SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

 

 

SCHEDULE 14D-9

 

(Rule 14d-101)

 

SOLICITATION/RECOMMENDATION STATEMENT

UNDER SECTION 14(D)(4) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Amendment No. 5)

 

ALPHARMA INC.

(Name of Subject Company)

 

ALPHARMA INC.

(Name of Person Filing Statement)

 

Class A Common Stock, Par Value $0.20 Per Share

(Title of Class of Securities)

 

020813101

(CUSIP Number of Class of Securities)

 

 

 

 

Dean J. Mitchell

President and Chief Executive Officer

Alpharma Inc.

440 Route 22 East, Bridgewater, NJ 08807

(908) 566-3800

(Name, Address and Telephone Number of Person Authorized to Receive Notice and Communications on Behalf of the Person Filing Statement)

 

Copies To:

 

William R. Dougherty, Esq.

Mario A. Ponce, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017-3026

(212) 455-2000

 

 

 

This Amendment No. 5 to Schedule 14D-9 amends and supplements the Solicitation/Recommendation Statement on Schedule 14D-9, originally filed by Alpharma Inc., a Delaware corporation (“Alpharma” or the “Company”), with the Securities and Exchange Commission (the “SEC”) on September 26, 2008, as amended (the “Statement”), relating to the tender offer by Albert Acquisition Corp. (“Purchaser”), a Delaware corporation and wholly owned subsidiary of King Pharmaceuticals, Inc., a Tennessee corporation (“King”), to purchase all of the issued and outstanding shares of the Company’s Class A Common Stock, par value $0.20 per share (the “Class A Common Stock”), including the associated rights to purchase shares of Series B Junior Participating Preferred Stock (“the Rights”, and together with the Class A Common Stock, the “Shares”) issued pursuant to the Rights Plan, dated as of September 1, 2008 (the “Rights Plan”), by and between the Company and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agent”), at a purchase price of $37.00 per Share, net to the seller in cash, without interest, and subject to any required withholding of taxes and upon the terms and subject to the conditions described in the Tender Offer Statement on Schedule TO (together with the exhibits thereto, the “Schedule TO”) filed by Purchaser with the SEC on September 12, 2008, as amended. The value of the consideration offered, together with all of the terms and conditions applicable to the tender offer, is referred to as the “Offer”. Capitalized terms used but not defined herein have the meanings ascribed to them in the Statement.

 

Purpose of Amendment

 

This Amendment No. 5 to Schedule 14D-9 is being filed by the Company in connection with the revised offer made by Purchaser pursuant to the terms and conditions of the Agreement and Plan of Merger, dated as of November 23, 2008, among the Company, King and Purchaser (the “Merger Agreement”). The purpose of this amendment is to amend and supplement Items 2, 3, 4, 7 and 8 in the Statement and to add additional exhibits to Item 9 and amend the exhibit index accordingly.

 

 

Item 2 is hereby amended by inserting the following at the end thereof:

 

On November 24, 2008, the Company and King issued a press release announcing that the Company, King and Purchaser entered into the Merger Agreement pursuant to which King and Purchaser agreed, among other things, to amend the Offer to reflect the terms and conditions of the Merger Agreement. On December 8, 2008, King and Purchaser filed an amendment to their Schedule TO reflecting the terms of the Merger Agreement and filed an amended and restated offer to purchase reflecting the revised offer as exhibit (a)(1)(H) to Amendment No. 6 to their Schedule TO (the “Amended and Restated Offer to Purchase”). In the Amended and Restated Offer to Purchase, the Purchaser has offered to purchase all of the issued and outstanding Shares, at a purchase price of $37.00 per Share, net to the seller in cash, without interest, and subject to any required withholding of taxes (the “Offer Price”), subject to the terms and conditions set forth in the Amended and Restated Offer to Purchase. The value of the consideration offered in the Amended and Restated Offer to Purchase, together with all of the terms and conditions applicable to the tender offer, is referred to as the “Revised Offer”.

