and 5
with the Securities and Exchange Commission (the "Commission") and the New York
Stock Exchange. Executive officers, directors and greater than 10% beneficial
stockholders are required by Commission regulation to furnish the Company with
copies of all Forms 3, 4 and 5 that they file. The Company is not aware of any
late or missed filings (or other noncompliance), during the 2004 fiscal year, by
any of its executive officers, directors and greater than 10% beneficial
stockholders with the Section 16(a) filing requirements.
3
ITEM 11. EXECUTIVE COMPENSATION.
DIRECTORS' COMPENSATION
Pursuant to an agreement between the Company and Mr. Sissener dated July 1,
1999, as amended in March 2004, in 2004 Mr. Sissener received $200,000 for
serving as Chairman of the Company's Board of Directors (and as a director of
certain of the Company's subsidiaries).
During 2004, each director (except Mr. Sissener and Ms. Wiik) received an
annual directors' fee of $30,000. Each director (except Ms. Wiik) also received
a grant of 5,000 Restricted Stock Units (Mr. Sissener received 7,500 Restricted
Stock Units) pursuant to the Company's 2003 Omnibus Incentive Compensation Plan,
which entitles each such director to receive one share of the Company's Class A
Stock upon vesting of each Restricted Stock Unit, one year following the
director's retirement from the Board of Directors, subject to acceleration,
forfeiture and deferral as set forth in the grant agreements. In addition, each
director (except Mr. Sissener and Ms. Wiik) received $1,200 for each meeting of
Board of Directors and $1,200 for each Committee meeting attended in person or
by telephone. The Chairman of each of the Audit and Corporate Governance and
Compensation Committees received an additional payment of $7,500.
Directors have the ability to participate in the Company's Amended and
Restated Deferred Compensation Plan, dated October 12, 1994, through which they
may defer receipt of cash compensation, and earn interest quarterly on such
deferred amounts, at the rate of two percentage points below the prime rate (as
published in the Wall Street Journal), provided such amount shall not exceed 12%
or be less than 4%.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2004, Messrs. Jacobs and Tombros, Ms. Kanin-Lovers and
Ms. Walters served on the Compensation Committee. None of these directors have
ever been an officer or employee of the Company or any of its subsidiaries or
any other company for which an executive officer of the Company serves as a
director, nor have they engaged during 2004 in any transaction, had any business
relationship, or incurred any indebtedness that would require disclosure in this
Form 10-K/A.
4
SUMMARY OF EXECUTIVE COMPENSATION
The following table (the "Summary Compensation Table") sets forth annual
and long-term compensation paid to, or accrued for, the executive officers named
below (the "named executive officers") by the Company or its subsidiaries during
2004, 2003 and 2002:
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
AWARDS
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTION/SARS COMPENSATION
NAME AND PRINCIPAL POSITION DURING 2004(1) YEAR ($)(2) ($) ($)(4) ($)(5) (#)(6) ($)(7)
------------------------------------------ ---- -------- -------- ------------ ---------- ------------ ------------
Ingrid Wiik............................ 2004 732,443 284,000 * 891,000 75,000 51,830
Vice Chairman of the Board, 2003 754,609 213,000 * 965,000 100,000 38,702
President & Chief Executive Officer 2002 705,000 290,000 * -- 100,000 37,915
Carol A. Wrenn......................... 2004 379,500 190,000 * -- -- 18,005
President, Animal Health 2003 368,250 215,000 * 674,188 -- 16,774
2002 325,000 80,000 * -- 69,668 7,960
Matthew T. Farrell..................... 2004 450,000 100,000 * 178,200 35,500 17,868
Executive Vice President & 2003 467,308 115,000 * 216,353 75,000 18,747
Chief Financial Officer 2002 305,888 175,000 * -- 100,000 12,136
Ronald N. Warner....................... 2004 338,462 155,000(3) * 178,200 18,000 17,556
President, 2003 300,000 100,000 60,600 -- -- 8,991
Branded Products & 2002 19,615 75,000 * -- 40,000 24
Executive Vice President, Compliance,
Intellectual Property & Human
Pharmaceuticals Medical & Regulatory
Affairs
Robert F. Wrobel....................... 2004 410,000 80,000 * -- 25,000 29,845
Executive Vice President, 2003 425,769 61,500 * -- -- 26,037
Chief Legal Officer & 2002 407,310 90,200 * -- 67,334 22,472
Secretary
---------------
(1) Includes those persons who, in fiscal year 2004, were the Chief Executive
Officer or one of the four most highly compensated executive officers, as
measured by salary and bonus. Dr. Warner served as Senior Vice President,
Compliance and Human Pharmaceuticals Scientific Affairs during 2004 and
assumed his current position in January 2005.
(2) The Company follows a bi-weekly payroll schedule, which results in one
additional payroll period every seven years. 2003 was the year in which the
Company paid an additional payroll amount, which accounts for the larger
salary amounts in 2003 versus 2004 for Ms. Wiik and Messrs. Farrell and
Wrobel. Dr. Warner and Ms. Wrenn received salary increases applicable to
2004, whereas Ms. Wiik's and Messrs. Farrell's and Wrobel's 2004 salaries
remained at 2003 levels. A portion of Ms. Wiik's salary and benefits is paid
to her in Norway. Furthermore, a modest amount of Ms. Wiik's compensation is
nondeductible compensation under Section 162(m) of the Internal Revenue
Code, as amended.
(3) Dr. Warner's bonus includes a $75,000 bonus he was granted in his employment
agreement for completion of 18 months of employment (See "Employment
Agreements" below).
(4) Dr. Warner's 2003 "Other Annual Compensation" amount reflects his 2003
Executive Allowance in the amount of $28,600 and the value of re-location
benefits he received from the Company in 2003 in the amount of approximately
$32,000.
