UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, For Use of Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Rule14a-12

 

BARR 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BARR PHARMACEUTICALS, INC.
400 Chestnut Ridge Road
Woodcliff Lake, NJ 07677
(201) 930-3300

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

Dear Stockholders:

 

The Annual Meeting of Stockholders of Barr Pharmaceuticals, Inc. (the “Company”) will be held on May 17, 2007, at 10:00 a.m. local time, at the Park Ridge Marriott, 300 Brae Boulevard, Park Ridge, New Jersey 07656. Although we have historically held our Annual Meeting of Stockholders in the autumn, because of the recent change of the Company’s fiscal year end from June 30 to December 31, the scheduling of this year’s Annual Meeting just over six months after our 2006 Annual Meeting reflects our transition to a calendar year-based financial reporting cycle. As a result, much of the information in this Proxy Statement, particularly that relating to executive compensation matters, relates to the six month “transitional” period between June 30 and December 31, 2006. The Annual Meeting is being held for the following purposes, as more fully described in the accompanying Proxy Statement:

 

1. to elect seven directors to serve until the Company’s 2008 Annual Meeting and until their successors are elected and qualified;

 

2. to ratify the Audit Committee’s selection of the Company’s independent registered public accounting firm for the year ending December 31, 2007;

 

3. to approve the Barr Pharmaceuticals, Inc. 2007 Stock and Incentive Award Plan;

 

4. to approve the Barr Pharmaceuticals, Inc. 2007 Executive Officer Incentive Plan; and

 

5. to transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

Only holders of record of the Company’s Common Stock at the close of business on March 30, 2007 are entitled to receive notice of and to vote at the Annual Meeting or at any adjournments or postponements thereof.

 

Whether or not you plan to attend the Annual Meeting, each stockholder is requested to promptly mark, sign and date the enclosed proxy card and to return it without delay in the enclosed postage-paid envelope. You may also vote your shares on the Internet or by telephone. Voting instructions are printed on your proxy card.

 

Since seating is limited, the Company has established the rule that only stockholders and invited guests may attend. Proxy holders will be asked to present their ticket of admission or proof of stock ownership, as well as personal identification in the lobby before the Annual Meeting begins. Stockholders will receive a ticket of admission as part of their proxy material. Other stockholders holding stock in nominee name or beneficially (in “street name”) need only bring their ticket of admission. Street name holders without tickets will need proof of ownership (such as a recent brokerage statement or letter from the bank or broker) for admission to the Annual Meeting.

 

By Order of the Board of Directors

 

 

Frederick J. Killion

Corporate Secretary

 

April 4, 2007

 

TABLE OF CONTENTS

 

BARR PHARMACEUTICALS, INC.
400 Chestnut Ridge Road
Woodcliff Lake, NJ 07677
(201) 930-3300

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS

May 17, 2007

 

 

 

We are providing these proxy materials in connection with the solicitation of proxies by the Board of Directors of Barr Pharmaceuticals, Inc. (“Barr,” the “Company,” “we,” or “us”), a Delaware corporation, for use at our 2007 Annual Meeting of Stockholders to be held at 10:00 a.m. local time on May 17, 2007 at the Park Ridge Marriott, 300 Brae Boulevard, Park Ridge, New Jersey 07656, and at any adjournment or postponement thereof. Although we have historically held our Annual Meeting of Stockholders in the autumn, because of the recent change of the Company’s fiscal year end from June 30 to December 31, the scheduling of this year’s Annual Meeting just over six months after our 2006 Annual Meeting reflects our transition to a calendar year-based financial reporting cycle. As a result, much of the information in this Proxy Statement, particularly that relating to executive compensation matters, relates to the six month “transitional” period between June 30 and December 31, 2006. It is anticipated that we will begin mailing this Proxy Statement, together with the form of proxy, to our stockholders on or about April 4, 2007.

 

Our Annual Meeting will be webcast on May 17, 2007 at 10:00 a.m. New York time. Please visit our homepage at www.barrlabs.com, and click on the Investor Relations link followed by the Calendar of Events link to view the webcast live or to access an archived replay until December 31, 2007.

 

A proxy card and a return postage-paid envelope for the proxy card are enclosed. If your proxy is properly executed and timely received, and it is not revoked before the Annual Meeting, your shares will be voted at the Annual Meeting according to the instructions indicated on your proxy card. If you sign and return your proxy card but do not give voting instructions, the persons acting under the proxy will vote the shares represented thereby for the election of each of the director nominees listed in Proposal No. 1 below and for approval of Proposal No. 2, Proposal No. 3 and Proposal No. 4, which are discussed below. As far as we know, no other matters will be presented at the Annual Meeting. However, if any other matters of business are properly presented, the proxy holders named on the proxy card are authorized to vote the shares represented by proxies according to their best judgment. Proxies will extend to, and be voted at, any adjournment or postponement of the Annual Meeting.

 

Any stockholder of record who has executed and returned a proxy card or properly voted by telephone or Internet and who for any reason wishes to revoke or change his or her proxy may do so by (1) attending the Annual Meeting in person and voting the shares represented by such proxy, (2) duly executing and delivering a later-dated proxy for the Annual Meeting at any time before the commencement of the Annual Meeting, or (3) delivering written notice of revocation to the Secretary of the Company at the above address at any time before the commencement of the Annual Meeting.

 

Please note that any stockholder whose shares are held of record by a broker, bank or other nominee and who provides voting instructions on a form received from the nominee may revoke or change his or her voting instructions only by contacting the nominee who holds his or her shares. Such stockholders may not vote in person at the Annual Meeting unless the stockholder obtains a legal proxy from the broker, bank or other nominee. Attendance at the Annual Meeting will not, by itself, revoke prior voting instructions.

 

Holders of our Common Stock, par value $.01 per share (the “Common Stock”), at the close of business on March 30, 2007, the record date, are entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof. As of that date, there were 109, 743,616 shares of our Common Stock outstanding, each entitled to one vote.

 

The presence of holders of a majority of the outstanding shares of the Common Stock entitled to vote at the Annual Meeting, in person or represented by proxy, is necessary to constitute a quorum. Abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.

 

The proxy included with this Proxy Statement is solicited by the Board of Directors of the Company for use at the Annual Meeting. We will pay the costs of preparing, printing and mailing the Notice of Annual Meeting of Stockholders and Proxy Statement, the enclosed proxy card and our Annual Report for the fiscal year ended December 31, 2006. We will also reimburse brokerage firms and others for reasonable expenses incurred by them in connection with their forwarding of proxy solicitation materials to beneficial owners. The solicitation of proxies will be conducted primarily by mail, but may also include telephone, facsimile or oral communications by our directors, officers or regular employees acting without special compensation. We have hired Mellon Investor Services LLC (“Mellon”) to distribute and solicit proxies. We will pay Mellon a fee of approximately $10,500, plus reasonable out-of-pocket expenses for this service.

 

Vote by Telephone

 

Using any touch-tone telephone, you can vote by calling the toll-free number on your proxy card. Have your proxy in hand when you call, and when prompted, enter your control number as shown on your proxy card. Follow the voice prompts to vote your shares.

 

Vote on the Internet

 

Record holders and many street name holders may vote on the Internet or by telephone. Using the Internet or telephone helps save your company money by reducing postage and proxy tabulation costs.

 

VOTE BY INTERNET AT THE WEB SITES BELOW
24 hours a day / 7 days a week

 

 

To vote by Internet, read this Proxy Statement and then go to the applicable website listed above. Have your proxy card or voting instruction form in hand and follow the instructions. You will be prompted to enter your control number, shown on your proxy card, to create and submit an electronic ballot.

 

Vote by Mail

 

You can submit your proxy by mailing it in the postage-paid envelope provided.

 

Voting at the Annual Meeting

 

The method by which you vote will not limit your right to vote at the Annual Meeting if you decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a legal proxy, executed in your favor, from the holder of record to be able to vote in person at the Annual Meeting.

 

Directors are elected by a plurality of votes of the shares of Common Stock present (either in person or by proxy) and entitled to vote in the election of directors at the Annual Meeting, which means that the seven nominees with the most votes will be elected. Withheld votes and broker non-votes will have no effect on the outcome of the election of directors.

 

Approval of Proposal No. 2 to ratify the Audit Committee’s selection of Deloitte & Touche LLP, Certified Public Accountants, as the Company’s independent registered public accounting firm at the Annual Meeting requires an affirmative vote of the majority of the shares present (either in person or by proxy) and entitled to be voted at the Annual Meeting. Abstentions have the effect of a vote “against” Proposal No. 2. Broker non-votes will not be counted as cast on the matter and will have no effect on the outcome of the vote on Proposal No. 2.

 

The affirmative vote of a majority of the shares of Common Stock present (either in person or by proxy) and entitled to be voted at the Annual Meeting is required for the approval of the Barr Pharmaceuticals, Inc. 2007 Stock and Incentive Award Plan, provided that the total number of votes cast on this proposal represents a majority of the shares of Common Stock entitled to be cast. Abstentions have the effect of a vote “against” Proposal No. 3. Broker non-votes will not be counted as cast on the matter and will have no effect on the outcome of the vote on Proposal No. 3.

 

The affirmative vote of a majority of the shares of Common Stock present (either in person or by proxy) and entitled to be voted at the Annual Meeting is required for the approval of the Barr Pharmaceuticals, Inc. 2007 Executive Officer Incentive Plan, provided that the total number of votes cast on this proposal represents a majority of the shares of Common Stock entitled to be cast. Abstentions have the effect of a vote “against” Proposal No. 4. Broker non-votes will not be counted as cast on the matter and will have no effect on the outcome of the vote on Proposal No. 4.

 

The names of stockholders of record entitled to vote at the Annual Meeting will be available at the Annual Meeting and for ten days prior to the Annual Meeting for any purpose germane to the meeting, between the hours of 9:00 a.m. and 5:00 p.m., at our principal executive offices at 400 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677, by contacting Frederick J. Killion, the Company’s Corporate Secretary, at the address listed immediately above, or by telephone at (201) 930-3300.

 

Our Board of Directors has adopted corporate governance guidelines, a code of business conduct and ethics applicable to the Company’s directors, management and other Company employees, and charters for each Board committee. The Company’s corporate governance documents codify our existing corporate governance practices and policies. Each of the above-described documents is available at www.barrlabs.com under the “Investors” heading. In addition, stockholders can obtain copies of these documents at no charge by writing to: Corporate Secretary, 400 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677.

 

The Board has assessed the independence of each non-employee Director based upon the Company’s director independence standards, as described in the Company’s Corporate Governance Guidelines (available at www.barrlabs.com under the Investor Relations heading). These standards incorporate the director independence criteria included in the listing standards of the New York Stock Exchange, as currently in effect, as well as additional, more stringent criteria established by the Board (also available at www.barrlabs.com under the Investor Relations heading). In accordance with these standards, set forth on Appendix C to this Proxy Statement, a Director must be determined to have no material relationship with the Company other than as a Director. The standards specify the criteria by which the independence of our Directors will be determined, including strict guidelines for Directors and their immediate families with respect to past employment or affiliation with the Company or its independent registered public accounting firm. The standards also prohibit Audit Committee members from having any direct or indirect financial relationship with the Company, and restrict both commercial and not-for-profit relationships of all Directors with the Company. Directors may not be given personal loans or extensions of credit by the Company, and all Directors are required to deal at arm’s length with the Company and its subsidiaries, and to disclose any circumstance that might be perceived as a conflict of interest.

 

Based upon these standards, the Board, upon the recommendation of the Corporate Governance and Nominating Committee, has determined that the following directors nominated for re-election to the Board of Directors are independent: George P. Stephan, Harold N. Chefitz, Richard R. Frankovic, Peter R. Seaver and James S. Gilmore, III.

 

In making these determinations, the Board considered that Mr. Gilmore is a partner at the law firm of Kelley Drye & Warren, to which the Company paid amounts significantly less than the two percent threshold in the Company’s Corporate Governance Guidelines for legal services during the last fiscal year. The Board further considered that Mr. Chefitz serves as a trustee of a charitable organization that during the last fiscal year received a contribution from the Company significantly below the charitable contribution threshold in the Company’s Corporate Governance Guidelines. As noted below, Jack M. Kay served on the Board until his retirement effective November 9, 2006. The Board previously had determined that Mr. Kay was an independent director. In connection with that determination, the Board considered the relationships with Mr. Kay described below under Certain Relationships and Related Transactions.

 

During the calendar year ended December 31, 2006, the Board of Directors met 22 times. Each director attended at least 75% of the aggregate of (1) the total number of meetings held by the Board and (2) the total number of meetings held by all committees on which he or she served that were held during his or her term of office. Directors are expected to attend annual meetings of stockholders, and each director other than Mr. Kay attended the Annual Meeting of Stockholders on November 9, 2006.

 

The Board of Directors convenes executive sessions of non-management directors without Company management present at least twice a year during regularly scheduled meetings of the Board of Directors. In addition, the independent directors meet in executive session immediately prior to regularly scheduled meetings of the Board of Directors at least twice annually. The Board has designated Peter R. Seaver, an independent director, as the Lead Independent Director. The Lead Independent Director is responsible for presiding at the executive sessions of the non-management directors.

 

The Board has three standing committees — an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee. Their functions and membership are described below. Prior to January 24, 2007, the Board also had a Business Development Committee. As of such date, however, the Board determined that the existence of this committee was no longer necessary, and it was discontinued.