 

The Revised Offer is being made pursuant to the Merger Agreement. The Merger Agreement provides that, among other things, following consummation of the Revised Offer and subject to other conditions contained in the Merger Agreement, including the approval and adoption of the Merger Agreement by the Company shareholders if required by Delaware law, Purchaser will be merged with and into the Company (the “Merger”) and each outstanding Share not tendered and purchased pursuant to the Revised Offer (other than Shares held by the Company, King, Purchaser or shareholders who properly perfect appraisal rights under Delaware law) will be converted into the right to receive the Offer Price. The terms of the Merger Agreement are described in greater detail in Item 3 below and in Section 6 entitled “The Merger Agreement” in the Amended and Restated Offer to Purchase, which is being mailed to Company shareholders together with the Statement.

 

The initial expiration date for the Revised Offer is 5:00 p.m., New York City time, on Friday, December 19, 2008, subject to extension in certain limited circumstances as required or permitted under the Merger Agreement. Also, King may elect to conduct a subsequent offering period after the expiration of the

Revised Offer. During the subsequent offering period, if King elects to provide one, Shares not tendered and purchased prior to the expiration of the Revised Offer may be tendered to Purchaser for the Offer Price.

 

 

The introductory paragraph to Item 3 is hereby amended and restated in its entirety as follows:

 

Except (a) as disclosed in the Statement, as amended, (b) as disclosed in the Information Statement pursuant to Rule 14f-1 of the Securities Exchange Act of 1934, as amended, attached as Annex II hereto and filed as exhibit (e)(8) to the Statement and incorporated herein by reference, or (c) as set forth in the excerpts from the Company’s 2008 Definitive Proxy Statement, dated March 28, 2008 filed as exhibit (e)(1) to the Statement (and incorporated herein by reference), as of the date of the Statement, to the knowledge of the Company, there is no material agreement, arrangement or understanding, or any actual or potential conflict of interest between the Company or any of its affiliates and (i) the Company’s executive officers, directors or affiliates or (ii) Purchaser, King or their respective executive officers, directors or affiliates.

 

Item 3 is hereby further amended by inserting the following at the end of the section entitled “Cash Consideration Payable Pursuant to the Offer and the Merger”:

 

If the Company’s directors and executive officers were to tender any Shares they own for purchase pursuant to the Revised Offer, they would receive the same cash consideration per Share on the same terms and conditions as other shareholders of the Company. If the directors and executive officers were to tender all of their 54,517 Shares owned by them as of December 3, 2008 for purchase pursuant to the Offer and those Shares were purchased by the Purchaser for the Offer Price, the directors and executive officers would receive an aggregate of $2,017,129 in cash. As discussed below under “Item 4. — The Solicitation or Recommendation”, to the knowledge of the Company, all of the Company’s directors and executive officers currently intend to tender all of their Shares for purchase pursuant to the Amended and Restated Offer to Purchase.

 

As of December 3, 2008, the directors and executive officers of the Company held options to purchase 909,393 Shares, 205,850 of which were vested and exercisable as of that date, with exercise prices ranging from $11.17 to $31.62 and an aggregate weighted average price of $23.73 per share. Immediately upon a change of control of the Company as would occur if the Revised Offer is consummated, 703,543 unvested options to purchase Shares of the Class A Common Stock held by the directors and executive officers will fully vest. If the Merger is consummated following the Offer, the directors and officers will receive cash consideration equal to the product of the number of vested options they own and the difference between the Offer Price and the exercise price of the options. Immediately upon consummation of the purchase of all or substantially all of the Shares by Purchaser or upon termination (other than for cause) of the directors and executive offices following a change of control such as that contemplated by the Revised Offer, an aggregate of 432,019 shares of restricted stock (including restricted stock units payable in stock) held by directors and executives officers as of December 3, 2008 would fully vest.

 

Item 3 is hereby further amended by inserting the following at the end thereof:

 

Merger Agreement

 

A summary of the Merger Agreement is contained in Section 6 entitled “The Merger Agreement” in the Amended and Restated Offer to Purchase, which is being mailed to Company shareholders together with the Statement. The summary of the Merger Agreement contained in the Amended and Restated Offer to Purchase is incorporated herein by this reference, but is qualified in its entirety by reference to the Merger Agreement, which is the actual legal document governing the Merger and the parties’ respective rights and obligations with respect thereto. A copy of the Merger Agreement is filed as exhibit (e)(9) to the Statement and is incorporated herein by reference.

