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Allergan Change in Control Policy Analysis

November 20, 2014

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Allergan Bought Actavis

On November 16, 2014, Allergan agreed to be acquired by Actavis for $66 billion. At the effective time of the merger, each share of Allergan’s common stock issued and outstanding, immediately prior to the acquisition, will be converted into the right to receive $129.22 in cash, without interest, and 0.3683 of an ordinary share of Actavis.

Allergan Change in Control Policy

In 2013, Allergan elected to terminate existing individual change in control agreements with each of its named executive officers. Upon the termination of these agreements, the executives became eligible to participate in the Allergan Change in Control Policy, which provides severance and other benefits in the event of an executive’s termination. It applies under specified circumstances and within two years following the Allergan change in control. The policy eliminated tax gross-ups and altered the cash severance calculations methods contained in the previous agreements.

However, the most significant change between the agreements previously in place and the new policy involves the treatment of equity. The new policy stipulates that vesting for nonqualified stock option and restricted stock/restricted stock unit grants will be accelerated upon an Allergan change in control only if there is a qualifying termination. This shift from single-trigger to double-trigger before vesting accelerates is viewed favorably by investors and is becoming more prevalent within change in control arrangements.

CEO David Pyott’s Financial Gains

Based on its most recent proxy filing, Allergan’s CEO, David Pyott, is entitled to the following under the double-trigger policy, which requires a qualified termination within two years following the Allergan change in control date:

• A cash payment equal to three times the sum of (i) such named executive officer’s highest annual salary rate within the five-year period preceding termination and (ii) a bonus payment equal to the named executive officer’s target annual bonus

• Vesting of all stock options, restricted stock and other incentive compensation awards

• Continuation of medical, dental and vision benefits for a three-year period and outplacement benefits of a type and duration generally provided to employees at the named executive officer’s level

Compensation Summary

Under this scenario, Allergan’s CEO David Pyott would receive $9,623,250 in cash, consisting of his base salary and bonus multipliers. Based on the acquisition price of $219 per share, Mr. Pyott would also realize $83,815,479 in accelerated options as well as $24,090,000 through the accelerated vesting of his outstanding performance shares.