 

Audit Committee

 

The Audit Committee consists of the following members of the Company’s Board of Directors: George P. Stephan (Chairman), Harold N. Chefitz and Richard R. Frankovic. The role of the Audit Committee is set forth in its Charter adopted by the Board in May 2004, a copy of which is available on the Company’s website at www.barrlabs.com, under the “Investors” heading. Pursuant to its Charter, the Audit Committee’s functions include the following:

 

 

The Audit Committee has adopted a policy and procedures that set forth the manner in which the Audit Committee will review and approve all services to be provided by Deloitte & Touche LLP for the Company before the firm is retained to provide such services. The policy requires Audit Committee pre-approval of the terms and fees of the annual audit services engagement, as well as any changes in terms and fees resulting from changes in audit scope or other items. The Audit Committee also pre-approves, on an annual basis, other audit services, and audit-related and tax services set forth in the policy, subject to estimated fee levels pre-approved by the Committee. Any additional services to be provided by the independent registered public accounting firm must be separately pre-approved by the Audit Committee. The Audit Committee has delegated to the Committee chair the authority to pre-approve services in amounts up to $250,000 per engagement. Services pre-approved pursuant to delegated authority are reported to the Audit Committee at its next scheduled meeting. The Vice President, Internal Audit reports quarterly to the Audit Committee on the status of pre-approved services, including projected fees.

 

The Board has determined that each of the members of the Audit Committee is “independent” as independence is defined for audit committee members in the NYSE listing standards and under the director independence standards described above. In addition, the Board has determined that all of the members of the Audit Committee meet the New York Stock Exchange standard of having accounting or related financial management expertise. The Board also has determined that at least one member of the Audit Committee, George P. Stephan, meets the SEC criteria of an “audit committee financial expert.” The Audit Committee held 8 meetings during the calendar year ended December 31, 2006.

 

Compensation Committee

 

The Compensation Committee consists of the following members of the Company’s Board of Directors: Harold N. Chefitz (Chairman), Richard R. Frankovic, Peter R. Seaver and George P. Stephan. During 2006, James S. Gilmore, III was also a member of the Committee until January 24, 2007. The role of the Compensation Committee is governed by a Charter adopted by the Board in May 2004, a copy of which is available on the Company’s website at www.barrlabs.com, under the “Investors” heading. Pursuant to its Charter, the Compensation Committee’s functions include the following:

 

 

Certain of these functions are subject to consultation with, advice from or ratification by the Board of Directors as the Committee determines appropriate. The Board has determined that each of the members of the Compensation Committee is “independent” as defined in the NYSE listing standards and under the Company’s director independence standards described above. The Compensation Committee met 6 times during the calendar year ended December 31, 2006. For additional information regarding the operation of the Compensation Committee, including the role of consultants and management in the process of determining the amount and form of executive compensation, please see “Compensation Discussion and Analysis.”

 

Corporate Governance and Nominating Committee

 

The Corporate Governance and Nominating Committee (the “CGN Committee”) consists of the following members of the Company’s Board of Directors: Peter R. Seaver (Chairman), Harold N. Chefitz, Richard R. Frankovic, James S. Gilmore III, and George P. Stephan. The role of the CGN Committee is governed by a Charter adopted by the Board in May 2004, a copy of which is available on the Company’s website at www.barrlabs.com, under the “Investors” heading. Pursuant to its Charter, the CGN Committee’s functions include the following:

 

 

The Board has determined that each of the members of the CGN Committee is “independent” as defined in the NYSE listing standards and under the Company’s independence standards described above. The CGN Committee met 5 times during the calendar year ended December 31, 2007.

 

In August 2004, the Company adopted Corporate Governance Principles, a copy of which is available on the Company’s website at www.barrlabs.com, under the “Investors” heading. The Corporate Governance Principles serve as a framework for the governance of the Company. The CGN Committee reviews the Corporate Governance Principles annually and recommends changes to the full Board as appropriate.

 

In evaluating director nominees, the CGN Committee considers a variety of criteria in the context of the needs of the Board as a whole, including an individual’s character and integrity, business, professional and personal background, skills, current employment, community service, and ability to commit sufficient time and attention to the activities of the Board. As it considers these criteria, the CGN Committee also seeks a diversity of backgrounds and perspectives on the Board.

 

The CGN Committee employs a variety of methods for identifying and evaluating director nominees. The CGN Committee reviews the size and composition of the Board as part of the annual Board evaluation process and makes recommendations to the Board as appropriate. If vacancies on the Board are anticipated, or otherwise arise, the CGN Committee considers various potential director candidates. Candidates may come to the CGN Committee’s attention through current Board members, stockholders and other sources.

 

After the CGN Committee identifies a potential candidate, the CGN Committee goes through a process of learning more about a candidate’s qualifications, background, and level of interest in the Company. A candidate may meet with members of the CGN Committee, other directors, and senior management. Based on information gathered during the course of this process, the CGN Committee makes its recommendation to the Board. If the Board approves the recommendation, the candidate is nominated for election by the Company’s stockholders.

 

The policy of the CGN Committee, as set forth in the Company’s Corporate Governance Principles, is to consider candidates recommended by stockholders in compliance with the advance notice provisions of the Company’s bylaws, which provisions are discussed below under “Stockholder Proposals for the 2008 Annual Meeting.” The Committee evaluates stockholder-recommended candidates using the same criteria it uses to evaluate nominees from other sources. The CGN Committee will consider properly submitted stockholder recommendations for candidates for membership on the Board. To recommend a prospective nominee for the CGN Committee’s consideration, submit the candidate’s name, resume and suitability for Board membership to the Corporate Secretary at 400 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677. Submissions must include the name and record address of the stockholder submitting the prospective nominee and the number of shares of stock of the Company that are owned beneficially or of record by such stockholder.

 

 

The Company has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) applicable to all Barr Pharmaceuticals, Inc. companies, their officers, directors and employees. The Code of Conduct is available on the Company’s website at www.barrlabs.com, under the “Investors” heading. To the extent required by SEC rules and NYSE listing standards, we intend to disclose future amendments to, or waivers from, certain provisions of the Code of Conduct on the Company’s website within two business days following the date of such amendment or waiver.

 

 

The Company has a process for stockholders and other interested parties to communicate with the Board. These parties may communicate with the Board by writing c/o the Corporate Secretary, 400 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677. Communications intended for a specific director or directors (such as the Lead Independent Director or all non-management directors) should be addressed to his, her or their attention c/o the Corporate Secretary at this address. Communications received from stockholders are forwarded directly to Board members as part of the materials mailed in advance of the next scheduled Board meeting following receipt of the communications. The Board has authorized management, in its discretion, to forward communications on a more expedited basis if circumstances warrant or to exclude a communication if it is illegal, unduly hostile or threatening, or otherwise inappropriate. The non-management directors have requested that the Corporate Secretary not forward to the Board advertisements, solicitations for periodical or other subscriptions, and other similar communications.

 

 

The Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters (“accounting matters”) and regarding potential violations of applicable laws, rules and regulations or the Company’s accounting policies and procedures (“compliance matters”). Any person with concerns regarding accounting matters or compliance matters may report their concerns on a confidential or anonymous basis to the Audit Committee of the Company by calling the independent, toll-free Corporate Governance Hotline established by the Company for that purpose at 1-877-357-2572.

 

 

None of the members of our Compensation Committee has ever been an employee of Barr or its subsidiaries, and none of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.

 

The Audit Committee has reviewed and discussed the audited financial statements of the Company for the six month period ended December 31, 2006 and management’s assessment of the effectiveness of internal control over financial reporting with the Company’s management. The Audit Committee has discussed with Deloitte & Touche LLP, the Company’s independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards (“SAS”) No. 61 as amended (AICPA, Professional Standards, Vol. 1. AU section 380) as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T. In addition, the Audit Committee has discussed with KPMG (which served as Pliva d.d.’s independent registered public accounting firm prior to the Company’s acquisition of Pliva d.d., and continued in that role during the year ending December 31, 2006), the results of KPMG’s audit of PLIVA d.d. for the year ending December 31, 2006. KPMG was retained by the Company to conduct such audit and to assist Deloitte & Touche in conducting its audit of the Company.

 

The Audit Committee has also received the written disclosures and the letter from Deloitte & Touche LLP required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees), as adopted by the PCAOB in Rule 3600T, and the Audit Committee has discussed the independence of Deloitte & Touche LLP with that firm.

 

Based on the Audit Committee’s review and discussions noted above, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-KT for the transition period commencing on July 1, 2006 and ended December 31, 2006 for filing with the United States Securities and Exchange Commission.

 

The Audit Committee has considered whether the independent auditors’ provision of other non-audit services to the Company is compatible with the auditors’ independence. The Audit Committee has concluded that the independent registered public accounting firm is independent from the Company and its management.

 

Submitted by
George P. Stephan, Chairman
Harold N. Chefitz
Richard R. Frankovic

 

Our Board of Directors currently has seven members. The Board has nominated all of our current directors for re-election to the Board of Directors at the Annual Meeting. Each of the nominees has consented to serve if elected and we are not aware of any nominee who is unable or unwilling to serve. However, if any nominee is unable or unwilling to serve, the proxy holders may decide to vote the shares for any substitute nominee or the Board of Directors may determine not to nominate a substitute and therefore further reduce the size of the Board.

 

The nominees for election to the Board of Directors and biographical information about the nominees are set forth below. Each of the nominees currently serves as a director. Each nominee, if elected, will serve until the next annual meeting of stockholders or until a successor is elected and qualified.

 

As used sometimes in the biographies below, the “Company” refers to Barr Pharmaceuticals, Inc., a Delaware corporation (“BPI”), and its predecessor corporation, Barr Laboratories, Inc., a New York corporation (“Old BLI”). In connection with our reincorporation from New York to Delaware, Old BLI merged with and into BPI on December 31, 2003, with BPI surviving the merger. Immediately prior to the merger, Old BLI transferred substantially all of its assets (other than the stock it then held in its subsidiaries) and liabilities to a newly formed Delaware corporation also called Barr Laboratories, Inc. (“New BLI”).

 

 

Bruce L. Downey became a member of the Board of Directors in January 1993 and was elected Chairman of the Board and Chief Executive Officer of the Company in February 1994. From January 1993 to December 1999, he also served as the President of the Company. From 1981 to 1993, Mr. Downey was a partner in the law firm Winston & Strawn and a predecessor firm, Bishop, Cook, Purcell and Reynolds. Mr. Downey currently serves as Chairman of the Board of the Generic Pharmaceutical Association (GPhA), the generic industry trade association. Mr. Downey also serves as the Chair of the Board of Ambassadors for the Johns Hopkins’s Project RESTORE that funds research for new biological indicators of neuroimmunologic diseases, new imaging strategies, and clinical trials to support the creation of progressive treatments for transverse myelitis and multiple sclerosis.

 

Paul M. Bisaro was elected a director in June 1998 and in December 1999 was appointed to the position of President and Chief Operating Officer of Old BLI. He currently serves as President and Chief Operating Officer of the Company and as the President and Chief Operating Officer of New BLI, a subsidiary of the Company. Previously, he served us as Senior Vice President — Strategic Business Development and General Counsel. Prior to joining us in 1992 as General Counsel, Mr. Bisaro was associated with the law firm Winston & Strawn and a predecessor firm, Bishop, Cook, Purcell and Reynolds.

 

George P. Stephan was elected a director in February 1988. In April 1990, Mr. Stephan retired as Vice Chairman of Kollmorgen Corporation, a diversified, international technology company where he had served in several executive capacities for over 20 years. Mr. Stephan was also a director of Kollmorgen from 1982 until June 2000, when it was acquired by Danaher Corporation, and served as Chairman of the Board from 1991 to 1996. From

1994 to April 1999, Mr. Stephan also was a Managing Director of Stonington Group LLC, financial intermediaries and consultants. He is currently a business consultant and a director of Sartorius Sports Limited, a privately held specialty sports retailer.

 

Harold N. Chefitz was elected a director in February 2001. Mr. Chefitz has been Chairman of Notch Hill Advisors, which advises CK Fund, since 1999, and President of Chefitz HealthCare Investments, a private investment company, since 1995. Prior to forming Notch Hill in 1999, Mr. Chefitz was a partner in Boles Knop & Co. Mr. Chefitz has also served as Managing Director and head of the Healthcare Group at Prudential Securities, and Senior Managing Director of Furman Selz. In 2004, Mr. Chefitz became a partner of Quanstar Group, LLC. Mr. Chefitz is a member of the board of Kensey Nash, a medical device company. From 1990 to 1994, Mr. Chefitz served as Chairman of the Board of Trustees at Columbia University School of Pharmaceutical Sciences. He is currently a member of the Boston University Medical School Advisory Board for Alzheimer’s Disease.

 

Richard R. Frankovic was elected a director in October 2001. He was employed by Rugby Laboratories from 1980 to 1998 where he served as President from 1984 until 1998. Prior to joining Rugby Laboratories, he was employed by Lederle Laboratories from 1965 to 1976, where he held a variety of management positions. Mr. Frankovic served as a director of Duramed Pharmaceuticals, Inc. from 1999 until its merger with the Company in October 2001. Since his retirement, Mr. Frankovic has been serving as a self-employed pharmaceutical industry consultant.

 

Peter R. Seaver was elected a director in October 2001. He retired from a 31-year career with The Upjohn Company, a pharmaceutical manufacturer, in 1998. He held various executive positions with Upjohn including Vice President — Domestic Marketing, Corporate Vice President — Worldwide Pharmaceutical Marketing, and Corporate Vice President for Health Care Administration. Mr. Seaver served as a director of Duramed Pharmaceuticals, Inc. from 1998 until its merger with the Company in October 2001. He is currently a healthcare industry consultant.

 

James S. Gilmore, III was elected a director in May 2002. Mr. Gilmore has been a partner at the law firm of Kelley, Drye & Warren since 2002. He served as the 68th Governor of the Commonwealth of Virginia from 1997 to 2002. Mr. Gilmore also served as Chairman of the Republican National Committee from 2001 to 2002. From 1993 to 1997, he served as Virginia’s Attorney General, and from 1987 to 1993 served as the Commonwealth’s Attorney for Henrico County. He was Chairman of the former Congressional Advisory Commission on Terrorism and Weapons of Mass Destruction until February 2004.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF
EACH OF THE DIRECTOR NOMINEES AND YOUR PROXY WILL BE SO VOTED
UNLESS YOU SPECIFY OTHERWISE.