 

 

Item 4 is hereby amended by amending and restating the paragraphs under the heading“Solicitation/Recommendation” as follows:

 

After careful consideration, including a thorough review of the terms and conditions of the Merger Agreement (including the terms and conditions of the Revised Offer and the Merger) in consultation with the Company’s financial and legal advisors, the full Board of Directors unanimously determined at a meeting on November 23, 2008 that the terms of the Revised Offer, the Merger and the Merger Agreement are fair to and in the best interests of the Company’s shareholders, and the Board of Directors unanimously approved and declared advisable the Revised Offer, the Merger and the Merger Agreement.

 

Accordingly, for the reasons described in more detail below, the Board of Directors unanimously recommends that the Company’s shareholders accept the Revised Offer, tender their Shares to Purchaser for purchase pursuant to the Revised Offer and, if required by applicable Delaware law, consent to the adoption of the Merger Agreement.

 

Item 4 is hereby further amended by amending and restating the paragraphs under the heading “Background of the Offer” as follows:

 

From time to time in the past, the Company has studied potential business combination transactions and received expressions of interest from other companies seeking to undertake a strategic transaction involving the Company, including a potential sale of the Company. In connection with evaluating certain of such potential transactions, the Company, together with the assistance of its financial advisor, Banc of America Securities LLC (“Banc of America Securities”), had undertaken a review of the Company’s business, financial condition and prospects and updated that review from time to time.

 

On July 11, 2008, Brian A. Markison, the Chairman, President and Chief Executive Officer of King, informally inquired of Dean J. Mitchell, the President and Chief Executive Officer of the Company, as to whether the Company would be interested in pursuing a business combination with King. Mr. Markison did not provide an indication of value. Mr. Mitchell responded that the Board of Directors was not actively exploring a sale of the Company and was pursuing its long-term strategic plan. Nevertheless, Mr. Mitchell indicated that the Company’s Board of Directors would consider any proposal that properly reflected the inherent value of the Company and that, based on the Company’s prior business reviews and its confidence in its strategic plan and the value it would deliver, a very significant premium would be justified. Mr. Mitchell informally indicated to Mr. Markison that a sum of the parts valuation of the Company implied a range of $41.00 to $45.00 per Share. After this conversation, Mr. Mitchell contacted the Company’s Chairman, Peter G. Tombros, to inform him of Mr. Markison’s proposal. Messrs. Tombros and Mitchell agreed to inform the other directors of Mr. Markison’s proposal at the Company’s upcoming Board meeting.

 

On July 15, 2008, Mr. Markison informally told Mr. Mitchell of King’s continued interest in pursuing a transaction with the Company. Mr. Mitchell advised Mr. Markison that the Company was having a board meeting the following week and he would discuss the matter with the Board.

 

On July 25, 2008, the Board of Directors of the Company met to discuss several matters, including King’s indication of interest in acquiring the Company.

 

On July 28, 2008, Mr. Mitchell telephoned Mr. Markison and stated that he had discussed the matter with the Company’s Board of Directors. Mr. Mitchell reiterated that the Company’s position had not changed since his initial conversation with Mr. Markison on July 11, 2008. Mr. Mitchell also reiterated that any serious offer should reflect a significant premium.

 

On July 31, 2008, Mr. Markison informed Mr. Mitchell that King was interested in acquiring all of the outstanding Shares of the Company at a price of $33.00 per Share in cash, subject to, among other conditions, satisfactory completion of due diligence and receipt of all regulatory approvals. Mr. Mitchell told Mr. Markison that he would bring the matter to the Company’s Board of Directors.

Shortly after Mr. Mitchell’s discussion with Mr. Markison, the Company contacted its financial advisor Banc of America Securities and requested that it assist the Company in updating its review of the Company’s long-term strategic plan and its review of strategic alternatives and in evaluating and responding to King’s proposal.

 

On August 1, 2008, the full Board of Directors of the Company met to discuss several matters, including consideration of King’s continued desire to pursue a business combination with the Company. After discussion, the Board unanimously concluded that it could not offer a response to King’s proposal until the offer was more fully evaluated by the Company with the assistance of its outside financial advisor. The Board authorized Mr. Mitchell to call Mr. Markison and advise that the Company would be reviewing the proposal in light of its own assessment of the valuation of the Company and other alternatives and would respond to the proposal at a later time. Shortly thereafter, Mr. Mitchell called Mr. Markison to inform him of the Board’s decision.