(5) Reflects the dollar value on the date of grant of restricted stock issued
under the Company's 2003 Omnibus Incentive Compensation Plan. On December
31, 2004, the named executive officers held an aggregate of 149,353 shares
of restricted stock valued at $2,531,533, based upon the closing market
price of the Company's Class A Stock at the end of the fiscal year ended
December 31, 2004 (Ms. Wiik held 95,000
5
restricted shares with an aggregate market value of $1,610,250; Mr. Farrell
held 20,210 restricted shares with an aggregate market value of $342,560;
Dr. Warner held 9,000 restricted shares with an aggregate market value of
$152,550 and Ms. Wrenn held 25,143 restricted shares with an aggregate
market value of $426,174). Ms. Wiik, Mr. Farrell and Dr. Warner's restricted
stock granted in 2004 will 100% vest on the five-year anniversary of the
grant date; Ms. Wiik's and Mr. Farrell's restricted stock granted in 2003
will 100% vest on the five-year anniversary of the grant date; Ms. Wrenn's
restricted stock granted in 2003 became 25% vested (in an amount of 8,382
shares) on July 15, 2004 at a value of $160,264. Ms. Wrenn's remaining
restricted stock will vest at the rate of 25% and 50% on July 15, 2005 and
2006, respectively, and shall immediately vest in the event of a closing of
a sale of all, or substantially all, of the assets of the Company's Animal
Health business. All shares of restricted stock listed above are subject to
accelerated vesting upon the executive officer's death or disability (but
not upon his or her retirement). Quarterly dividends are paid on all of the
restricted stock holdings for the named executive officers.
(6) Reflects the number of options granted under the Company's 2003 Omnibus
Incentive Compensation Plan (beginning in March 2004) and 1997 Incentive
Stock Option and Stock Appreciation Right Plan (prior to March 2004). The
Company has not granted any stock appreciation rights ("SARs") to any of the
named executive officers in 2004, 2003 or 2002.
(7) Includes contributions by the Company to various employee profit-sharing,
stock purchase and savings plans. The amounts shown for 2004 include: (a)
matching contributions under the Employee Stock Purchase Plan (Ms. Wiik
$14,200, Mr. Farrell $9,000, Dr. Warner $6,769, Ms. Wrenn $7,590 and Mr.
Wrobel $8,200); (b) matching contributions to the Company's Supplemental
Savings Plan (Ms. Wiik $30,148, Mr. Farrell $7,061, Dr. Warner $8,123, Ms.
Wrenn $9,108 and Mr. Wrobel $12,300); and (c) taxable life insurance
premiums (Ms. Wiik $7,482, Mr. Farrell $1,807, Dr. Warner $2,664, Ms. Wrenn
$1,307 and Mr. Wrobel $9,345).
* The incremental cost of the perquisites for each named executive in each of
2004, 2003, and 2002 (unless indicated otherwise) was not in excess of the
lesser of (a) $50,000 or (b) 10% of the amounts reported as Salary and Bonus
for such year in the Summary Compensation Table. In 2004, the Company
provided an Executive Allowance for each of its named executive officers,
with the exception of Ms. Wiik, in the amount of $28,600. Ms. Wiik received
an automobile allowance, in the amount of $17,771, in addition to other
perquisites, including vacation allowance (consistent with the practice of
the Company's Norwegian office), insurance and telephone reimbursements.
EMPLOYMENT AGREEMENTS
The named executive officers are each employed by the Company on an
"at-will" basis (with the exception of Ms. Wiik), and are parties to the
following employment agreements:
Ms. Wiik is a party to an employment agreement with the Company dated
October 26, 2000. This agreement provides that the Company shall provide Ms.
Wiik with, or reimburse her for, the use of an automobile in the United States
and in Norway, plus reimbursement for garaging, insurance and auto maintenance.
Ms. Wiik is also entitled to receive reimbursement for tax and financial
services planning and she participates in all of the employee benefits available
to executives of the Company (except as set forth below) including eligibility
for participation in the Company's Savings Plans, Employee Stock Purchase Plan,
group health, dental, life and accidental death and dismemberment insurance
programs, short-term disability program, tuition reimbursement program and the
Severance and Change in Control Plans. (See below for a description of the
Severance and Change in Control Plans.) Ms. Wiik does not receive an Executive
Allowance separate from the reimbursements set forth above. Ms. Wiik also
receives payment of certain living expenses while she is working from the
Company's Oslo, Norway office, in the form of a per diem allowance in an amount
which is consistent with the Company's business travel policies. Pursuant to her
employment agreement, Ms. Wiik is entitled to receive an annual cash bonus award
based on the Company's overall performance and her achievement of individual
objectives, in a target amount of 100% of her base salary (increased by the
Compensation Committee from an initial 75%, starting with the 2003 fiscal year).
Ms. Wiik also does not participate in the Company's Pension Plans (defined
below). Upon retirement, Ms. Wiik is entitled to receive a defined retirement
benefit that is primarily based on a percentage of her base salary for the
twelve months prior to her retirement. (See "Retirement Plans" for further
information.) In April 2005, Ms. Wiik informed the Company that, consistent with
her employment agreement, it is her desire to retire as President and Chief
Executive Officer of the Company (but not as Vice Chairman and a member of the
6
Company's Board of Directors) effective on or about December 31, 2005,
consistent with the timing of the election of her successor.
Mr. Farrell is a party to an employment agreement with the Company dated
April 12, 2002, which, upon joining the Company, provided him with 100,000
options under the Company's 1997 Incentive Stock Option and Stock Appreciation
Right Plan and a minimum bonus guarantee of $150,000 for the 2002 performance
year. The agreement also specifies that Mr. Farrell would be provided, in
addition to his normal annual stock option grants, an additional 20,000 options
in 2003 and 2004. Mr. Farrell participates in all of the employee benefits
available to executives of the Company, including the receipt of an Executive
Allowance in the amount of $28,600 per year, and eligibility for participation
in the Company's Pension Plans, Savings Plans, Employee Stock Purchase Plan,
group health, dental, life and accidental death and dismemberment insurance
programs, short-term disability program, tuition reimbursement program and the
Severance and Change in Control Plans. (See below for a description of the
Severance and Change in Control Plans.)
Dr. Warner is a party to an employment agreement with the Company dated
November 6, 2002, which is supplemented by an agreement dated February 26, 2003.
These agreements provided him with a one-time sign-on bonus of $150,000, to be
paid 50% immediately upon his start date in December 2002 and 50% upon his
completion of 18 months of employment in 2004. Dr. Warner was also granted, upon
his start date, 40,000 stock options under the Company's 1997 Incentive Stock
Option and Stock Appreciation Right Plan. Dr. Warner participates in all of the
employee benefits available to executives of the Company, including the receipt
of an Executive Allowance in the amount of $28,600 per year, and eligibility for
participation in the Company's Pension Plans, Savings Plans, Employee Stock
Purchase Plan, group health, dental, life and accidental death and dismemberment
insurance programs, short-term disability program, tuition reimbursement program
and the Severance and Change in Control Plans. (See below for a description of
the Severance and Change in Control Plans.)