 

 

RATIFICATION OF THE SELECTION OF REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee has selected Deloitte & Touche LLP, Certified Public Accountants, as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2007 and as a matter of good corporate governance, the Company is submitting their selection to a stockholder vote. In the event that the Audit Committee’s selection of an independent registered public accounting firm is not ratified by the stockholders, the Audit Committee will review its future selection of an independent registered public accounting firm. Pursuant to the Sarbanes-Oxley Act of 2002, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the Company’s independent registered public accounting firm and may determine to change the firm selected to be auditors at such time and based on such factors as it determines to be appropriate.

 

A representative of Deloitte & Touche LLP is expected to attend the Annual Meeting and will have the opportunity to make a statement and respond to appropriate questions from stockholders present at the Annual Meeting.

 

Fees billed to the Company related to services performed by Deloitte & Touche LLP during the last two audit periods are as follows:

 

 

Audit Fees.  Represents fees for professional services provided for the audit of the Company’s annual financial statements, the audit of the Company’s internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, reviews of the Company’s quarterly financial statements, audit services provided in connection with other statutory or regulatory filings, and consultation on accounting and disclosure matters.

 

Audit-Related Fees.  Represents fees for assurance services related to the audit of the Company’s financial statements, including the audit of the Company’s 401(k) plan, research and consultation on accounting matters related to potential transactions and due diligence services.

 

Tax Fees.  Represents fees for professional services provided for tax compliance, tax due diligence and tax advice. The tax fees incurred by the Company in both periods were primarily related to professional services rendered in connection with the proposed acquisition of PLIVA d.d.

 

All Other Fees.  Represents fees incurred for products and services not otherwise included in the categories above. There were no such fees incurred in either period.

 

All of the fees listed above were pre-approved pursuant to the Audit Committee’s pre-approval process described above. These fees do not include audit, audit-related, tax and other fees paid by the Company to KPMG with respect to the six month period ending December 31, 2006, during which period KPMG served as Pliva d.d.’s independent registered public accounting firm prior to the Company’s acquisition of Pliva d.d., and continued in that role during the period ending December 31, 2006.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF
SELECTION OF DELOITTE & TOUCHE LLP AS BARR’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2007.

 

PROPOSAL NO. 3.

 

APPROVAL OF THE BARR PHARMACEUTICALS, INC.
2007 STOCK AND INCENTIVE AWARD PLAN

 

The Board of Directors intends to continue to make use of equity-based incentives to attract, retain and motivate qualified employees and officers of the Company and its affiliates. On March 7, 2007, the Board of Directors approved the adoption of the Barr Pharmaceuticals, Inc. 2007 Stock and Incentive Award Plan (the “2007 Stock and Incentive Award Plan”), which is attached as Appendix A to this Proxy Statement, and recommended that the plan be submitted to the stockholders for approval at the Annual Meeting.

 

The Board is recommending the approval of the 2007 Stock and Incentive Award Plan for a number of reasons. First, the Company last submitted its Stock Award Plan for stockholder approval in 2002. In order to continue to qualify for the performance-based exception to the $1 million deductibility limit imposed by Internal Revenue Code Section 162(m) (which applies to equity-based compensation as well as cash), the Company’s Stock Award Plan must be approved by stockholders at least once every five years.

 

In addition, while the 2007 Stock and Incentive Award Plan is similar to the Barr Pharmaceuticals, Inc. 2002 Stock and Incentive Award Plan (the “2002 Stock and Incentive Award Plan”), the 2007 Stock and Incentive Award Plan incorporates a number of clarifications and technical revisions designed primarily to improve administration and ensure compliance with new accounting rules and Internal Revenue Code provisions. The 2007 Stock and Incentive Award Plan also incorporates all previous amendments made to the 2002 Stock and Incentive Award Plan over the intervening five years.

 

As of March 30, 2007, the Company had reserved and available for issuance in connection with awards under the 2002 Stock and Incentive Award Plan a total of approximately 675,590 shares of Common Stock. The Company has not increased the pool of Common Stock available for issuance under the 2002 Stock and Incentive Award Plan since 2003, and replenishment of the pool of Common Stock available for issuance in connection with awards under that plan and any successor plan is necessary if awards consistent with the Company’s past and anticipated grant policies are to continue. In addition, as a result of the acquisition on October 24, 2006 of PLIVA d.d., the employee-base of the Company expanded more than four-fold to over 8,500 employees. Consistent with its intent to continue to make use of equity-based incentives to attract, retain and motivate qualified employees and officers for the Company and its affiliates, the Company believes that it will require the reservation of a pool of Common Stock sufficient to support its recent and anticipated growth. As such, if approved by stockholders, the 2007 Stock and Incentive Award Plan will provide for the issuance of up to an additional 5,500,000 shares of Common Stock.

 

No options or other awards have been granted to date under the 2007 Stock and Incentive Award Plan. The amount of options and benefits to be received by any individual under the 2007 Stock and Incentive Award Plan, or that would have been received by any individual under the 2007 Stock and Incentive Award Plan if the 2007 Stock and Incentive Award Plan had been in effect during the last fiscal year, is not determinable at the present time, as all such determinations under the 2007 Stock and Incentive Award Plan are to be made by the committee administering the plan in its sole discretion. The market value of a share of Common Stock at the close of business on March 30, 2007 was $46.35.

 

Summary of Changes from the 2002 Stock and Incentive Award Plan

 

In addition to authorizing an additional 5,500,000 shares of Common Stock for issuance under the plan, the primary differences between the 2002 and 2007 Stock and Incentive Award Plans are described below. The 2007 Stock and Incentive Award Plan:

 

 

Internal Revenue Code Section 162(m)

 

The Board of Directors of the Company believes that it is in the best interests of the Company and its stockholders to continue to provide for an equity incentive plan under which equity-based compensation awards made to the Company’s executive officers can qualify for deductibility by the company for federal income tax purposes. Accordingly, the 2007 Stock and Incentive Award Plan has been structured in a manner such that awards

under it can satisfy the requirements for “performance-based” compensation within the meaning of Internal Revenue Code Section 162(m) (“Section 162(m)”). As noted above, in general, under Section 162(m), in order for the company to be able to deduct compensation in excess of $1 million paid in any one year to the Company’s chief executive officer or any of the company’s four other most highly compensated executive officers, such compensation must qualify as “performance-based.” One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and, as noted above, approved by the Company’s stockholders. For purposes of Section 162(m) the material terms include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goal be based and (iii) the maximum amount of compensation that can be paid to an employee under the performance goal. With respect to awards under the 2007 Stock and Incentive Award Plan, each of these aspects is discussed below, and stockholder approval of the 2007 Stock and Incentive Award Plan is intended to constitute approval of each of these aspects of the plan for purposes of the approval requirements of Section 162(m).

 

Description of the 2007 Stock and Incentive Award Plan

 

The following is a description of the material features of the 2007 Stock and Incentive Award Plan. The description does not purport to be complete and is qualified in its entirety by reference to the full text of the 2007 Stock and Incentive Award Plan which is attached to this Proxy Statement as Appendix A and incorporated herein by reference. Stockholders are encouraged to read the text of the plan in its entirety.

 

Plan Purpose

 

The purpose of the 2007 Stock and Incentive Award Plan is to enable the Company to continue to grant incentives that are competitive with those offered by other companies with which the Company competes, thereby enabling us to continue to attract, retain and motivate our employees, and to further align the interests of those persons with those of the Company’s stockholders by providing for or increasing the proprietary interest of such persons in the Company.

 

The 2007 Stock and Incentive Award Plan is not intended to preclude the Board of Directors from continuing or establishing any compensation plan that the Company now has or may hereafter lawfully put into effect, including but not limited to any other incentive compensation, bonus, stock purchase or stock option plan.

 

Eligible Participants

 

The eligible participants in the 2007 Stock and Incentive Award Plan consist of all persons who render services, have rendered services or who the committee administering the plan (the “Committee”) expects to render services that benefit the Company, a subsidiary of the Company or another enterprise in which the Company has a significant interest as determined by the Committee, whether in the capacity of an employee, independent contractor, agent, advisor, consultant, representative or otherwise. All full-time and part-time employees of the Company and its subsidiaries are eligible to participate, including any officer or director who is such an employee. Non-employee directors are not eligible to participate in this plan. The number of employees who are eligible to be selected to participate in the 2007 Stock and Incentive Award Plan at the present time is approximately 8,500.

 

Types of Awards

 

The 2007 Stock and Incentive Award Plan authorizes the Committee to grant options to purchase Common Stock that qualify for the special tax treatment accorded to incentive stock options (“ISOs”) under section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or that may not so qualify (so-called “non-qualified stock options” or “NQSOs”).

 

The 2007 Stock and Incentive Award Plan also authorizes the Committee to grant stock appreciation rights and Incentive Awards, which include but are not limited to performance share awards, performance unit awards, restricted stock awards, restricted stock unit awards and other awards that provide for the right to purchase or otherwise acquire Common Stock or that are valued by reference to the market value of Common Stock (hereafter referred to as “other awards”). The variety of awards authorized to be granted under the 2007 Stock and Incentive

Award Plan, as well as the wide discretion which the 2007 Stock and Incentive Award Plan confers upon the Committee to determine the terms and conditions of the awards, are intended to give the Committee flexibility to adapt the Company’s stock and incentive award practices to the changing business and regulatory environment in which the Company operates, as well as to grant both stock and cash awards that may (but need not) qualify as “performance-based compensation” under Section 162(m) (“Performance-Based Compensation”).

 

Available Shares

 

Subject to stockholder approval, a total of 5,500,000 shares of Common Stock may be issued pursuant to the 2007 Stock and Incentive Award Plan. In addition, if the Board of Directors terminates the 2002 Stock and Incentive Award Plan insofar as new grants are concerned (as it is presently expected but not obligated to do if stockholders approve the 2007 Stock and Incentive Award Plan), any shares that remain available under the 1993 Stock Incentive Plan or 2002 Stock Incentive and Award Plan at the time any such plan is so terminated, and any shares that are subject to options granted under the 1993 Stock Incentive Plan or 2002 Stock and Incentive Award Plan that are forfeited, terminate or expire after the 1993 Stock Incentive Plan and/or 2002 Stock Incentive Award Plan is so terminated, may also be issued pursuant to the 2007 Stock and Incentive Award Plan. As of March 30, 2007, a total of 675,590 shares remained available for new grants under the 2002 Stock and Incentive Award Plan and 8,843,767 shares were subject to outstanding options granted under the 1993 Stock Incentive Plan and 2002 Stock and Incentive Award Plan. However, not more than 2,000,000 shares may be issued under the 2007 Stock and Incentive Award Plan pursuant to ISOs. Also, not more than 3,000,000 shares may be issued under the 2007 Stock and Incentive Award Plan pursuant to awards that are not Appreciation-Only Awards. For this purpose, Appreciation-Only Awards generally means stock options and stock appreciation rights the exercise price of which is equal to at least 100% of fair market value on the date of grant of the stock options or stock appreciation rights.

 

Shares that cease to be issuable or that revert to the Company under an award because of the termination, expiration, cancellation or forfeiture of the award or because of the optionee’s failure to satisfy the terms and conditions of the award will not count against the foregoing total number of shares which may be issued pursuant to the 2007 Stock and Incentive Award Plan and may again be made subject to awards under the 2007 Stock and Incentive Award Plan.

 

If, in connection with an acquisition by the Company or a subsidiary of the Company, the Company assumes stock options or other stock incentive obligations of the acquired company or grants stock options or other stock incentives in substitution for stock options or other stock incentive obligations of the acquired company, the shares of Common Stock that are subject to the stock options and other stock incentives that are assumed or substituted by the Company will not count against the foregoing total number of shares which may be issued pursuant to the 2007 Stock and Incentive Award Plan or against the other limits on awards under the plan.

 

If a non-qualified stock option granted under the 2007 Stock and Incentive Award Plan is exercised and the optionee surrenders shares of Common Stock the optionee already owns in payment of all or part of the purchase price of the shares under the option, the number of shares surrendered by the optionee will be added back to the number of shares that may be issued pursuant to the 2007 Stock and Incentive Award Plan, so that only the net number of shares that are issued by the Company pursuant to the option exercise shall count against the foregoing total number of shares which may be issued pursuant to the 2007 Stock and Incentive Award Plan.

 

By the terms of the 2007 Stock and Incentive Award Plan, the aggregate number of shares of Common Stock that may be issued pursuant to such plan is subject to equitable adjustment for stock dividends, stock splits, recapitalizations and similar events.

 

Repricing Prohibited

 

The 2007 Stock and Incentive Award Plan does not permit the exercise price of outstanding stock options or stock appreciation rights to be reduced, whether by canceling the options or stock appreciation rights and granting new options or stock appreciation rights in replacement thereof or otherwise, except to reflect stock splits and other changes in capitalization or corporate structure.

 

Individual Award Limits

 

The maximum number of shares of Common Stock with respect to which stock options or stock appreciation rights or other awards may be granted to any employee or other eligible person during any calendar year under the 2007 Stock and Incentive Award Plan is 400,000 shares.

 

The maximum number of shares of Common Stock with respect to which all awards other than Appreciation-Only Awards and Dollar-Denominated Awards (as defined below), may be granted in any one calendar year to any employee or other eligible person under the 2007 Stock Incentive and Award Plan is also 400,000 shares. Awards that are subject to this limitation would include, for example, performance share awards, restricted stock awards and other incentive awards that are based on a specified number of shares of Common Stock (or the fair market value of a specified number of shares of Common Stock).

 

The maximum amount of money that any employee or other eligible person may receive in payment of dollar-denominated awards that are granted to such person in any one calendar year is $1,000,000 (or the equivalent thereof in shares of Common Stock). Dollar-denominated awards are performance unit awards and any other incentive awards the value of which is based on a specified amount of money (other than an amount of money equal to the fair market value of a specified number of shares of Common Stock). Dollar-denominated awards may be paid in the form of money or shares of Common Stock or a combination of the two.