 

On the morning of August 5, 2008, Mr. Mitchell received a call from Mr. Markison in which Mr. Markison reiterated King’s interest in acquiring all of the outstanding Shares of the Company at a price of $33.00 per Share in cash and informed Mr. Mitchell that King would be confirming its proposal in writing. Shortly after the call on August 5, 2008, Mr. Mitchell received a letter from Mr. Markison the text of which is as follows:

 

August 4, 2008

 

Mr. Dean J. Mitchell

President and Chief Executive Officer

Alpharma Inc.

440 Route 22 East

Bridgewater, NJ 08807

 

Dear Mr. Mitchell:

 

As you know from our conversations beginning on July 11, 2008, King Pharmaceuticals, Inc. (“King”) has been interested for some time in pursuing a business combination with Alpharma Inc. (“Alpharma”). We are pleased to make the following proposal regarding a possible business combination between King and Alpharma.

 

We believe that a combination of our businesses would best enable both companies to successfully address the challenges facing our industry today. We believe the complementary aspects of our companies’ products and pipelines, customers and research capabilities would enable the combined entity to be an even more effective competitor, thus making the King-Alpharma combination attractive from a strategic standpoint.

 

We are prepared to pursue the acquisition of all of the outstanding shares of Alpharma common stock for $33.00 per share in cash. This price represents a 49% premium over the closing share price for Alpharma common stock on August 4, 2008, and a premium of 40% over the 1-month average. We believe this proposal is compelling for Alpharma and its shareholders, and provides a unique opportunity for Alpharma’s shareholders to realize full and immediate value.

 

Our Board has authorized this proposal, and we are ready to move forward expeditiously. We have conducted diligence relating to Alpharma based on publicly available information, and we have retained Credit Suisse Securities (USA) LLC as our financial advisor and Dewey & LeBoeuf as our legal advisor. Our proposal is conditioned upon, among other things, the negotiation and execution of mutually acceptable definitive transaction documents containing provisions customary for transactions of this type, including the receipt of any required regulatory and third party approvals and consents.

 

We are prepared to meet with you or your representatives at your earliest convenience to discuss our proposal in detail, begin confirmatory due diligence and the negotiation of definitive transaction documents, which we are confident could be concluded within four weeks. Please note that our proposal is not subject to any financing contingencies, and we are committed to cooperating with Alpharma to obtain all necessary regulatory approvals so that the proposed business combination between King and Alpharma can be consummated in a timely manner.

We hope that you and your Board of Directors will view this proposal as we do — an excellent opportunity for the stockholders of Alpharma to realize full value for their shares to an extent not likely to be available to them in the marketplace. We are prepared to discuss all aspects of our proposal fully with you, including the structure and economics. We also have great respect for your organization and would hope to retain as many of your employees as possible, thus combining the strengths and competencies of Alpharma’s employees into our enlarged company.

 

We trust that you will agree that the best way to proceed at this point would be to begin confidential, non-public discussions to see if we can negotiate a transaction that can be presented to your stockholders as the joint effort of King’s and Alpharma’s Boards of Directors and managements. At this point, therefore, we expect that this letter and its contents will remain private.

 

We trust that you and your Board of Directors will give this proposal prompt and serious consideration. We request a response as soon as possible, and no later than the close of business on Tuesday, August 12, 2008.

 

We look forward to hearing from you.

 

Very truly yours,

 

Brian A. Markison

Chairman, President and Chief Executive Officer

 

 

Shortly after receipt of the letter, the Company retained Simpson Thacher & Bartlett LLP (“Simpson Thacher”) as legal advisor in connection with King’s proposal.

 

On August 7, 2008, Mr. Mitchell informed Mr. Markison that the Company had retained Banc of America Securities as its financial advisor and that the Company was studying the King proposal with its advisors.

 

Also on August 7, 2008, representatives of Banc of America Securities contacted representatives of King’s financial advisor, Credit Suisse Securities (USA) LLC (“Credit Suisse”), and stated that Banc of America Securities was acting as the Company’s financial advisor and that the Company intended to hold a board meeting to discuss King’s proposal but did not specify a date for such meeting, other than that it would be later during the month of August. On August 12, 2008, a representative of Credit Suisse contacted a representative of Banc of America Securities to inquire as to when the Company would respond to King’s proposal. The representative of Banc of America Securities indicated that the Company’s board meeting would occur during the week of August 18, 2008 and that the Company would respond after such board meeting had taken place.