Ms. Wrenn is a party to an employment agreement with the Company dated
October 19, 2001, which is supplemented by agreements dated July 15, 2003 and
February 11, 2004. Pursuant to these agreements, Ms. Wrenn received a sign-on
bonus of $65,000 in October 2001. Ms. Wrenn was also granted 33,525 shares of
restricted stock in July 2003 under the 2003 Omnibus Incentive Compensation
Plan. 25% of these restricted shares vested on July 15, 2004, and the balance
shall vest at the rate of 25% and 50% on each of July 15, 2005 and 2006,
respectively; however, the shares shall vest immediately in the event of a
closing of a sale of all, or substantially all, of the assets of the Company's
Animal Health business. Furthermore, if such sale occurs at a purchase price of
at least a specified minimum amount, Ms. Wrenn shall receive a lump-sum payment
of $100,000. Ms. Wrenn is required to provide the Company with 90 days' notice
in the event of her resignation. Ms. Wrenn participates in all of the employee
benefits available to executives of the Company, including the receipt of an
Executive Allowance in the amount of $28,600 per year, and eligibility for
participation in the Company's Pension Plans, Savings Plans, Employee Stock
Purchase Plan, group health, dental, life and accidental death and dismemberment
insurance programs, short-term disability program, tuition reimbursement program
and the Severance and Change in Control Plans. (See below for a description of
the Severance and Change in Control Plans.) In addition, if Ms. Wrenn is
terminated as a result of a sale of all, or substantially all, of the assets of
the Company's Animal Health business, she shall receive her base salary and
certain benefits for thirty months, subject to certain tax limitations, even
though such a sale would not otherwise qualify as a "change in control" of the
Company under the Change in Control Plan.
Mr. Wrobel is a party to an employment agreement with the Company dated
October 8, 1997, pursuant to which he received a sign-on bonus in October 1997
of $25,000 and 5,000 stock options under the Company's 1997 Incentive Stock
Option and Stock Appreciation Right Plan. Mr. Wrobel participates in all of the
employee benefits available to executives of the Company, including the receipt
of an Executive Allowance in the amount of $28,600 per year, and eligibility for
participation in the Company's Pension Plans, Savings Plans, Employee Stock
Purchase Plan, group health, dental, life and accidental death and dismemberment
insurance programs, short-term disability program, tuition reimbursement program
and the Severance and Change in Control Plans. (See below for a description of
the Severance and Change in Control Plans.)
7
SEVERANCE AND CHANGE IN CONTROL PLANS
Ms. Wiik, Mr. Farrell, Dr. Warner, Ms. Wrenn and Mr. Wrobel receive
additional benefits pursuant to the Company's Severance Plan and Change in
Control Plan, both of which were adopted by the Board of Directors in 2002 and
amended in February and April 2004 (the "Severance Plan" and "Change In Control
Plan", respectively).
Pursuant to the terms of the Severance Plan, in the event Ms. Wiik is
terminated for any reason other than for cause, she is entitled to receive her
base salary, bonus and certain benefits for twenty-four months, subject to
certain tax limitations. Pursuant to the Change in Control Plan, if Ms. Wiik is
terminated as a result of a change in control of the Company, she is entitled to
receive her salary and certain benefits for a total of thirty-six months,
subject to certain tax limitations, and her outstanding stock options shall
immediately vest. Furthermore, pursuant to the Change in Control Plan, upon
certain conditions following a "change in control", Ms. Wiik's outstanding
shares of Restricted Stock and Performance Units, granted pursuant to the
Company's 2003 Omnibus Incentive Compensation Plan, shall also immediately vest.
Additionally, the Severance Plan provides that in the event that an
executive officer, including Mr. Farrell, Dr. Warner, Ms. Wrenn or Mr. Wrobel,
is terminated for any reason other than for cause, such executive officer is
entitled to receive his or her base salary, bonus and certain benefits for
eighteen months, subject to certain tax limitations. The Change in Control Plan
provides that if such an executive officer is terminated as a result of a change
in control of the Company, such executive officer is entitled to receive his or
her base salary and certain benefits for a total of thirty months, subject to
certain tax limitations, and his or her outstanding stock options shall
immediately vest. Furthermore, pursuant to the Change in Control Plan, upon
certain conditions following a "change in control", such executive officer's
outstanding shares of Restricted Stock and Performance Units, granted pursuant
to the Company's 2003 Omnibus Incentive Compensation Plan, shall also
immediately vest.
The Severance Plan also provides for payments to be made to certain other
key employees of the Company in the event of termination for any reason other
than for cause or as a result of a change in control of the Company. The Change
in Control Plan provides for payments to be made to such key employees upon a
change in control of the Company, in addition to the potential acceleration of
vesting of certain stock options, shares of Restricted Stock and Performance
Units granted pursuant to the Company's 2003 Omnibus Incentive Compensation
Plan.
PERFORMANCE CASH BONUS INCENTIVE PLAN
The Compensation Committee of the Company's Board of Directors has approved
the performance goals underlying the Company's Executive Bonus Plan that shall
apply to the 2005 fiscal year. The Executive Bonus Plan provides that all
executive officers (other than Ms. Wiik) and key employees performing services
for the Company may be entitled to receive a cash bonus at a target level. Each
of the named executive officers may receive more or less than his or her target
level bonus, based upon the Company's ability to achieve certain net income and
cash flow targets for 2005. In addition, for executive officers who are
responsible for a specific business segment of the Company, a portion of his or
her bonus will depend on such business segment's achievement of certain income
and cash flow targets for 2005. As provided in the Executive Bonus Plan, the
Compensation Committee has the discretion to vary any individual bonus award
from the amount derived by the application of the criteria described above. Ms.
Wiik does not participate in the Executive Bonus Plan, but she is entitled to
receive an annual cash bonus at a target level based on the Company's overall
performance and her achievement of individual objectives as set forth in her
employment agreement. (See "Employment Agreements" for further information.) Ms.
Wiik will have a target bonus for 2005 of 100% of base salary, and Mr. Farrell,
Dr. Warner, Ms. Wrenn and Mr. Wrobel will have target bonuses for 2005 of 50% of
base salary.
8
OPTION GRANTS IN LAST FISCAL YEAR
The following table discloses, for the named executive officers, certain
information with respect to options granted during 2004. All grants are options
under the Company's 2003 Omnibus Incentive Compensation Plan.