 

Administration

 

The 2007 Stock and Incentive Award Plan is to be administered by the Committee, which, within the parameters set forth in the plan, determines who are eligible participants, selects the eligible participants who are to receive awards, determines the type of awards to grant (including whether an award is to qualify as Performance-Based Compensation), determines the number of shares of Common Stock and amount of money to be subject to each award, determines the terms and conditions of the awards (including the exercise price of options), and determines any adjustments to be made for stock splits and other changes in capitalization or corporate structure. The Committee interprets the 2007 Stock and Incentive Award Plan and is authorized to make all determinations and decisions thereunder. The Committee must consist of two or more members of the Board of Directors, each of whom qualifies as a “non-employee director” under SEC Rule 16b-3 and as an “outside director” within the meaning of section 162(m) of the Code, unless the Board of Directors determines otherwise.

 

The 2007 Stock and Incentive Award Plan also authorizes the Committee, after a stock option or other award has been granted, and without consideration, to waive any term or condition that could have been omitted from the award when it was granted, and, with the written consent of the affected Service Provider (as defined in the plan), may amend the award to include or exclude any term or condition that could have been included or excluded from the award when it was granted.

 

Award Agreements

 

Each award granted under the 2007 Stock and Incentive Award Plan will be represented by an award agreement in a form approved by the Committee. The award agreement is subject to the plan and will incorporate the express terms, if any, required under the plan and any specified by the Committee.

 

Stock Options

 

ISOs may be granted only to employees of the Company or its subsidiaries. NQSOs may be granted to any person eligible to participate in the 2007 Stock and Incentive Award Plan, whether or not such person is an employee of the Company or a subsidiary.

 

The price at which a share of Common Stock may be purchased under each stock option will be at least 100% of the fair market value of a share of Common Stock on the date the option is granted (or in the case of any optionee who, at the time an ISO is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, not less than 110% of the fair market value of a share of Common Stock on the date the ISO is granted). The exercise price of NQSOs may also be indexed to the increase in an index specified by the Committee. However, despite identical language in the 1993 Stock Incentive Plan and the 2002 Stock Award and

Incentive Plan, historically the Committee has granted the vast majority of NQSOs at 100% of fair market value on the date on which the options have been granted, and the Company does not anticipate any change in this practice.

 

The aggregate fair market value of the shares for which ISOs granted to any employee may be exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and its subsidiaries) may not exceed $100,000, unless the Code is amended to allow a higher dollar amount. If a portion of an ISO exceeds the $100,000 limitation, only such excess shall be treated as a NQSO.

 

Options may be granted for such lawful consideration as the Committee may determine when the options are granted. Such consideration may include, without limitation, money or other property, tangible or intangible, or labor or services received or to be received by or performed for the benefit of the Company. Options may become exercisable in full at the time of grant or at such other time or times and in such installments as the Committee may determine. Options may be exercised during such periods before and after the date on which the optionee ceases to be a service provider as the Committee may determine. However, no option may be exercised after the tenth anniversary of the date on which the option was granted.

 

The purchase price of the shares subject to an option may be paid in money or, if so provided in the option agreement, either (a) in shares of Common Stock that have been owned by the optionee for at least six months or that the optionee acquired on the open market, or (b) subject to compliance with the Delaware General Corporation Law and Section 402 of the Sarbanes-Oxley Act of 2002, by the immediate sale through a stockbroker of that number of the shares being acquired pursuant to the option exercise sufficient to pay the purchase price. The Committee is also authorized to permit participants who are not executive officers or directors of the Company to pay the purchase price of shares under an option by means of a promissory note executed by the optionee in favor of the Company and secured by a pledge of the shares being acquired. Any such note would contain terms approved by the Committee, may but need not bear interest (except in the case of ISOs, in which case the note must bear interest), and would mature in ten years or less.

 

The 2007 Stock and Incentive Award Plan provides that, after an option has been granted, the Committee may, without consideration, accelerate the date on which the option becomes exercisable or, if granted for a term of less than ten years, extend the term for a period ending on or before the tenth anniversary of the date on which the option was granted.

 

An option granted under the 2007 Stock and Incentive Award Plan will be exercisable, during the optionee’s lifetime, only by the optionee and will not be transferable by the optionee except to a designated beneficiary by will or the laws of descent and distribution. However, the Committee may in its discretion authorize holders of NQSOs or any other incentive award, except an ISO, to transfer the award during his or her lifetime, without the receipt of consideration, to members of his or her immediate family or to family trusts, partnerships or other legal entities for estate planning purposes.

 

Stock Appreciation Rights

 

Stock appreciation rights, or “SARs”, are rights to receive shares of Common Stock that have a fair market value on the date of exercise of the SARs equal to the excess of the fair market value of one share of Common Stock on that date, over the exercise price of the SARs, multiplied by the number of SARs exercised. The exercise price of SARs that are linked to a stock option (“Linked” SARs) is equal to the exercise price of the option, unless when the Linked SARs are granted the Committee specifies a different exercise price (which may not be less than the fair market value of Common Stock on the date of grant of the option to which the SARs are linked, in the case of an ISO, or par value, in the case of a NQSO). The exercise price of SARs that are not linked to a stock option (so-called “Free-Standing” SARs) is equal to the fair market value of a share of Common Stock on the date on which the Free-Standing SARs are granted, unless when the Free-Standing SARs are granted the Committee specifies a different exercise price (which may not be less than the par value of a share of Common Stock). The holder of a SAR is not required to pay any money to exercise a SAR. Only the number of shares of Common Stock that are issued in payment of SARs will be charged against the total number of shares that may be issued under the 2007 Stock and Incentive Award Plan. Shares of Common Stock reserved for issuance but not issued in connection with an exercise may be returned to the pool of authorized but unissued shares of Common Stock and reserved for issuance in connection with other award grants made under the 2007 Stock and Incentive Award Plan.

 

Incentive Awards, Including Performance Share, Performance Unit, Restricted Stock and Restricted Stock Unit Awards

 

Under the 2007 Stock and Incentive Award Plan, the Committee may provide for the Company to distribute an amount of money or shares of Common Stock, or to agree to distribute an amount of money or shares of Common Stock in the future, subject to such terms and conditions (including forfeiture restrictions) as the Committee may impose, in lieu of compensation that may have been earned by past services, or as a supplement to compensation earned by past services (in either event, “Incentive Awards”). The amount of any Incentive Award may be equal to a specified number of shares (or the fair market value of a specified number of shares), or a specified amount of money not based on the fair market value of a specified number of shares. Payment for Incentive Awards that are earned may be made in the form of money or in shares of Common Stock valued at their fair market value on the payment date.

 

Incentive Awards may be made in the form of Performance Share Awards, Performance Unit Awards, Restricted Stock Awards or Restricted Stock Unit Awards, which are specific types of Incentive Awards, or may be made in any other form approved by the Committee. For example, if the Committee were to pay a participant’s annual bonus in shares under the 2007 Stock and Incentive Award Plan rather than in cash, the distribution of such shares would qualify as an Incentive Award under the 2007 Stock and Incentive Award Plan.

 

Performance Share Awards are rights to receive a specified number of shares of Common Stock and/or an amount of money equal to the fair market value of a specified number of shares of Common Stock, at a future time or times if a specified performance goal is attained and any other terms and conditions specified by the Committee are satisfied. Performance Unit Awards are rights to receive a specified amount of money (other than an amount of money equal to the fair market value of a specified number of shares of Common Stock) at a future time or times if a specified performance goal is attained and any other terms and conditions specified by the Committee are satisfied. Partial achievement of the specified performance goal may result in part of the Performance Shares or Performance Units being earned. Performance Units and Performance Shares that are earned may both be settled in the form of either shares of Common Stock or money or a combination of money and shares.

 

Performance Share Awards and Performance Unit Awards may be earned if death, disability or another circumstance or event specified by the Committee occurs, whether or not the performance goals have been attained or are thereafter attained.

 

Restricted Stock Awards and Restricted Stock Unit Awards are shares of Common Stock that are issued to an eligible person prior to the person satisfying continued service and/or other performance objectives or contingencies specified by the Committee at the time of grant. Restricted Stock will be non-transferable and forfeitable to the Company until such objectives or contingencies are satisfied unless the Committee provides otherwise, but upon issuance of Restricted Stock, the recipient will become a shareholder of the Company with full dividend and voting rights except to the extent that the Committee provides otherwise. Performance objectives may but need not include corporate, divisional, business unit, product line, product or individual financial or operating performance measures. Upon satisfaction of any objectives or contingencies specified by the Committee, stock certificates evidencing the Restricted Shares will be delivered to the participant free and clear of any restrictions, without the payment of any cash consideration by the participant.

 

Performance Measures for Performance-Based Compensation Awards

 

The Committee may grant any award under the 2007 Stock and Incentive Award Plan as an award that qualifies as Performance-Based Compensation, or as an award that does not qualify as Performance-Based Compensation. Except for Appreciation-Only Awards, awards that are intended by the Committee to qualify as Performance-Based Compensation, including but not limited to Performance Share Awards and Performance Unit Awards that qualify as such, will be paid on account of the attainment of a pre-established, objective performance goal over a period of at least one year that is based on one or more of the following financial measures and that we intended to qualify under Internal Revenue Code Section 162(m):

 

 

 

The goal which utilizes any of these performance measures may be an absolute performance goal, or a goal that is based on performance relative to the performance of a peer group, and may be based on consolidated results or the results of the Company, a subsidiary, a business unit, a product line or a product. In addition, the Committee may provide for any or all of the following items to be included or excluded from the performance goal: discontinued operations, unusual items or events (including changes in capitalization), non-recurring items or events, non-operating items, extraordinary items, the effects of changes in accounting standards, laws or regulations, the effects of and expenses attributable to acquisitions and/or divestitures, and income and expenses attributable to the 2007 Stock and Incentive Award Plan and/or any other plan).

 

Following the end of a performance period applicable to a performance goal, the Committee will determine the value of the Performance-Based Compensation awards granted for the period based on the attainment of the preestablished objective performance goals. The Committee may have discretion to reduce (but not to increase) the value of a Performance-Based Compensation award.

 

To the extent permissible under section 162(m) of the Code, awards that are intended to qualify as Performance-Based Compensation may be paid in the event that death, disability, a “Change in Control” or another circumstance or event specified by the Committee occurs, whether or not the performance goal has been or is thereafter attained.

 

Certain Change in Control Provisions

 

The 2007 Stock and Incentive Award Plan provides that all awards that are outstanding under the 2007 Stock and Incentive Award Plan at the time of a Change in Control, whether ISOs, NQSOs, SARs, Incentive Awards, Performance Share Awards, Performance Unit Awards, Restricted Stock Awards or Restricted Stock Unit Awards will become fully exercisable, vested, earned and payable when the Change in Control occurs, provided, in the event of a Change in Control less than six months after the date on which an award was granted the Service Provider agrees in writing (if requested by the Committee to do so) to remain in the employment or other applicable service, at least through the end of such six months’ period on the same terms and conditions (including compensation) as before the Change in Control. In addition, the 2007 Stock and Incentive Award Plan authorizes the Committee to grant options and SARs which become exercisable, and Incentive Awards, Performance Share Awards, Performance Unit Awards, Restricted Stock Awards and Restricted Stock Unit Awards which become fully vested, earned and payable, only in the event of a Change in Control, and to provide for money to be paid in settlement of any award

under the plan in such event. In general, under the 2007 Stock and Incentive Award Plan, a “Change in Control” will be deemed to occur if any person or group of persons acting in concert (other than an institutional investor making a passive investment) becomes the beneficial owner of more than 30% of the Common Stock; the individuals who constitute the Board cease for any reason to constitute at least a majority of the Board, unless election or nomination for election was approved by a vote of at least a majority of the directors (except that if the individual assumed office as a result of an actual or threatened solicitation of proxies or consents by persons other than the Board); or stockholders approve a merger, reorganization, sale of assets, or plan of complete liquidation following which stockholders before the transaction will cease to own more than 50% of the voting power or assets. No Change in Control will be deemed to have occurred if the Change in Control results from actions or events in which an employee or service provider is a participant in a capacity other than solely as an officer, employee, or member of the Board. In the event that the Change in Control is a merger or consolidation in which the Company is not the surviving corporation or which results in the acquisition of substantially all of the Company’s outstanding common stock by a single person or entity or by a group of persons acting in concert, or in the event of a sale or transfer of all or substantially all of the Company’s assets (a “Covered Transaction”), to provide for the termination of all outstanding options as of the effective date of the Covered Transaction; provided that, no option will be so terminated (without the consent of the Service Provider) prior to the expiration of twenty days following the later of the date on which the option became fully exercisable and the date on which the service provider received written notice of the Covered Transaction.

 

Termination of Service, Death and Disability

 

Under the 2007 Stock and Incentive Award Plan, the Committee may, but need not, permit options and SARs to be exercised following termination of the service provider’s employment or other applicable service that benefits the Company, a subsidiary or another enterprise in which the Company has a significant interest, or following the participant’s death or disability, whether or not the option or SARs would otherwise be exercisable following such event. The Committee may also provide for Incentive Awards, including Performance Share Awards, Performance Unit Awards, Restricted Stock Awards and Restricted Stock Unit Awards to become fully vested, earned and payable following such an event, whether or not the Awards would otherwise be vested, earned or payable. The Committee may also permit any option or SAR to be exercisable, after any such event, for any period specified by the Committee, but not beyond its fixed expiration date.