NUMBER OF
SHARES OF % OF TOTAL POTENTIAL REALIZABLE VALUE
CLASS A SHARES AT ASSUMED ANNUAL RATES
COMMON STOCK GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS IN FISCAL EXERCISE ---------------------------
NAME GRANTED YEAR PRICE EXPIRATION DATE(1) 5% 10%
---- ------------ ---------- -------- ------------------ ----------- -------------
Ingrid Wiik............ 75,000 20.07% $19.80 March 8, 2014 $933,909 $2,366,708
Matthew T. Farrell..... 35,500 9.50% $19.80 March 8, 2014 $442,050 $1,120,242
Ronald N. Warner....... 18,000 4.82% $19.80 March 8, 2014 $224,138 $ 568,010
Robert F. Wrobel....... 25,000 6.69% $19.80 March 8, 2014 $311,303 $ 788,903
---------------
(1) Options vest at the rate of 25% on each of the first four anniversaries of
the date of grant, and become 100% vested on March 8, 2008. Options shall
continue to vest in accordance with this schedule in the event of the
retirement of a named executive officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table discloses, for the named executive officers, (a) the
number of shares acquired upon the exercise of options or with respect to which
such options were exercised, and the aggregate dollar value realized upon such
exercise, and (b) the number and value of unexercised options, in each case as
of December 31, 2004.
NUMBER OF SHARES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/04 OPTIONS AT 12/31/04(1)
ACQUIRED ON --------------------------- ---------------------------------
NAME EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE(2)
---- ----------- -------------- ----------- ------------- -------------- ----------------
Ingrid Wiik.......... 0 $0 207,750 192,250 $ 93,294 $117,794
Matthew T. Farrell... 0 $0 68,750 141,750 $ 54,188 $ 72,563
Ronald N. Warner..... 0 $0 20,000 38,000 $ 83,800 $ 83,800
Carol A. Wrenn....... 0 $0 57,334 31,500 $129,710 $129,710
Robert F. Wrobel..... 0 $0 114,334 50,000 $201,922 $ 99,830
---------------
(1) All grants are options under the Company's 1997 Incentive Stock Option and
Appreciation Right Plan, and 2003 Omnibus Incentive Compensation Plan.
(2) Value is based on the closing price of a share of Class A Stock on December
31, 2004 ($16.95) minus the exercise price.
9
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The following table discloses, for the named executive officers, certain
information with respect to Performance Units granted on March 8, 2004 for the
2004-2006 performance period. All grants were made pursuant to the Company's
2003 Omnibus Incentive Compensation Plan.
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
PERFORMANCE OR -------------------------------------
NUMBER OF OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME UNITS(1) MATURATION OR PAYOUT(2) ($)(3) ($)(3) ($)(3)
---- --------- ----------------------- ----------- ---------- ----------
Ingrid Wiik................... 10,000 3 years (2004-2006) $500,000 $1,000,000 $2,000,000
Matthew T. Farrell............ 2,000 3 years (2004-2006) $100,000 $ 200,000 $ 400,000
Ronald N. Warner.............. 2,000 3 years (2004-2006) $100,000 $ 200,000 $ 400,000
---------------
(1) Each named executive officer has been granted a Performance Unit Award,
consisting of the number of Performance Units shown. Performance Units
become 100% vested on the last day of the three-year performance period, at
which time their value is determined based upon total shareholder return
(TSR) of the Company as compared to competitor companies over the three-year
performance period, and the Company's achievement of a minimum free cash
flow target. Competitor companies are those small-cap and mid-cap companies
included in the Dow Jones U.S. Pharmaceuticals Index.
(2) In the event of the retirement, disability or death of a named executive
officer, awards of Performance Units shall be prorated up to the date of
retirement, disability or death and paid at the end of the performance
period.
(3) "Threshold" amounts shown assume the Company's TSR as compared to its
competitors ranks between the 50th and 59th percentiles. However, the value
of Performance Units could be $0, if the Company's TSR relative to its
competitors falls below the 50th percentile. "Target" amounts shown assume
the Company's TSR relative to its competitors ranks between the 60th and
74th percentiles, and "Maximum" amounts may be achieved above the 90th
percentile. (Between the 75th and 89th percentiles, payouts will be $150 per
Performance Unit.) If the Company had computed its TSR as of December 31,
2004, the value of all Performance Units would have been $0.
RETIREMENT PLANS
Ms. Wiik is not a participant in the Company's Pension Plan (as defined
below) pursuant to the terms of her employment agreement. (See "Employment
Agreements" for further information.) Upon Ms. Wiik's retirement as President
and Chief Executive Officer of the Company (which she has informed the Company
shall be on or about December 31, 2005, consistent with the election of her
successor), she is entitled to receive from the Company an annual retirement
benefit for each calendar year following retirement equal to (i) 30% of her Base
Compensation (defined below) plus (ii) inflationary adjustments (which shall be
the same as the adjustment for inflation provided in the retirement plan for
Alpharma AS for Norwegian employees) minus (iii) "Other Retirement Benefits"
(defined below). "Base Compensation" means her annual base salary during the
twelve month period ending on the last day of the month preceding retirement or
disability (provided that, if base salary shall have changed during such twelve
month period, Base Compensation shall mean the average annual base salary
weighted to reflect the number of days during which each varying base salary was
in effect). "Other Retirement Benefits" means amounts Ms. Wiik is entitled to
receive as retirement benefits under Norwegian pension plans, but does not
include (i) payments received under the Company Savings Plans or the deferred
compensation plan maintained by the Company, or (ii) retirement benefits
received under any governmental program or under any insurance program funded by
the Company or any of its subsidiaries or their predecessors. All amounts not
payable in Norwegian Kroner shall be subject to a fixed currency conversion rate
of one United States dollar equal to NOK 9.60. (As compared to the March 31,
2005 exchange rate of approximately NOK 6.34 per 1 USD.)
Mr. Farrell, Dr. Warner, Ms. Wrenn and Mr. Wrobel are participants in the
Alpharma Inc. Pension Plan (a qualified defined benefit plan) (the "Pension
Plan"). Under the Pension Plan, both salaried and hourly employees are eligible
for benefits. Participants who have at least five years of vested service with
the
10
Company are entitled to receive their specified annual benefit, in the form of a
life annuity or, at the election of participants, its actuarial equivalent in
certain other forms, commencing within one month of their 65th birthday. The
specified annual benefit is equal to (x) the sum of (i) 0.8% of the
participant's highest five-year Final Average Compensation (as defined below) up
to "covered compensation" ($41,000 for 2004) plus (ii) 1.45% of the
participant's highest five-year Final Average Compensation in excess of "covered
compensation", multiplied by (y) the number of years of benefit service (up to a
maximum of 30 years). The Pension Plan also provides for an early retirement
benefit which is equal to the specified annual benefit described above, reduced
actuarially for each year by which the early retirement date precedes the normal
retirement date. Participants are eligible for early retirement upon attainment
of age 55 and completion of at least five years of vested service with the
Company.
The following table sets forth the approximate annual retirement benefit
under the Pension Plan based on years of service and Final Average Compensation.
PENSION PLAN TABLE
YEARS OF SERVICE
-----------------------------------------
REMUNERATION(1) 15 20 25 30(2)
--------------- -------- -------- -------- --------
$250,000 50,378 67,170 83,963 100,755
$275,000 55,815 74,420 93,025 111,630
$300,000 61,253 81,670 102,088 122,505
$325,000 66,690 88,920 111,150 133,380
$350,000 72,128 96,170 120,213 144,255
$375,000 77,565 103,420 129,275 155,130
$400,000 83,003 110,670 138,338 166,005
$425,000 88,440 117,920 147,400 176,880
$450,000 93,878 125,170 156,463 187,755
$475,000 99,315 132,420 165,525 198,630
$500,000 104,753 139,670 174,588 209,505
$525,000 110,190 146,920 183,650 220,380
$550,000 115,628 154,170 192,713 231,255
$575,000 121,065 161,420 201,775 242,130
$600,000 126,503 168,670 210,838 253,005
$625,000 131,940 175,920 219,900 263,880
$650,000 137,378 183,170 228,963 274,755
$675,000 142,815 190,420 238,025 285,630
$700,000 148,253 197,670 247,088 296,505
---------------
(1) Final average compensation. Current Federal pension law limits average
annual compensation considered for benefit purposes to $205,000 for 2004.
(2) The Plan provides that there is a maximum of 30 years of service for
computation of benefits.
For purposes of the Pension Plan, an employee's "Final Average
Compensation" generally is his or her regular cash salary (excluding bonuses)
for the five consecutive years of service in which his or her compensation was
highest during the ten years of service immediately preceding his or her
retirement. In 2004, the amounts of the compensation of Mr. Farrell, Dr. Warner,
Ms. Wrenn and Mr. Wrobel would have been $407,732 $319,231, $357,500, and
$398,618, respectively, under the Pension Plan if there were no limitations
under Federal pension law. However, due to the Federal pension law, the
respective amounts of compensation of Mr. Farrell, Dr. Warner, Ms. Wrenn and Mr.
Wrobel, under the Pension Plan in 2004 were limited to $205,000. Pursuant to the
Company's Supplemental Pension Plan, Mr. Farrell, Dr. Warner, Ms. Wrenn and Mr.
Wrobel are each entitled to receive a supplemental benefit, calculated above
such $205,000 Federal limit, based upon a maximum base compensation of $235,000
per annum. The years of service credited under the Pension Plan as of December
31, 2004 to the named executive officers were as follows: Mr. Farrell -- 3
years, Dr. Warner -- 2 years, Ms. Wrenn -- 3 years and Mr. Wrobel -- 7 years.
Under the Pension Plan, in the event of the termination of employment prior
to retirement, part of the employee's benefit may be forfeited. A retirement
benefit, payable in the form of a life annuity following the
11
employee's 55th birthday, is equal to an accrued percentage of the normal
retirement benefit, actuarially reduced to reflect commencement of payments
prior to the normal retirement date. As to employees hired on or after January
1, 1989, pension benefits under the Pension Plan vest after five years of
credited service with the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors has
consisted of Mr. William I. Jacobs, Ms. Jill Kanin-Lovers, Mr. Peter G. Tombros
and Ms. Farah M. Walters since May 2004. Mr. Tombros served as Chairman through
May 2004, at which point Ms. Kanin-Lovers assumed the role of Chairman.
Pursuant to its charter, the Compensation Committee is responsible for
reviewing the performance and total compensation of the Company's Chief
Executive Officer (the "CEO"), reviewing and approving the compensation and
benefits of other executive officers and highly paid personnel, reviewing the
general compensation and employment policies for management personnel, reviewing
management development and succession matters, and approving any material new
benefit plan or material amendment to such plan.
In general, the Compensation Committee has sought to meet the objectives of
its compensation philosophy by making compensation decisions and recommendations
for executive officers and other key personnel in a manner which: (1) provides
overall compensation that is competitive in its ability to attract and retain
highly qualified personnel; (2) relates compensation to the degree to which the
Company (and/or the specific business unit in which an executive has
responsibility) attains its annual financial performance targets; (3) rewards
excellent individual performance and teamwork, with consideration for specific
projects completed or adverse conditions overcome to achieve results; and (4)
provides an incentive to contribute to the long-term growth of the Company's
businesses and stockholder value. In making compensation recommendations, the
Committee is mindful of Section 162(m) of the Internal Revenue Code of 1986, as
amended, and consults with tax advisors as necessary to minimize any
nondeductible compensation under Section 162(m).
During 2004, the Compensation Committee: (1) initiated a process to plan
for CEO succession; (2) developed and approved a competency model identifying
the leadership attributes required to take the Company forward; (3) monitored
ongoing efforts to address various employment and benefits related issues; (4)
took action to address retention concerns; (5) approved modifications to the
Board of Directors compensation program to align with competitive practice; (6)
approved amendments to clarify the Change in Control Plan and Severance Plan;
(7) approved compensation arrangements for various new executives; and (8)
continued efforts to implement a new compensation philosophy that places more
emphasis on Company results and individual performance and decreases reliance on
salary and other fixed elements of pay.
In March 2004, the Compensation Committee set various company-wide and
divisional targets for income from operations and cash flow from operations for
2004 under the Company's Executive Bonus Plan (applicable to employees at the
Vice President level and above other than Ms. Wiik) and Performance Incentive
Plan (applicable to employees below the Vice President level). (See "Performance
Cash Bonus Incentive Plan" for a discussion of Ms. Wiik's annual cash bonus
award.) In addition, target awards for 2004 were established for each named
executive officer (100% of base salary for Ms. Wiik and 50% of base salary for
all other named executive officers).
Also in March 2004, the CEO received awards under the 2003 Omnibus
Incentive Compensation Plan, consisting of 75,000 stock options, 45,000 shares
of restricted stock, and 10,000 performance units. The options have an exercise
price equal to the market price of the Company's common stock on the date of
grant, vest over four years and have a term of ten years (with the same vesting
schedule and term in the event of retirement). The shares of restricted stock
vest on the fifth anniversary of the date of grant (and shall vest immediately
upon Ms. Wiik's retirement, death or disability). The performance units have a
face value of $100 per unit at target performance, as measured by relative total
stockholder return over a three year performance period (with any payout
pro-rated for the portion of the performance period employed, in the event of
Ms. Wiik's death, disability or retirement), and the achievement of a minimum
free cash flow target.