 

Amendment of the 2007 Stock Incentive and Award Plan

 

The Board of Directors may amend the 2007 Stock and Incentive Award Plan at any time and in any respect without shareholder approval, unless shareholder approval of the amendment in question is required under Delaware or federal law, the Code, or the rules of the New York Stock Exchange. The Board of Directors may also terminate the plan at any time. However, no amendment or termination of the plan may adversely affect any awards that were granted before the date of such amendment or termination without the consent of the holder of such award. The Board does not have the power to amend, modify, exchange or substitute options if such amendment, modification, exchange, or substitution would violate Code Section 409A (it is not an extension of a stock right if the expiration of the option is tolled while the option is unexercisable because an exercise would violate applicable securities laws, provided that the period during which the option may be exercised is not extended more than thirty days after the exercise of the option first would no longer violate applicable securities laws).

 

Duration of 2007 Stock and Incentive Award Plan

 

If approved by shareholders, the 2007 Stock and Incentive Award Plan will terminate on the earliest of the date on which (i) all shares of Common Stock that may be issued under the 2007 Stock and Incentive Award Plan have been issued, (ii) the Plan is terminated by the Board of Directors, or (iii) the tenth anniversary of the effective date of the Plan. No ISOs may be granted after 2017. If the 2007 Stock and Incentive Award Plan is not approved by shareholders, it will be null, void and of no force or effect, as will any awards made thereunder.

 

Certain Federal Income Tax Consequences

 

The following brief description of the tax consequences of awards under the plan is based on federal income tax laws currently in effect and does not purport to be a complete description of such federal income tax consequences, nor does it address foreign, state or local tax consequences.

 

Limitation on Corporate Deductions for Certain Executives’ Compensation

 

As noted above, under Section 162(m), the amount which the Company may deduct for federal income tax purposes for compensation paid to certain “covered employees” (generally the chief executive officer and the four most highly paid executive officers other than the chief executive officer) in any taxable year is limited to $1,000,000 per individual. However, compensation that qualifies as “performance-based” compensation is not subject to the one million dollar deduction limit. As mentioned under “Types of Awards” above, the 2007 Stock and Incentive Award Plan authorizes the Committee to grant awards under the 2007 Stock and Incentive Award Plan that qualify as “performance-based” compensation as well as awards that do not. As a result, the Company may not be entitled to any deduction mentioned below if the individual in question is a “covered employee”, the amount in question does not qualify as “performance-based compensation”, and the amount in question, when added to the covered employee’s other taxable compensation that is not “performance-based” in the same taxable year, exceeds $1,000,000.

 

Options

 

There are no federal income tax consequences either to the optionee or the Company upon the grant of an ISO or a NQSO. If shares are purchased under an ISO (i.e., an ISO is exercised) during employment or within three months thereafter, the optionee will not recognize any income and the Company will not be entitled to a deduction in respect of the option exercise. However, the excess of the fair market value of the shares on the date of such exercise over the purchase price of the shares under the option will be includible in the optionee’s alternative minimum taxable income if the optionee does not dispose of the shares in the same calendar year in which the optionee acquired the shares under the ISO, which may give rise to alternative minimum tax liability for the optionee. Generally, if the optionee disposes of shares purchased under an ISO within two years of the date of grant or one year of the date of exercise of the ISO, the optionee will recognize ordinary income, and the Company will be entitled to a deduction, equal to the excess of the fair market value of the shares on the date of exercise over the purchase price of such shares (but not more than the actual gain realized by the optionee on the disposition of the shares). Any gain after the date on which the optionee purchased the shares will be treated as capital gain to the optionee and will not be deductible by the Company. If the shares are disposed of after the two-year and one-year periods mentioned above, the Company will not be entitled to any deduction, and the entire gain or loss realized by the optionee will be treated as capital gain or loss. Any gain or loss recognized by an optionee will be long-term capital gain or loss if the shares were held for the requisite holding period, currently one year.

 

When shares are purchased under a NQSO, the excess of the fair market value of the shares on the date of purchase over the purchase price of such shares under the option will generally be taxable to the optionee as ordinary income and deductible by the Company. The disposition of shares purchased under a NQSO will generally result in a capital gain or loss for the optionee, which will be long-term capital gain or loss if the shares have been held for the requisite holding period, currently one year, but will have no tax consequences for the Company.

 

Stock Appreciation Rights and Incentive Awards

 

There are no Federal income tax consequences either to the recipient or the Company upon the grant of SARs. If and when money is paid or shares of Common Stock are issued pursuant to an Incentive Award, including but not limited to a Performance Share Award or Performance Unit Award, but excluding a Restricted Stock Award, the recipient will generally recognize ordinary income and the Company will generally be entitled to a tax deduction equal to the amount of money paid and the fair market value of the shares on the date the shares are issued less any amount paid for them by the recipient.

 

Restricted Stock Awards

 

A person who has been awarded Restricted Stock will not recognize taxable income at the time the Restricted Stock is issued to him unless he makes a special election in accordance with applicable Treasury regulations to be taxed (at ordinary income rates) on the excess of the fair market value of the shares at that time (with fair market value determined for this purpose without regard to any restrictions other than restrictions, if any, which by their terms will never lapse) over the amount paid for the Restricted Stock. If any shares with respect to which such election was made are subsequently forfeited, a holder would not be entitled to any loss for amounts included in income. In that case, the Company would be entitled to a deduction at the same time equal to the amount of income realized by the recipient but would not be entitled to deduct any dividends thereafter paid on the shares.

 

Absent such an election, a participant who has been awarded Restricted Stock will not recognize income until the shares become transferable or cease to be subject to a substantial risk of forfeiture, at which time the recipient will recognize ordinary income and the Company will generally be entitled to a corresponding deduction equal to the excess of the fair market value of the shares at that time over the amount (if any) paid by the recipient for the shares. Dividends paid to the recipient on the Restricted Stock prior to that time will be ordinary compensation income to the recipient and deductible by the Company. A holder of Restricted Stock will have an initial tax basis in shares of Restricted Stock equal to the amount paid for such stock plus any amounts included in income. Any gain or loss realized on the disposition of Restricted Stock will be capital gain or loss and will be long-term capital gain or loss if the shares disposed of were held for the requisite holding period, currently one year.

 

Restricted Stock Units

 

Restricted Stock Units generally are subject to tax at the time of payment and the Company generally will have a corresponding deduction when the participant recognizes income.

 

Tax Consequences of Certain Change in Control-Related Payments

 

Under sections 280G and 4999 of the Code, if compensatory payments made to an officer, highly compensated employee or certain other “disqualified individuals”, including the vesting of stock options or other awards, is contingent, or deemed to be contingent, on a change in control of a publicly-traded corporation, and if the value of such payments exceeds a certain statutory limit, the person who receives such payments may be subject to a 20% excise tax on most of such payments, payable in addition to regular income taxes, and the corporation may be denied a deduction for the portion of the payments which is subject to such excise tax. If a “Change in Control” occurs, awards under the 2007 Stock Incentive and Award Plan may be subject to such excise tax, in whole or in part, and may be nondeductible by the Company.

 

Compliance with Section 409A of the Internal Revenue Code

 

The American Jobs Creation Act of 2004, enacted on October 22, 2004, revised the federal income tax law applicable to certain types of awards that may be granted under the Long-Term Stock Incentive Plan. To the extent applicable, it is intended that the Plan and any grants made under the Plan comply with the provisions of Section 409A of the Internal Revenue Code. The Company intends to administer the Plan and any grants made thereunder in a manner consistent with the requirements of Section 409A, and to make such amendments (including retroactive amendments) to the Plan and any other grants made thereunder as required by Section 409A on a timely basis. Any reference to Section 409A will also include any proposed temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of Treasury of the Internal Revenue Service.

 

The Committee has discretion to determine the type, term and conditions, and recipients of awards granted under the 2007 Stock and Incentive Award Plan. Accordingly, it is not possible to determine the benefits that will be received under the 2007 Stock and Incentive Award Plan in 2007 if the Plan is approved. For more information, see the “Grants of Plan-Based Awards Table” under the heading “Executive Compensation” included in this proxy statement, which sets forth the awards granted to the executive officers of the Company under the 2002 Stock Award Plan during 2006.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” APPROVAL OF THE 2007 STOCK AND INCENTIVE AWARD PLAN, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.

 

PROPOSAL NO. 4

 

APPROVAL OF THE BARR PHARMACEUTICALS, INC. 2007

EXECUTIVE OFFICER INCENTIVE PLAN

 

On March 7, 2007, the Board of Directors approved the adoption of the Barr Pharmaceuticals, Inc. 2007 Executive Officer Incentive Plan (the “Executive Officer Incentive Plan”), and recommended that it be submitted to the shareholders for approval at the Annual Meeting.

 

The Executive Officer Incentive Plan would cover the most senior management of the Company and would meet all requirements of Section 162(m) of the Internal Revenue Code, which is a pre-condition to the Company’s being able to deduct the full amount of payments made under the Executive Officer Incentive Plan. The Executive Officer Incentive Plan would set a maximum annual incentive payment for each senior executive covered, based on 100% of the executive’s annual salary. Under the Executive Officer Incentive Plan, the Compensation Committee would have discretion to reduce the award below 100% of annual salary.

 

The Company believes that the Executive Officer Incentive Plan will support its ability to effectively motivate its most senior executives, manage the business and enable the Company to recruit and retain key members of senior management. The performance goals that underlie the Executive Officer Incentive Plan will provide additional incentives to support our business objectives and recognize individuals who have delivered exceptional performance.

 

The Board of Directors believes that it is in the best interests of the Company and its stockholders to provide for a stockholder-approved plan under which bonuses paid to its executive officers can qualify for deductibility by the Company for federal income tax purposes. Accordingly, the Company has structured the Executive Officer Incentive Plan in a manner such that payments under it can satisfy the requirements for “performance-based” compensation within the meaning of Section 162(m). As noted above, in general, under Section 162(m), in order for the company to be able to deduct compensation in excess of $1 million paid in any one year to the Company’s chief executive officer or any of the company’s four other most highly compensated executive officers, such compensation must qualify as “performance-based.” One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and, as noted above, approved by the Company’s stockholders. For purposes of Section 162(m) the material terms include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goal be based and (iii) the maximum amount of compensation that can be paid to an employee under the performance goal. Each of these aspects of the Executive Officer Incentive Plan is discussed below, and stockholder approval of the Executive Officer Incentive Plan will be deemed to constitute approval of each of these aspects of the Plan for purposes of the approval requirements of Section 162(m) of the Code.

 

Description of the 2007 Executive Officer Incentive Plan

 

The following is a description of the material features of the 2007 Executive Officer Incentive Plan. The description does not purport to be complete and is qualified in its entirety by reference to the full text of the 2007 Executive Officer Incentive Plan which is attached to this Proxy Statement as Appendix B and incorporated herein by reference. Stockholders are encouraged to read the text of the plan in its entirety.

 

At the beginning of each Plan Year under the Executive Officer Incentive Plan, the Company’s Compensation Committee will designate at least five senior officers of the Company and its subsidiaries (including the Chief Executive Officer of the Company) as participants in such plan. Promptly after the end of each Plan Year, awards under the Executive Officer Incentive Plan will be calculated for each participant in accordance with the plan and regulations established by the Compensation Committee.

 

The maximum incentive payment a participant may receive is equal to 100% of annual salary. In no event, however, may a participant’s annual incentive payment exceed 3% of the Company’s Pre-Bonus, Pre-Tax Net

Operating Income (as defined in the plan) for the applicable plan year. Under the plan, the Compensation Committee would have the right to, in its sole discretion, reduce the award calculated pursuant to the foregoing percentage or formula below such calculated amount. Awards under the plan would be payable by March 15 of the Plan Year following the Plan Year with respect to which the award was earned.

 

In the event of a Change in Control, participants in the plan would be entitled to receive an incentive payment equal to 100% of annual salary, but in no event more than the Formula Award. The “Formula Award” would be 3% of the Company’s Pre-Bonus, Pre-Tax Net Operating Income, calculated as if the date of the Change of Control was the last day of the Plan Year in which such Change in Control occurs and without deducting any amounts for expenses directly relating to such Change in Control. After the actual end of the Plan Year in which the Change in Control occurs, the “Formula Award” would be recalculated as 3% of the Company’s Pre-Bonus, Pre-Tax Net Operating Income for the entire Plan Year.

 

The actual amount payable to each participant under the Executive Officer Performance Plan is not currently determinable because it will depend on future Company performance and the Compensation Committee’s authority to further reduce the ultimate payout in its discretion. For information regarding awards made in respect of fiscal 2006, under the Company’s existing incentive plan, refer to the “Summary Compensation Table” under the heading “Executive Compensation” included in this proxy statement.

 

The Executive Officer Incentive Plan would be subject to amendment or termination at any time upon the vote of a majority of the Board of Directors, provided that no amendment or termination would be permitted to increase the award otherwise payable to participants without the approval of stockholders of the company.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” APPROVAL OF THE 2007 EXECUTIVE OFFICER INCENTIVE PLAN, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.

 

The following table sets forth information regarding the beneficial ownership of our Common Stock as of December 31, 2006 by each person known to us, based on Schedule 13D or Schedule 13G filings with the SEC, who beneficially owns more than 5% of the outstanding shares of our Common Stock. Percentages are based on 106,563,484 shares of Common Stock issued and outstanding as of December 31, 2006.

 

 

 

 

 

The following table sets forth information regarding the beneficial ownership of our Common Stock as of March 30, 2007 (except as noted otherwise) by (1) each director of the Company; (2) each executive officer of the Company identified in the Summary Compensation Table below (the “Named Officers”); and (3) all directors and executive officers of the Company as a group. Except as otherwise indicated, and subject to applicable community property laws, we believe that the beneficial owners of the Common Stock listed below have sole voting and investment power with respect to such shares. Percentages are based on 109,743,616 shares of Common Stock issued and outstanding as of March 30, 2007.

 

 

 

 

 

EQUITY COMPENSATION PLAN INFORMATION (as of December 31, 2006)

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, executive officers and persons who own more than 10% of the Common Stock to file forms with the SEC to report their beneficial ownership of our Common Stock and any changes in their beneficial ownership. Anyone required to file forms with the SEC must also send copies of the forms to the Company. We have reviewed all forms provided to us. Based solely on that review, we believe that our directors and executive officers complied with all Section 16(a) filing requirements during the six month period ended December 31, 2006.