12
In February and March 2005, the Compensation Committee reviewed the CEO's
performance during 2004 and recommended several compensation actions with
respect to Ms. Wiik. The Committee's review of Ms. Wiik's performance in 2004
focused on Company financial and operating performance, strategic planning,
internal and external leadership, management succession, and her relationship
with the Board of Directors and stockholders. The Committee discussed the
significant developments affecting the Company, the strategic value of
restructuring the Company, increased cash flow and debt repayment under the
deleveraging initiative, and the CEO's energy and work ethic. In recommending
compensation for the CEO, the Committee was guided by her employment contract
and the performance matters discussed by the Committee, as well as the Company's
overall compensation philosophy and competitive data provided by an independent
consultant. The Committee determined in March 2005 that Ms. Wiik's base salary
for 2005 shall remain at the 2004 level, and it approved a bonus to Ms. Wiik for
2004 that was approximately 39% of her target for 2004, reflects the Committee's
assessment of overall achievement of the Company's and the CEO's objectives, and
is consistent with bonuses received by Alpharma corporate executives generally.
The Committee also approved, in March 2005, the annual base salaries for
2005 for the named executive officers (other than Ms. Wiik), based on the
compensation philosophy discussed above. Each of the named executive officers
shall receive the same salary in 2005 as in 2004 with the exception of Dr.
Warner, whose base salary effective January 2005 shall be $400,000, as a result
of the increased responsibilities he assumed with his new position.
In April 2005, Ms. Wiik informed the Committee that, consistent with the
terms of her employment agreement (see "Employment Agreements"), it was her
desire to retire as the President and Chief Executive Officer of the Company
(but not as Vice Chairman and a member of the Company's Board of Directors),
effective on or about December 31, 2005. The Committee and Ms. Wiik agreed that
the exact date of her retirement, and all other related terms and conditions,
would be subject to further discussions and the timing of the election of her
successor.
By the Compensation Committee:
Jill Kanin-Lovers (Chairman)
William I. Jacobs
Peter G. Tombros
Farah M. Walters
13
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total Stockholder
return during the last five calendar years with the composite of the Coredata,
Inc. Index (formerly known as the Media General Financial Services Index) for
Drug Manufacturers -- Other, Drug-Generic and Drug Delivery Industry Groups
(which index includes 136 corporations that describe themselves as drug
manufacturers and are publicly traded) and The New York Stock Exchange Market
Index. The graph assumes $100 invested as of the end of the day on December 31,
1999 in the Company's Class A Stock and $100 invested at that time in each of
the selected indices. The comparison assumes that all dividends are reinvested.
ALPHARMA INC.
5-YEAR CUMULATIVE RETURNS
VERSUS PEER GROUP AND NYSE INDEX
[LINE GRAPH]
FISCAL YEAR ENDED
---------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 29, DECEMBER 31, DECEMBER 31, DECEMBER 31,
COMPANY, INDEX, MARKET 1999 2000 2001 2002 2003 2004
---------------------- ------------ ------------ ------------ ------------ ------------ ------------
Alpharma Inc. .......... 100.00 143.27 86.91 39.66 67.62 57.55
Peer Group Index........ 100.00 165.25 153.53 100.41 141.84 150.69
NYSE Market Index....... 100.00 102.38 93.26 76.18 98.69 111.45
14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF COMMON STOCK
The following table sets forth, as of March 31, 2005 (unless otherwise
noted), certain information regarding the beneficial ownership of the Class A
Stock and the Class B Stock of (a) each person who is known to the Company to be
the beneficial owner of more than 5% of the outstanding shares of either of such
classes, (b) each director and each nominee for director of the Company, (c) the
Chief Executive Officer and the four other most highly compensated executive
officers, and (d) all directors and executive officers of the Company as a
group. Unless otherwise indicated, (i) each beneficial owner possesses sole
voting and dispositive power with respect to the shares listed for such
beneficial owner in this table, and (ii) the address of such beneficial owner is
the Company's offices at One Executive Drive, Fort Lee, New Jersey 07024.
AMOUNT AND PERCENT OF
NATURE OF PERCENT OF COMMON STOCK
BENEFICIAL CLASS (BOTH CLASSES)
TITLE OF CLASS OF STOCK NAME OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING OUTSTANDING
----------------------- ------------------------ ---------- ----------- --------------
Class B Common Stock A. L. Industrier ASA(1)(2) 11,872,897 100.00% 22.45%
Class A Common Stock A. L. Industrier ASA(1)(2) 0 -- --
Class B Common Stock Einar W. Sissener(3) 11,872,897 100.00 22.45
Class A Common Stock Einar W. Sissener(3)(4)(5) 401,167 * *
Class A Common Stock Barclays Global Investors NA(6) 6,049,518 14.75 11.44
Class A Common Stock Dimensional Fund Advisors Inc.(7) 3,181,903 7.76 6.02
Class A Common Stock LSV Asset Management(8) 2,750,210 6.70 5.20
Class A Common Stock Ingrid Wiik(4)(9) 404,489 * *
Class A Common Stock Matthew T. Farrell(4) 158,538 * *
Class A Common Stock Robert F. Wrobel(4) 128,941 * *
Class A Common Stock Carol A. Wrenn(4) 87,795 * *
Class A Common Stock Glen E. Hess(4)(10) 42,342 * *
Class A Common Stock Peter G. Tombros(4) 38,318 * *
Class A Common Stock Ronald N. Warner(4) 35,335 * *
Class A Common Stock William I. Jacobs(4) 18,500 * *
Class A Common Stock Jill Kanin-Lovers(4) 11,800 * *
Class A Common Stock Robert Thong(4) 11,800 * *
Class A Common Stock Farah M. Walters(4) 11,800 * *
Class A Common Stock Finn Berg Jacobsen 0 -- --
Class A Common Stock Ramon M. Perez 0 -- --
Class A Common Stock All directors and executive officers
as a group (17 persons)(4) 1,560,406 3.80 2.95
Class B Common Stock All directors and executive officers
as a group (17 persons)(3) 11,872,897 100.00 22.45
---------------
* Indicates ownership of less than 1%.