 

The names, ages and positions of our executive officers are set forth in the table below. As used sometimes in the biographies below, the “Company” refers to Barr Pharmaceuticals, Inc., a Delaware corporation (“BPI”), and its predecessor corporation, Barr Laboratories, Inc., a New York corporation (“Old BLI”). In connection with the Company’s reincorporation from New York to Delaware, Old BLI merged with and into BPI on December 31, 2003, with BPI surviving the merger. Immediately prior to the merger, Old BLI transferred substantially all of its assets (other than the stock it then held in its subsidiaries) and liabilities to a newly formed Delaware corporation also called Barr Laboratories, Inc. (“New BLI”).

 

 

See “Proposal No. 1 — Election of Directors — Information on Director Nominees” for a description of the recent business experience of Messrs. Downey and Bisaro.

 

G. Frederick Wilkinson joined the Company in 2006 as President and Chief Operating Officer of Duramed Pharmaceuticals, Inc., the Company’s proprietary products subsidiary. Prior to joining the Company, Mr. Wilkinson served as the President and Chief Executive Officer of Columbia Laboratories, Inc. from 2001 to 2006.

 

Zeljko Čovic joined the Company as President, Chief Operating Officer and President of the Management Board of PLIVA d.d., a subsidiary of the Company, as a result of the Company’s acquisition of PLIVA d.d. Mr. Čovic began his career at PLIVA in 1980. He was appointed Director of Food Production in 1985, and Marketing and Sales Director of Food in 1988. Mr. Čovic spent two years as a Member of the Executive Council and Secretary for Economic Affairs in the Zagreb City Assembly from 1991 to 1993. He served as Chairman of PLIVA’s Board of Directors from 1993 to 1995 and was appointed President of the PLIVA Management Board in 1995.

 

William T. McKee joined the Company in January 1995 as Director of Finance and was appointed Treasurer in March 1995. In September 1996 he was appointed Chief Financial Officer and was later appointed a Vice President in December 1997 and a Senior Vice President in December 1998. Prior to joining Barr, Mr. McKee served as Vice President, Finance for a software development company and held management positions in the accounting firms of Deloitte & Touche LLP and Gramkow & Carnevale, CPAs.

 

Frederick J. Killion joined the Company in March 2002 as Vice President and General Counsel. Mr. Killion joined Barr from the law firm of Winston & Strawn, where he had served as a capital partner since 1999. Prior to joining Winston & Strawn in 1990, Mr. Killion was a partner in the law firm of Bishop, Cook, Purcell and Reynolds where he began as an associate in 1982. Bishop, Cook, Purcell and Reynolds merged with Winston & Strawn in 1990.

 

Timothy P. Catlett joined the Company in February 1995 as Vice President, Sales and Marketing. In September 1997, Mr. Catlett was appointed Senior Vice President, Sales and Marketing of New BLI, a subsidiary of the Company. From 1978 through 1993, Mr. Catlett held a number of positions with the Lederle Laboratories division of American Cyanamid including Vice President, Cardiovascular Marketing.

 

Catherine F. Higgins joined the Company as Vice President, Human Resources in 1991 and became Senior Vice President, Human Resources of the Company in September 2001. Prior to joining Barr, Ms. Higgins served as Vice President, Human Resources for Inspiration Resources Corporation.

 

BARR PHARMACEUTICALS, INC.

 

2007 EXECUTIVE AND DIRECTOR COMPENSATION DISCLOSURE

 

* * *

 

CORPORATE GOVERNANCE

 

* * *

 

Compensation Committee

 

The Compensation Committee of the Board (the “Committee”) consists of Messrs. Chefitz, Frankovic, Seaver and Stephan. During 2006, Mr. Gilmore was also a member of the Committee until January 24, 2007. Mr. Chefitz serves as the chairman of the Committee. The Committee reviews and recommends to the Board policies, practices and procedures relating to the compensation of our chief executive officer, senior management team and board of directors, and the establishment and administration of any new incentive compensation plans. The Committee has authority to administer our executive bonus program, 2002 Stock and Incentive Award Plan and Employee Stock Purchase Plan, and make policy recommendations to the Company’s Board of Directors from time to time with respect to our benefit plans. Our board of directors has determined that Messrs. Chefitz, Stephan, Seaver, and Frankovic meet the independence requirements of the NYSE and the Company’s independence standards.

 

The Committee meets at least quarterly during the year. The Committee met 6 times during calendar year 2006.

 

Compensation Committee’s Processes and Procedures for Consideration and Determination of Executive Compensation

 

Authority and Responsibilities.  The Committee administers the Company’s executive compensation program, including the oversight of executive compensation policies and decisions, administration of the executive bonus program applicable to executive officers and administration of the Company’s equity incentive plans. In particular, the Committee exercises all power and authority of the Board in the administration and interpretation of the Company’s executive compensation plans, including establishing guidelines, selecting participants in the plans, approving grants and awards, and exercising other powers and authority required and permitted under the plans. The Committee also reviews and approves executive officer (including Chief Executive Officer) compensation, including, as applicable, salary, and incentive compensation levels, executive perquisites, equity compensation (including awards to induce employment), severance arrangements and other forms of executive officer compensation. The Committee receives recommendations from the Chief Executive Officer with respect to the compensation of executives other than the Chief Executive Officer. The Committee’s membership is determined annually by the full Board.

 

The Committee’s responsibilities are reflected in its Charter, a copy of which is available on our website, www.barrlabs.com. The Committee reviews the Charter from time to time and recommends any proposed changes to the Board. Pursuant to its Charter, the Committee’s functions also include reviewing and approving contractual relationships between the Company or its subsidiaries and any officer or director (or former officer or director) relating to employment, severance, retirement or compensation; and producing the Committee’s report on executive compensation to be included in the Company’s proxy statements.

 

Delegation.  From time to time, the Committee may delegate authority to fulfill various functions of administering the Company’s plans to employees of the Company. Specifically, the Committee has delegated administrative responsibilities with respect to the Company’s employee retirement plans to the Savings and Retirement Plan Committee consisting of the Company’s general counsel, chief financial officer, and senior vice president of human resources. The Savings and Retirement Plan Committee reports to the Committee on the performance of the retirement plan assets and other plan matters at least twice each year. The Committee also has

delegated the authority to make awards of up to 3,000 stock-settled SARs per person to new employees under the 2002 Stock and Incentive Award Plan to the Company’s senior vice president, human resources.

 

Compensation Consultant

 

In addition, the Committee has authority to engage the services of outside advisers to assist the Committee. In 2006, the Committee used Executive Compensation Corporation (“ECC”), a compensation consulting firm that has advised and assisted the Committee and management for many years. ECC is engaged by management, although the Committee has the authority to engage its own consultant at any time. A representative of ECC attended several of the Committee’s meetings in calendar year 2006 and reported directly to the Committee during these meetings.

 

ECC provided benchmarking information on the amount and form of executive and director compensation, as discussed in detail under “Benchmarking” on page 30. Management’s instruction to ECC as to the nature and scope of its assignment were to assist in the selection of peer group companies and to obtain, analyze and review competitive market compensation relevant proxy and survey data in accordance to with a defined methodology, and to obtain competitive external market total compensation data.

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of our Compensation Committee at any time has been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or Committee of any entity that has one or more executive officers who serve on our board or Compensation Committee.

 

* * *

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The following discusses the material factors involved in the Company’s decisions regarding the compensation of the Company’s Named Executive Officers (as defined on page 37) during the six- month period ending on December 31, 2006 (the “NEOs”). On September 21, 2006, the Board of Directors approved a change in the Company’s fiscal year end from June 30 to December 31. In connection with our change in fiscal year end, the NEOs will receive pro-rated bonus payments on or about March 15, 2007, with respect to the six-month period ending December 31, 2006. Similarly, our NEOs will receive annual salary increases on or about April 1, 2007, pro rated to reflect the fact that only nine months have elapsed since the most recent annual salary increase. The specific amounts paid or payable to the NEOs with respect to the six-month period at issue are disclosed in the tables and narrative beginning on page 37 of this proxy statement. The following discussion cross-references those specific tabular and narrative disclosures where appropriate.

 

Compensation Overview

 

Compensation Philosophy, and Objectives and Process

 

Our executive compensation program was designed to attract, motivate and retain the highly talented individuals Barr Pharmaceuticals needs to drive business success. The program reflects the following key principles:

 

 

 

Benchmarking

 

For the past several years, the Company has engaged a compensation consultant, Executive Compensation Corporation (“ECC”), to assist it in selecting a peer group and benchmarking the Company’s executive compensation. ECC benchmarked the compensation of the Company’s NEOs primarily against executive compensation survey data from a mix of pharmaceutical, biotech, nondurable manufacturing and general industry companies with annual revenues of approximately $1.5 billion. Pharmaceutical industry data generally received the greatest weight in establishing the benchmarks. It also benchmarked the compensation of the Company’s NEOs against the executive compensation reported by thirteen publicly traded pharmaceutical companies having average revenues of approximately $1.5 billion. Together, the survey data and the peer group disclosures help the Company establish a range of pay that this considered competitive.

 

ECC also studied the function and position information gathered through its prior studies, current position summaries and organizational charts, and telephone conferences. For each position, ECC considered the scope of the position, organizational reporting level, position responsibilities, accountabilities and any required qualifications (e.g., MD degree).

 

ECC gathered competitive base salary, annual bonus and total direct compensation data from multiple surveys for each position and assessed the results to determine overall competitive market rates. ECC then applied a four percent annual update factor to age the survey data, which is consistent with prior studies and current trends.

 

As in prior years, ECC studied executive compensation data disclosed in the proxy statements of comparable publicly traded companies that the Company identified as its competitors, including:

 

 

Due to recent acquisitions in the peer group, the Company’s recent acquisition of Pliva and the change in the size of the Company, a new peer group will be established for 2007 compensation decisions.

 

Components of Executive Compensation

 

Total compensation for our NEOs is comprised of base salaries, annual cash incentive awards, long-term equity awards, retirement saving plan contributions, post-employment benefits, including severance protection, and other benefits and perquisites. When the Committee determines compensation levels for our NEOs, it reviews compensation survey data from independent sources to ensure that our total compensation program is competitive. As described above, under “Benchmarking,” the Committee looks at compensation data from companies in our industry, by using publicly available peer company disclosures, as well as from companies in our industry and in a

broad cross-section of industries available from reputable compensation surveys. In consultation with the Chief Executive Officer (other than with respect to his compensation) the Committee uses the data from peer company disclosure and the survey data to define the range of pay that it considers to be competitive. The Committee reviews the peer company and survey data annually. When setting specific pay levels for our NEOs, the Committee considers the competitiveness of each component of pay as well as the aggregate pay, with the aggregate pay level being weighted more heavily in its final decisions. The various components of executive compensation are designed to promote the Company’s executive compensation objectives as described above.

 

Base Salary

 

• Why this component is paid to executives

 

Base salary is provided to all employees (including the NEOs) in order to provide employees with a degree of financial certainty and funds for current expenses. Competitive base salaries further the compensation program’s objectives by allowing the Company to attract talented employees by providing fixed compensation on which employees can rely.

 

• How the amount of base salary is determined

 

The Committee’s determinations of NEO base salaries primarily reflect (i) its analysis of market data for compensation of executives in similar positions and with similar skills, (ii) individual performance and (iii) a desire to promote a cohesive management team by promoting internal pay equity. The Committee takes into account each NEO’s performance, experience, education, skills and value to Barr as it reviews its current base salary levels relative to the competitive base salary levels. The Company has historically provided base salaries to NEOs generally ranging between the 50^th and 75^th percentiles reflected in the applicable market data provided by ECC. Please read the discussion under “Benchmarking” on page 30, for more information regarding the market data reviewed by the Committee. The 50th percentile market salary level represents the base salary level for a hypothetical executive who: (i) is fully experienced and educated as required by the position, (ii) is a strong performer, strong leader and makes solid contributions, and (iii) possesses a full skill set for his or her position and applies those skills successfully. As a result, our NEO’s actual base salary levels vary around the competitive base salary market levels based on differences in each incumbent’s profile. In 2006, the annual base salary for each NEO was reviewed by the Committee and, in certain cases, increased at levels consistent with increases in the annual base salaries generally awarded to other comparably performing peer executives. Year-to-year adjustments to each NEO’s base salary were determined by an assessment of such individual’s sustained performance against his or her job responsibilities, including material changes in job responsibilities and the impact of such performance on our business and financial results. Year-to-year adjustments applicable during the six-month period ending December 31, 2006 also reflected the value the Company places on fostering cooperation and good will among executives by promoting internal pay equity — that is, by generally providing similar compensation to executives serving at similar levels of responsibility. See the discussion under “Benchmarking” on page 30, for more detail. In addition, as described above under “Corporate Governance” on page 28 and below under “Role of the Chief Executive Officer in Setting Compensation” on page 36, the Chief Executive Officer advises the Committee and makes recommendations concerning the compensation to be paid to the other NEOs.

 

• Relationship of base salary to other components of compensation

 

The amount of an NEO’s base salary is the reference point for much of the other compensation received by the executive. For example, the potential annual incentive award for each executive is a percentage of the executive’s base salary.

 

Executive Bonus Awards

 

In 2006, the Company paid cash bonuses to our NEOs under our executive bonus program, which provides additional compensation to participants based on the achievement of personal and financial objectives. The executive bonus program is open to all salaried employees selected by the Chief Executive Officer and the

Committee. Participants in the executive bonus program must generally be actively employed by us on the payment date to receive a bonus award. Participants may receive a partial bonus award in certain circumstances. Our NEOs received annual bonus payments with respect to the fiscal year ended June 30, 2006 in July, 2006. As a consequence of the change in the Company’s fiscal year-end bonus payments with respect to the six-month period ending December 31, 2006 were paid to NEOs in March 2007.

 

• Why this component is paid to executives and how it furthers the program’s objectives

 

The Company believes that a meaningful amount of compensation should be variable and contingent on Company and individual performance. We believe that having a portion of an executive’s compensation dependent on Company and individual performance supports our goal of incentivizing executives to dedicate their full efforts toward achieving Company performance objectives.

 

• How the amount is determined

 

Each year, the Company promulgates and internally distributes broad Company-wide financial and operational objectives, against which the NEOs are evaluated at year-end. The Compensation Committee has discretion in determining the final payout based on its evaluation of the Company-wide financial and operational performance and individual NEO’s performance. The Company has not followed a formula-based approach for determining the annual incentive for the NEOs. Instead, the Chairman of the Committee meets with the CEO and the COO to review the performance of the other three NEOs. The Committee also reviews competitive data. Payouts are determined in part by considering Company performance against financial goals set forth at the beginning of the year. The Committee, in consultation with the CEO, uses discretion in the determination of these individual awards so that it can base rewards on, not just a raw financial figure, but the behavior and quality of decisions that went into reaching that financial figure and on operational performance. In determining the amount of annual incentive, the Company places significant weight on each NEO’s individual performance. The Company has historically paid cash bonuses to NEOs generally in a range of 35 to 55 percent of their respective base salaries.

 

• Relation of annual incentives to other components of compensation

 

Each NEO has a target annual incentive based on a percentage of the executive’s annual base salary. The Committee has the discretion to pay at above, or below target depending on Company-wide financial and operational performance and individual performance.

 

Effective in 2007, the Company adopted, subject to stockholder approval, a new Executive Officer Incentive Plan. For more information on the plan, see “Proposal No. 4 — Approval of the Barr Pharmaceuticals, Inc. 2007 Executive Officer Incentive Plan,” above.

 

Equity Compensation — Long-Term Awards

 

The Company maintains the Barr Pharmaceuticals, Inc. 2002 Stock and Incentive Award Plan (the “Stock Award Plan”) for the purpose of granting long-term incentive awards to our employees, including our NEOs. Commencing in 2005, instead of stock options the Company began awarding stock-settled stock appreciation rights, primarily because the issuance of SARs is expected to have less of a dilutive effect on existing stockholders than the issuance of an equivalent number of stock options. A portion of the SARs are exercisable in the form of incentive stock options (“Tandem Awards”) to NEOs under the Stock Award Plan. The Company continued awarding Tandem Awards to NEOs in 2006. Each Tandem Award is an award of stock-settled stock appreciation right that the optionee may either (i) surrender in exchange for a lesser number of shares of Company stock, with no exercise price or (ii) subject to a statutory limit, exercise for shares of Company stock, as with any other stock option, by paying the full exercise price. Because the SAR portion of the Tandem Awards award can only be exchanged for shares of Company stock, it is often referred to as a “stock-settled SAR.” For example, if an NEO received an award of 1,000 Tandem Awards on July 26, 2006, with an exercise price of $48.80 (the market price of the Company’s stock on the date) and, after vesting and when the market price of the Company’s stock was $58.80, the NEO elected to surrender all 1,000 Tandem Awards using the tandem SAR feature, the NEO would be entitled to

fully transferable shares of Company stock equal in value to the $10 difference between the exercise and market prices times 1,000 Tandem Awards, or $10,000 (less applicable tax withholding).

 

Because the tax treatment of incentive stock options (“ISOs”) is very different from that of stock-settled SARs, the Committee believes that the Tandem Award gives each NEO the flexibility to consider his or her own tax position in the exercise of the award. In the above example, the optionee would recognize ordinary income of $10,000 at the time of the option SAR exercise and exchange. However, if the optionee instead had elected to exercise using the ISO feature, the optionee would pay $48,800 in exchange for 1,000 shares of Company stock. The optionee would not recognize income on that exercise (although, the $10,000 gain would be counted for purposes of determining whether the optionee is subject to alternative minimum tax). If the optionee held the 1,000 shares of stock for at least one year after the exercise, any gain or loss would be taxable to the optionee at long-term capital gain or loss rates.

 

• Why this component is paid to executives and how it furthers the program’s objectives

 

The Tandem Awards only produce value to our NEOs if the price of our stock appreciates, thereby linking the interests of NEOs with those of our stockholders. Tandem Awards also link the interests of our NEOs to our stockholders in that the “gain” from the SAR is paid out in shares of Company stock. Because they vest incrementally over time, Tandem Awards also create an incentive for NEOs to continue their employment with the Company for extended periods after the initial grant.

 

• Relation of long-term awards to other components of compensation

 

Long-term awards potentially make up the largest component of pay for our NEOs. This is consistent with our philosophy of linking NEOs’ financial interests to that of stockholders.

 

• How the amount awarded is determined

 

The management of the Company, with the advice and assistance of its compensation consultant ECC, provided the Committee with its recommendations of the awards to be made to NEOs and other eligible employees in 2006. The Company relies on share grant guidelines, including a minimum, target and maximum range by executive level, that have been developed internally over a period of years. Each year, management reviews individual performance and recommends a grant based on the current internal guidelines. These recommended grant levels are reviewed against current competitive market data as part of the annual benchmarking process with ECC. To arrive at the final 2006 grant levels, ECC provided to the Committee a calculation of the average annual value of the stock with respect to which the Company made stock options and other equity awards to each NEO within the last four years and compared these average annual grant values with 25th, 50^th and 75^th percentile competitive grant values. The competitive grant values were derived from a leading survey of executive compensation in the pharmaceutical industry. The survey data were broken out separately for companies with comparable levels of revenue, which was the data used in conducting the analysis.

 

The Committee then compared the suggested option grants to the competitive market based on the options’ Black-Scholes values. The equity compensation awards ultimately granted reflect the Committee’s desire to provide executive compensation, including equity compensation, generally ranging between the 50th and 75th percentiles reflected in the applicable market data. Equity compensation grants also reflect the Company’s historical grant practices and prior awards to individual NEOs, as well as the Company’s desire to support cohesion within its senior management team by promoting internal pay equity, as described above under “Base Salary — How the amount of base salary is determined” on page 31.

 

Tandem Awards and other awards granted to our NEOs vest in equal yearly installments, usually over a three-year period and may be exercised only during the period commencing on the date of vesting and until the close of business on tenth anniversary of the date of grant unless sooner terminated following a Qualifying Termination (as defined in the executive officers’ respective option agreements). However, if the NEO’s employment terminates before the tenth anniversary of the date of grant, the awards terminate at the time employment terminates or within a specified period of time thereafter, depending on the circumstances of the employment termination.

 

Retirement and Other Post-Employment Benefits

 

The NEOs participate in qualified and non-qualified defined contribution retirement savings plans. In addition, as described in more detail beginning on page 45, each of our NEOs may receive certain benefits in the event of termination of employment and change in control scenarios. In addition, pursuant to his employment agreement with the Company, following any termination of Mr. Downey’s employment other than for Cause, as defined in the agreement, the Company is obligated to provide Mr. Downey, his spouse and eligible dependents with medical and dental benefits until Mr. Downey and his spouse attain age 65 or their earlier death.

 

• Why these components are paid to executives and how they further the program’s objectives

 

Retirement plans, in general, are designed to provide executives with financial security after their employment has terminated and, through the incremental vesting of Company matching contributions to such plans over time, provide a retentive element to the overall pay package. The Company provides matching contributions under both the qualified 401(k) plan and and a non-qualified defined contribution 401(k) plans. Because the Company provides neither a qualified nor a non-qualified defined benefit pension plan (often referred to as a “SERP”), we believe that the overall retirement plan benefits for our NEOs are modest.

 

Both the qualified 401(k) plan and the non-qualified defined contribution plan permit eligible employees to save for retirement while deferring income taxes on a portion of their current income. The non-qualified defined contribution plan permits highly-compensated individuals to receive a similar level of benefits (in terms of the overall percentage of their income eligible for tax deferral and employer matching contributions) as are available to employees with lower levels of income.

 

Both the qualified 401(k) plan and the non-qualified 401(k) defined contribution plans require a contribution by the NEO in order to receive the full Company matching contribution.

 

Termination benefits and change in control benefits provide additional security for the NEOs and help retain the NEOs and maintain their focus during periods of extreme uncertainty about their continued employment with the Company.

 

• How the amount to be paid is determined

 

The qualified 401(k) plan and non-qualified 401(k)defined contribution plans provide benefits that are set forth in the Summary Compensation Table on page 38 under “All Other Compensation” and in the Non-Qualified Deferred Compensation Table on page 44. The termination and change in control benefits for our NEOs are set by contract and are described below on page 39 under “Employment Agreements.” The employment agreement the Company has entered into with the Chief Executive Officer provides for severance benefits equal to three times his base salary and annual bonus. The employment agreements the Company has entered into with the President and Chief Operating Officers of Barr Laboratories, Inc. and Duramed Pharmaceuticals, Inc. each provide for severance benefits equal to two and one-half times their respective base salary and annual bonus. Other NEOs would receive severance benefits equal to two times base salary and bonus. The employment agreements also provide for non-renewal payments in the event that the Company does not extend an NEO’s term of employment and the NEO does not terminate his employment during the remainder of the term. For each NEO except the CEO, the non-renewal payment amount is equal to one times their respective base salary and annual bonus. The CEO is entitled to a non-renewal payment of two times his base salary and annual bonus. Certain provisions of the employment agreements apply only in the event of a change in control. These include gross up payments to offset any additional tax liability arising from “excess parachute payments” pursuant to Section 280G of the Internal Revenue Code, the amount of which is determined by the amount of such additional tax liability (if any) that would accrue to a NEO in the event of a change in control. For more information, see “Potential Payments upon Termination or Change of Control.”

 

• Relation of these benefits to other components of compensation

 

The primary factor determining post-employment benefits is the salary and incentive payment history of the NEO at issue. “Excess parachute payment” tax gross-up payments, as described above, are also potentially

influenced by the value of options and SARs that vest on an accelerated basis in the event of a change in control. Additionally, NEOs are required to contribute to their own 401(k)/retirement benefits.

 

Other Benefits and Perquisites

 

The executive officers participate in a wide array of benefit plans that are available to all salaried employees of the Company generally, including medical, dental, life and long-term disability insurance plans and an employee stock purchase plan. Most of these benefits provide financial security and peace of mind for employees and executives and are generally viewed as a standard part of basic employee benefits within the industry.

 

As provided in their employment agreements and other Company policies, the NEOs are entitled to reimbursement for the expenses of an automobile. Because of the Company’s multiple locations, some of which are in relatively remote locations, and travel demands, the Company believes that the use of a company-owned airplane is necessary to enable the NEOs to perform their duties. The Company maintains a country club membership in its name and season tickets to a variety of professional sports teams for purposes of client entertainment. However, the NEOs are entitled to use the country club membership and season tickets for personal use. The perquisites available to the NEOs are described in the narrative description to the Summary Compensation Table on page 37 under “All Other Compensation.”

 

Other Factors in Compensation Decisions and Policies

 

NEO Compensation

 

The Committee reviewed the corporate goals and objectives relevant to each NEO’s compensation and approved the compensation, including the bonus and stock option awards. In determining each NEO’s compensation for 2006, the Committee considered Company performance based on certain financial measures, the value of similar awards to executive officers serving in comparable positions at comparable companies, the awards given to each NEO in past years and such other factors as they may deem relevant and appropriate. The Committee also considered each NEO’s contributions to the Company and his or her role in implementing strategic and financial initiatives designed to augment our business development and growth efforts.

 

The above-described process for determining NEO compensation is illustrated by the following summary with respect to the Company’s CEO (based on the market study prepared by the Company’s compensation consultant, ECC):

 

 

Tax and Accounting Treatment of Compensation

 

Section 162(m) of the Internal Revenue Code limits the deductibility for federal income tax purposes of certain compensation paid in any year by a publicly held corporation to its chief executive officer and its four other highest compensated officers to $1 million per executive (the “$1 million cap”). The $1 million cap does not apply to “performance-based” compensation as defined under Section 162(m). The Company intends that awards made under our 2002 Stock and Incentive Award Plan not be subject to the $1 million cap due to the performance-based exception under Section 162(m). However, we have determined that grants made in July of 2005 and July of 2006 may not be considered qualified performance based compensation.

 

In 2006, Messrs. Downey’s and Bisaro’s base salary and incentive payment amounts exceeded the $1 million cap and, thus, were not fully deductible. The other NEOs did not exceed the $1 million cap. However, because the annual incentive for the CEO and other NEOs could cause them to exceed the $1 million cap in 2007, the Company has established and is seeking stockholder approval of a new annual Executive Officer Incentive Plan that is designed to qualify for the performance-based exception under Section 162(m). See “Proposal No. 4 — Approval of the Barr Pharmaceuticals, Inc. 2007 Executive Officer Incentive Plan,” above. We believe we can continue to preserve related federal income tax deductions for NEOs other than the CEO, although individual exceptions may occur.

 

Other provisions of the Internal Revenue Code also can affect the Company’s compensation decisions. Under Code Section 280G, a 20% excise tax is imposed upon NEOs and other executive officers who receive “excess” payments upon a change in control to the extent the payments received by them exceed an amount approximating three times their average annual compensation. The excise tax applies to all payments over one times annual compensation, determined by a five-year average. A company also loses its tax deduction for “excess” payments. Our employment and change of control agreements provide for “gross-up” payments to the NEOs if the excise tax would apply. However, as of December 31, 2006, our calculations show that the tax would not apply.

 

In addition, the Internal Revenue Code was recently amended to provide a surtax under Section 409A with respect to various features of deferred compensation arrangements, mostly for compensation deferred on or after January 1, 2005. We have made the appropriate changes to our non-qualified retirement plans and employment agreements to help ensure there are no adverse affects on the Company or executive officers as a result of these Code amendments. We do not expect these changes to have a material tax or financial consequence on the Company.