(1) The source of this information is Amendment No. 11 to Schedule 13D, dated
June 12, 2003, filed with the Securities and Exchange Commission (the
"Commission") by A. L. Industrier ASA (formerly known as Apothekernes
Laboratorium AS), a corporation organized and existing under the laws of
the Kingdom of Norway ("A. L. Industrier"). The shares reflected in the
table are held of record by A/S Wangs Fabrik, a wholly owned subsidiary of
A. L. Industrier, although A. L. Industrier retains full beneficial
ownership and sole power to direct voting and disposition of these shares.
The address of A. L. Industrier is Harbitzalleen 3, 0275 Oslo, Norway.
(2) Shares of Class B Stock are convertible into an equal number of shares of
Class A Stock. If all shares of Class B Stock beneficially owned by A. L.
Industrier were converted as of March 31, 2005, A. L. Industrier would own
approximately 22.45% of the then outstanding shares of Class A Stock
(assuming
15
conversion of the Class B Stock and the issuance of no shares of Common
Stock pursuant to any outstanding options or convertible securities of the
Company).
(3) Mr. Sissener is Chairman of the Board of A. L. Industrier and together with
A/S Swekk (Mr. Sissener's family-controlled private holding company)
("Swekk"), EWS Stiftelsen (a trust established for the benefit of members
of the family of Mr. Sissener) ("EWS Stiftelsen"), and certain of his
relatives, he beneficially owns approximately 52% of A. L. Industrier's
outstanding ordinary shares entitled to vote and, accordingly, may be
deemed a controlling person of A. L. Industrier. As a controlling person of
A. L. Industrier, the 11,872,897 shares of the Class B Stock of the Company
held by A. L. Industrier are also considered to be beneficially owned by
Mr. Sissener.
(4) The shares reflected in the table include shares that the executive officer
or director has the right to acquire upon the exercise of stock options
granted under the 1997 Incentive Stock Option and Appreciation Right Plan,
the Non-Employee Director Option Plan or the 2003 Omnibus Incentive
Compensation Plan, which are exercisable as of March 31, 2005 or within 60
days thereafter, as follows: Ms. Wiik -- 277,625 shares, Mr.
Wrobel -- 123,584 shares, Mr. Farrell -- 121,375 shares, Ms.
Wrenn -- 62,334 shares, each of Messrs. Hess and Tombros -- 37,500 shares,
Mr. Sissener -- 27,500 shares, Dr. Warner -- 24,500 shares, Mr.
Jacobs -- 17,500 shares, and each of Ms. Kanin-Lovers, Mr. Thong and Ms.
Walters -- 11,800 shares. All directors and executive officers as a
group -- 945,485 shares. The shares in the table also include shares of
unvested restricted stock granted under the 2003 Omnibus Incentive
Compensation Plan, over which the executive officer or director has voting
control as of March 31, 2005 or within 60 days thereafter, as follows: Ms.
Wiik -- 95,000 shares, Ms. Wrenn -- 25,143 shares, Mr. Farrell -- 20,210
shares and Dr. Warner -- 9,000 shares. All directors and executive officers
as a group -- 167,053 shares. (The shares reflected in the table do not
include restricted stock units held by the members of the Company's Board
of Directors, which convey no voting control prior to vesting.)
(5) Includes 129,861 shares held by Mr. Sissener, 22,847 shares held by the
estate of Mr. Sissener's wife, 186,689 shares held by Swekk, and 34,270
shares held by EWS Stiftelsen.
(6) The source of this information is Schedule 13G dated February 14, 2005,
filed with the Commission by Barclay's Global Investors, NA. ("Barclay's").
Such Schedule 13G reports that Barclay's holds sole voting power as to
4,433,932 shares and sole dispositive power as to 4,820,329 shares. The
Schedule 13G further reports that an affiliate of Barclay's, Barclays
Global Fund Advisors, holds sole voting power as to 1,227,442 shares and
sole dispositive power as to 1,229,189 shares. The address of Barclay's and
Barclays Global Fund Advisors is 45 Fremont Street, San Francisco,
California 94105.
(7) The source of this information is Schedule 13G dated February 9, 2005,
filed with the Commission by Dimensional Fund Advisors Inc.
("Dimensional"). Such Schedule 13G reports that Dimensional, an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940, furnishes investment advice to four investment companies registered
under the Investment Company Act of 1940, and serves as investment manager
to certain other commingled group trusts and separate accounts (the
"Funds"). In its role as investment adviser or manager, Dimensional
possesses voting and/or investment power over the Company shares that are
owned by the Funds, and may be deemed to be the beneficial owner of these
shares. No one Fund owns more than 5% of the outstanding Class A Stock of
the Company. Dimensional disclaims beneficial ownership of the shares owned
by the Funds. The address of Dimensional is 1299 Ocean Ave., 11(th) Floor,
Santa Monica, California 90401.
(8) The source of this information is Schedule 13G dated February 10, 2005,
filed with the Commission by LSV Asset Management ("LSV"). Such Schedule
13G reports that LSV holds sole voting power as to 1,890,610 shares and
sole dispositive power as to 2,685,310 shares. The address of LSV is 1
North Wacker Drive, Suite 4000, Chicago, Illinois 60606.
(9) Ms. Wiik also owns 580 shares of A. L. Industrier.
(10) Includes 3,750 shares held by a private foundation of which Mr. Hess is
President; however he has no economic interest in these shares.
16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Sissener is Chairman of the Board of A. L. Industrier ASA, commonly
known as A. L. Industrier. Together with certain family-controlled private
holding companies and certain of his relatives, Mr. Sissener beneficially owns
approximately 52% of A. L. Industrier's outstanding ordinary shares entitled to
vote and, accordingly, may be deemed a controlling person of A. L. Industrier.
A. L. Industrier and Alpharma AS, one of the Company's Norwegian
subsidiaries, are parties to two leases pursuant to which A. L. Industrier
leases to Alpharma AS the land and facility in Oslo, Norway where Alpharma AS'
principal administrative offices and fermentation plant for its bulk antibiotics
are located, and adjoining land for a parking facility for employees. Both
leases have terms ending in 2014. The terms are renewable, at the option of
Alpharma AS, for up to four additional consecutive five year terms. Basic rent
during the initial terms are $1.00 per year under the office and plant lease and
NOK 2,400,000 (approximately $379,000) per year under the parking facility lease
and, during any renewal term thereafter, basic rent under the office and plant
lease will be the then prevailing fair rental value of the premises and basic
rent for the parking facility will remain at NOK 2,400,000. In addition to basic
rent, Alpharma AS pays documented expenses of ownership and operation of such
facilities, such as taxes and maintenance expenses. Alpharma AS has the right to
terminate the office and plant lease at any time during its term upon twelve
months' written notice to A. L. Industrier and the parking facility lease at any
time during its term upon twenty-four months' written notice to A. L.