 

The Company also calculates quarterly and monitors the accounting expense related to equity-based compensation in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised) (“FAS 123R”). To date, the FAS 123R expense has not been a significant factor in setting or changing equity compensation grant practices except insofar as the general parity of treatment of stock-settled SARs and stock options under FAS 123R was a consideration in the Company’s decision to grant stock-settled SARs in lieu of stock options.

 

Timing of Awards

 

For the past several years, the Company Committee has awarded stock options or stock-settled SARs at a regularly scheduled meeting during the period shortly after the close of its fiscal year. Other than awards granted to newly hired executives, the Company has historically granted awards to executives once during each calendar year. The Company’s fiscal year beginning July 1, 2005 ended June 30, 2006, and the Company awarded options and stock-settled SARs on July 26, 2006. Because of the Company’s switch to a December 31 fiscal year from a June 30 fiscal year end, the Company expects to make future equity awards during the first quarter of each calendar year. The Company has not timed the award of stock options, stock-settled SARs or other equity-based compensation to coincide with the release of favorable or unfavorable information about the Company. The Company has no intention of timing the award of stock options or other equity-based compensation to coincide with the release of favorable or unfavorable information about the Company in the future.

 

Role of the Chief Executive Officer in Setting Compensation

 

The CEO provides recommendations on amounts to be paid to the other NEOs under the executive bonus program. The Committee meets in executive session to determine the CEO’s annual salary increase, annual

incentive payment amount and stock option//SAR grants for the period at issue. The Committee met in executive session with the CEO and the compensation consultant from ECC to determine salaries, the incentive payment amounts and the stock option/SAR grants for each officer with a title of senior vice president and above. The CEO is present and participates at the Committee meetings when the other officers’ incentive payment amounts are discussed.

 

The following table shows information concerning the annual compensation for services to the Company in all capacities of the Chief Executive Officer, Chief Financial Officer and the three other executive officers of the Company (collectively the “NEOs”) during the last completed fiscal year. Although Carole Ben-Maimon’s was no longer with the Company on December 31, 2006, SEC rules require that we include her in this Tabular disclosure.

 

On September 21, 2006, the Company’s Board of Directors approved a change in the Company’s fiscal year end from June 30 to December 31. As a result, two Company fiscal years ended during 2006: the fiscal year beginning July 1, 2005 and ending June 30, 2006, and a short (6-month) fiscal year ending December 31, 2006. The compensation for the NEOs for the period ended June 30, 2006 was reported in the company’s proxy statement filed with the SEC on September 29, 2006. The following tabular disclosure reflects only the short fiscal year ending December 31, 2006.

 

 

 

 

 

 

 

 

All Other Compensation (Column (i) of the Summary Compensation Table)

 

 

The Named Executive Officers receive various perquisites provided by or paid for by the Company pursuant to Company policies or individual agreements with the executive. SEC rules require disclosure of the perquisites and other personal benefits, securities or property for a Named Executive Officer unless the amount of that type of compensation is less than $10,000 in the aggregate.

 

The amounts set forth in the column entitled “Perquisites & Other Benefits” in the table above include amounts received by a given NEO for (i) the Company’s executive medical program, pursuant to which the Company pays all deductibles, co-payments and co-insurance amounts otherwise payable by the NEO, and pays a tax gross-up for the resulting additional income; (ii) personal use of the Company aircraft, if any; and (iii) amounts paid by the Company for such NEO’s car allowance or lease payment, and associated fuel costs. None of these items individually was in excess of $7,500 for any NEO.

 

Supplemental Narrative

 

A substantial portion of the total compensation reported in the Summary Compensation Table above is paid to the NEOs pursuant to the terms of their employment agreements or other compensation plans maintained by the Company.

 

Employment Agreements

 

Bruce L. Downey.  On March 13, 2006, the Company entered into an Amended and Restated Employment Agreement with Bruce Downey under which he serves as our Chief Executive Officer and Chairman of our Board of Directors, responsible for the strategic direction and general leadership and management of the business and affairs of the Company. The employment agreement has a term that currently expires on August 16, 2008 but contains a provision that automatically extends its term for successive one-year periods unless one party gives notice to the other party at least 12 months prior to the scheduled expiration of the term then in effect of its desire not to further extend the term of the agreement. Under the agreement, Mr. Downey is paid a base salary, which was increased by the Committee to $1,100,000 for fiscal years ending on and after June 30, 2006, and is eligible for an annual bonus of up to 50% of his base salary in effect for a particular year at the discretion of the Board of Directors (at its discretion, the Committee may increase the bonus above 50% of his base salary). The Board of Directors has the right under the employment agreement to defer the payment of Mr. Downey’s annual bonus until the Company can deduct it on its tax returns. In addition to being eligible to participate in the Company’s annual and long-term incentive plans and retirement and health benefit plans, Mr. Downey is also entitled to the business and personal use of an automobile at the Company’s expense. Following any termination of Mr. Downey’s employment other than for Cause, as defined in the agreement, the Company is obligated to provide Mr. Downey, his spouse and eligible dependents with medical and dental benefits until Mr. Downey and his spouse attain age 65 or their earlier death. The employment agreement provides for certain payments to be made to Mr. Downey if his employment terminates under certain circumstances. These provisions of the employment agreement are described below under the heading “Potential Payments upon Termination or Change in Control”.

 

Paul Bisaro.  On March 13, 2006, we entered into an Amended and Restated Employment Agreement with Paul Bisaro under which he serves as President and Chief Operating Officer of Barr Pharmaceuticals, Inc. and as President of Barr Laboratories, Inc, responsible for managing and supervising the day-to-day business operations of the Company. The employment agreement has a term that currently expires on August 16, 2008 but contains a provision that automatically extends the term for successive one-year periods unless one party gives notice to the other party at least 6 months prior to the expiration of the then current term of its desire not to further extend the term of the agreement. Under the agreement, Mr. Bisaro is paid a base salary, which was $850,000 for fiscal years ending on and after June 30, 2006, subject to increase in future years by the Committee, and is eligible for an annual bonus of up to 50% of his base salary in effect for a particular year at the discretion of the Board of Directors (at its discretion, the Committee may increase the bonus above 50% of his base salary). The Board of Directors has the right under the employment agreement to defer the payment of Mr. Bisaro’s annual bonus until the Company can deduct it on its tax returns. In addition to being eligible to participate in the Company’s annual and long-term incentive plans and retirement and health benefit plans, Mr. Bisaro is also entitled to the business and personal use of an automobile at the Company’s expense. The employment agreement provides for certain payments to be made to Mr. Bisaro if his employment terminates under certain circumstances. These provisions of the employment agreement are described below under the heading “Potential Payments upon Termination or Change in Control”.

 

Frederick J. Killion.  On January 4, 2006, we entered into an Amended and Restated Employment Agreement with Frederick Killion under which he serves as our Vice President, General Counsel and Corporate Secretary. The employment agreement has a term that currently expires on February 19, 2008 but contains a provision that automatically extends the term for successive one-year periods unless one party gives notice to the other party at least 6 months prior to the expiration of the term then in effect of its desire not to further extend the term of the agreement. Under the agreement, Mr. Killion is paid a base salary, which was $450,000 for fiscal years ending on and after June 30, 2006, subject to increase in future years by the Committee, and is eligible for an annual bonus of up to 40% of his base salary in effect for a particular year at the discretion of the Board of Directors (at its discretion, the Committee may increase the bonus above 40% of his base salary). In addition to being eligible to participate in the Company’s annual and long-term incentive plans and retirement and health benefit plans, Mr. Killion is also

entitled to the business and personal use of an automobile at the Company’s expense. The employment agreement provides for certain payments to be made to Mr. Killion if his employment terminates under certain circumstances. These provisions of the employment agreement are described below under the heading “Potential Payments upon Termination or Change in Control”.

 

William T. McKee.  On August 19, 2005, we entered into an Amended and Restated Employment Agreement with William McKee under which he serves as our Vice President, Chief Financial Officer and Treasurer, responsible for managing and supervising the day-to-day operation of the audit, finance, treasury, and accounting functions, including financial controls, of the Company. The employment agreement has a term that currently expires on February 19, 2008 but contains a provision that automatically extends the term for successive one-year periods unless one party gives notice to the other party at least 6 months prior to the expiration of the term then in effect of its desire not to further extend the term of the agreement. Under the agreement, Mr. McKee is paid a base salary, which was $450,000 for fiscal years ending on and after June 30, 2006, subject to increase in future years by the Committee, and is eligible for an annual bonus of up to 40% of his base salary in effect for a particular year at the discretion of the Board of Directors (at its discretion, the Committee may increase the bonus above 40% of his base salary). In addition to being eligible to participate in the Company’s annual and long-term incentive plans and retirement and health benefit plans, Mr. McKee is also entitled to the business and personal use of an automobile at the Company’s expense. The employment agreement provides for certain payments to be made to Mr. McKee if his employment terminates under certain circumstances. These provisions of the employment agreement are described below under the heading “Potential Payments upon Termination or Change in Control”.

 

G. Frederick Wilkinson.  On January 5, 2006, we entered into an Employment Agreement with G. Frederick Wilkinson under which he serves as the President and Chief Operating Officer of Duramed Pharmaceuticals, Inc., responsible for directing, managing and overseeing all commercial and developmental proprietary pharmaceutical activities conducted by the Company or any of its affiliates, including sales, marketing, managed care, clinical trials and medical affairs related to such activities. The employment agreement has a term that expires on March 6, 2009 and contains a provision that automatically extends the term for successive one-year periods unless one party gives notice to the other party at least 6 months prior to the expiration of the term then in effect of its desire not to extend the term of the agreement then in effect. Under the agreement, Mr. Wilkinson is paid a base salary, which was $600,000 for the calendar year ending December 31, 2006, subject to increase in future years by the Committee, and is eligible for an annual bonus of up to 50% of his base salary in effect for a particular year at the discretion of the Board of Directors (at its discretion, the Committee may increase the bonus above 50% of his base salary). The Board of Directors has the right under the employment agreement to defer the payment of Mr. Wilkinson’s annual bonus until the Company can deduct it on its tax returns. In connection with the Company’s hiring of Mr. Wilkinson, the payment of a portion of his annual bonus for 2006 equal to $175,000 was guaranteed. Also in connection with the Company’s hiring of Mr. Wilkinson, he received a grant of 75,000 shares of Company stock, exercisable in five equal installments commencing on the first anniversary of the grant date and continuing on each of the four succeeding anniversaries thereof provided that Mr. Wilkinson is still employed full time with the Company. In addition to being eligible to participate in the Company’s annual and long-term incentive plans and retirement and health benefit plans, Mr. Wilkinson is also entitled to the business and personal use of an automobile at the Company’s expense, or in lieu thereof a $1,500 monthly cash allowance. The employment agreement provides for certain payments to be made to Mr. Wilkinson if his employment terminates under certain circumstances. These provisions of the employment agreement are described below under the heading “Potential Payments upon Termination or Change in Control”

 

2002 Stock Award Plan

 

Under the Barr Pharmaceutical, Inc. 2002 Stock Incentive and Award Plan, 3,000,000 shares of our common stock have been reserved for issuance in connection with stock options, share appreciation rights, restricted shares, restricted share units, performance shares, performance units, dividend equivalents and other share-based awards that may be granted under the plan. Taking into account the effect of stock splits and awards that have previously been granted under the plan, the number of shares currently reserved for issuance under the plan is approximately 8,843,767. In July 2006, the Company awarded the NEOs stock-settled stock appreciation rights (SSARs), a portion of which are exercisable in the form of incentive stock options (“Stock Option/SARs”), under the Stock Award Plan.

Each SSAR is the right to receive, without paying any exercise price, the appreciation on one share of Common Stock between the date of grant of the SSAR and the date of exercise of the SSAR. The appreciation is paid in the form of shares of Common Stock. Each Stock Option/SARs is an award of incentive stock options that the optionee may either (i) exercise for shares of Company stock, as with any other stock option, by paying the full exercise price, or (ii) exercise as a SSAR. Whether a Stock Option/SAR is exercised as an option or as a SSAR, the financial benefit realized by the NEO is equal to the appreciation on one share of Common Stock between the date of grant and the date of exercise. For example, if an NEO received an award of 10,000 Stock Option/SARs on July 26, 2006, with an exercise price of $48.80 (the average of the high and low market price of the Company’s stock on the grant date) and, after vesting and when the market price of the Company’s stock was $58.80, the NEO elected to surrender all 10,000 Stock Option/SARs using the tandem SAR feature, the NEO would be entitled to fully transferable shares of Company stock equal in value to the $10 difference between the exercise and market prices times 10,000 Stock Option/SARs, or $100,000 (less applicable tax withholding). This would be the same amount of gain the NEO would realize by exercising the Stock Option/SARs as options on the same date rather than exercising the SSARs.

 

No outstanding awards have been repriced or materially modified in the past calendar year.

 

At the 2007 annual meeting of stockholders, the Company is seeking stockholder approval of an additional 5,500,000 shares of common stock for the issuance of awards under the Stock Award Plan.

 

Executive Bonus Program

 

Our executive bonus program is intended to assist us in attracting and retaining highly qualified personnel, encourage and stimulate superior performance by such personnel on our behalf and recognize the level of an individual’s position to influence company results. Bonus awards are payable at the discretion of the Committee based on their evaluation of financial, operational and individual performance. The executive bonus program is open to all employees with a title of director or above selected by the Chief Executive Officer. Participants in the executive bonus program must be actively employed by us on the payment date to receive a bonus award. Participants may receive a partial bonus award in certain circumstances.

 

At the 2007 annual meeting of stockholders, the Company is seeking stockholder approval of a new Executive Officer Incentive Plan. For more information on the plan, see “Proposal No. 4 — Approval of the Barr Pharmaceuticals, Inc. 2007 Executive Officer Incentive Plan,” above.

 

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END⁽¹⁾