Industrier. These leases were entered into on an arm's length basis, and on
terms as favorable as could have been obtained from unrelated third parties.
During 2004, Alpharma AS was a party to an administrative services
agreement with A. L. Industrier, dated January 1, 2004, pursuant to which
Alpharma AS provided certain administrative services to A. L. Industrier, at a
fixed yearly fee of NOK 1,000,000, or approximately $158,000. This agreement was
superseded by a new administrative services agreement, effective as of January
1, 2005. Under this new agreement, A. L. Industrier shall pay Alpharma AS a
fixed yearly fee of NOK 400,000, or approximately $63,000, for certain, limited,
administrative services. Both of the administrative service agreements described
above were made on an arm's length basis, and were/are on terms as favorable as
could have been obtained from unrelated third parties.
All transactions with A. L. Industrier are subject to review by, and in
some circumstances prior approval of, the Company's Audit and Corporate
Governance Committee. (See "Board of Directors and Committees -- Committees of
the Board" above.)
CERTAIN OTHER RELATIONSHIPS AND TRANSACTIONS
Mr. Einar W. Sissener, who as of June 30, 1999, ceased acting as President
and Chief Executive Officer of the Company, is party to an agreement with the
Company, effective July 1, 1999, as amended March 23, 2004, pursuant to which he
receives an annual fee of $200,000 for serving as Chairman of the Board of
Directors of the Company (and director of certain of the Company's
subsidiaries). Mr. Sissener receives fringe benefits substantially equal to
those received by executive officers of the Company, in the form of automobile
allowances, telephone and travel reimbursements, and tax and financial planning
and tax preparation reimbursements. In addition, the Company provides Mr.
Sissener with a monthly allowance intended to cover the cost of certain living
expenses he incurs while working out of the Company's Fort Lee, New Jersey
offices. Mr. Sissener has agreed to provide consulting services to the Company's
management for a ten year term for an initial rate of $12,000 per month (in
addition to the payment of reasonable expenses incurred in connection with the
performance of such consulting services, as described above). The consulting fee
rate is adjusted annually for inflation and is currently $12,390 per month. In
addition to the amounts described above, Mr. Sissener is entitled to all
benefits available under applicable plans and policies in Norway arising from
retirement from employment by Alpharma AS and is entitled to receive from
Alpharma AS an amount which, when added to amounts he is entitled to receive
under Norwegian Social Security, Alpharma AS's pension plan and his individual
retirement benefits, equals NOK 900,000 (approximately $142,000). The current
annual retirement benefit that Mr. Sissener is receiving directly from the
Company is NOK 423,312 (approximately $67,000).
17
Mr. Glen E. Hess' professional corporation is a partner of Kirkland & Ellis
LLP, a law firm that, since 1978, has performed and continues to perform
significant legal services for the Company. In addition, Mr. Hess received, in
January 2004, a distribution from the Company's Amended and Restated Deferred
Compensation Plan, dated October 14, 1994 (the "Deferred Compensation Plan"), in
an amount of approximately $200,000. This distribution represented previous
years' payments of directors' cash compensation to Mr. Hess that he had deferred
pursuant to the plan. Mr. Hess received an additional distribution from the plan
in a similar amount in January 2005, representing a total distribution under the
plan.
Mr. Peter G. Tombros received, in January 2004, a distribution from the
Company's Deferred Compensation Plan in an amount of approximately $432,000.
This distribution represented a total distribution of previous years' payments
of directors' cash compensation to Mr. Tombros that he had deferred pursuant to
the plan.
Ms. Farah M. Walters received, in January 2005, a distribution from the
Company's Deferred Compensation Plan in an amount of approximately $110,000.
This distribution represented a total distribution of previous years' payments
of directors' compensation deferred pursuant to the plan.
18
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the aggregate fees billed or expected to be
billed by PricewaterhouseCoopers LLP, the Company's independent accountants for
fiscal year ending December 31, 2004, for professional services rendered in
connection with the Company's financial statements and reports for fiscal year
2004 and for other services rendered during fiscal year 2004 on behalf of the
Company and its subsidiaries, as well as all "out-of-pocket" costs incurred in
connection with these services, which have been or will be billed to the
Company:
2004 2003
---------- ----------
Audit Fees(1)............................................... $5,367,000 $1,982,000
Audit-Related Fees(2)....................................... 1,226,000 389,000
Tax Fees(3)................................................. 100,000 477,000
All Other Fees.............................................. 0 0
Total(4).................................................... $6,693,000 $2,848,000
---------------
(1) Audit Fees for fiscal years 2004 and 2003 were for professional services
rendered by the auditor for the audit of the Company's annual and quarterly
financial statements and services provided in connection with statutory and
regulatory filings or engagements.
(2) Audit-Related Fees for fiscal years 2004 and 2003 were for assurance and
related services rendered by the auditor that were reasonably related to the
performance of the audit or review of the Company's financial statements,
but not included in Audit Fees above. These services related primarily to
providing assistance with the Company's debt placement filings, auditing of
employee benefit plans, auditing of "carve-out" financial statements of a
business segment, providing due diligence assistance and providing advisory
services relating to the Sarbanes-Oxley Act of 2002.
(3) Tax Fees for fiscal years 2004 and 2003 were for professional services
rendered by the auditor primarily for tax compliance, and also for tax
advice and tax planning.
(4) With the adoption of its Audit & Non-Audit Services Pre-Approval Policy in
May 2003, the Audit and Corporate Governance Committee commenced
pre-approval of fees and services included within the scope of its policy.
(See "Auditors" above for further information). During 2004, the Audit and
Corporate Governance Committee did not utilize the de minimis exception to
pre-approval offered by the Securities and Exchange Commission.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this Form 10-K/A.
LIST OF EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION SK).
31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 is filed as an
Exhibit to this 10K/A.
31.2 Certification of the Chief Financial Officer to Section 302
of the Sarbanes-Oxley Act of 2002 is filed as an Exhibit to
this 10K/A.
32 Certification of the Principal Executive Officer and the
Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 is filed as an Exhibit to this
10K/A.
20
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Alpharma Inc.
By /s/ Matthew T. Farrell
----------------------------------------
Name: Matthew T. Farrell
Title: Executive Vice President and Chief
Financial Officer
Date: April 29, 2005
21