 

The Board of Directors met on August 18, 2008, with certain representatives of the Company’s management, Banc of America Securities and Simpson Thacher to discuss and evaluate the King proposal. Following an overview given by Mr. Mitchell to the Company’s Board of Directors of the recent discussions between Mr. Mitchell and Mr. Markison and the details of Mr. Markison’s letter, representatives of Simpson Thacher provided a detailed review of the fiduciary duties of a board of directors upon receipt of an unsolicited proposal such as the one received from King, and reviewed with the Board certain actions that shareholders of the Company were permitted to take pursuant to the Company’s certificate of incorporation and bylaws. Representatives of Banc of America Securities reviewed with the Board a preliminary financial analysis of the Company based on the Company’s strategic plan and other factors. The Board of Directors carefully considered this update as well as the Company’s business, financial condition and prospects, the terms of the King proposal, the nature and timing of the proposal, the Company’s strategic plan and other business opportunities. After a lengthy discussion, the Board unanimously determined that King’s offer to acquire the Company for $33.00 per Share was inadequate from a financial point of view and not in the best

interest of the Company’s shareholders but that the Board would be prepared to enter into further discussions if King were to offer a price in excess of $40.00 per Share. The Board instructed Mr. Mitchell to orally inform Mr. Markison of the Board’s determination.

 

On the morning of August 21, 2008, Mr. Mitchell contacted Mr. Markison via telephone to inform Mr. Markison of the Board of Director’s decision with respect to King’s offer, stating that the Board of Directors had determined that King’s offer was inadequate from a financial point of view, not in the best interest of the Company’s shareholders and did not reflect the inherent value of the Company. Mr. Mitchell further stated that the Board was not actively exploring a sale of the Company, but also noted that the Company would consider seriously any bona fide proposal that reflected the fair value of the Company, which the Board believed was at a price in excess of $40.00 per Share. Mr. Markison indicated that King was not currently willing to offer a price significantly higher than the current offer.

 

Following the discussion between Messrs. Mitchell and Markison, later that day on August 21, 2008, representatives of Banc of America Securities spoke via telephone with representatives of Credit Suisse regarding the King offer and the conversation that had taken place earlier that day between Messrs. Mitchell and Markison. Representatives of Banc of America Securities reiterated Mr. Mitchell’s earlier statement that the Company was not for sale and that the Company would consider seriously any bona fide proposal that reflected the fair value of the Company, which would be at a price in excess of $40.00 per Share. Representatives of Credit Suisse stated that King was unwilling to offer a higher price to the Company absent the ability to conduct due diligence, and further that King was unwilling to execute any confidentiality agreement in connection with a due diligence review that included a “standstill” provision. After a further discussion with the Company’s management and its legal advisors, representatives of Banc of America Securities affirmed to Credit Suisse the Company’s position that it would be unwilling to provide King with due diligence materials absent execution of a confidentiality agreement with customary terms, including a “standstill” provision.

 

Later in the evening on August 21, 2008, a representative of Credit Suisse contacted a representative of Banc of America Securities and stated that King would be sending a letter to Mr. Mitchell confirming in writing its proposal to acquire all outstanding Shares of the Company for $33.00 per Share in cash and going public with the letter on August 22, 2008. After this discussion, Mr. Markison contacted Mr. Mitchell in the evening on August 21, 2008 and confirmed that King would be making its proposal public the following day.

 

Below is the text of the letter that was sent on August 22, 2008 to Mr. Mitchell and the Company’s Board of Directors:

 

Mr. Dean J. Mitchell

President and Chief Executive Officer

Alpharma Inc.

440 Route 22 East

Bridgewater, NJ 08807

 

 

Dear Mr. Mitchell:

 

As conveyed to you in conversations beginning in July and again in our letter dated August 4, 2008, the Board of Directors and management of King Pharmaceuticals, Inc. (“King”) believe that a combination of King and Alpharma Inc. (“Alpharma”) presents an exciting opportunity to create significant value for our respective stockholders. The complementary aspects of our companies’ products, pipelines, customers and capabilities would create greater scale and improved efficiencies, allowing the combined entity to compete more effectively in the future. We are disappointed that you have declined our proposal.

 

As previously stated, King is willing to pursue the acquisition of all of the outstanding shares of Alpharma common stock for $33.00 per share in cash. This price represents a 37% premium over the closing price of Alpharma common stock on August 21, 2008, the last trading day prior to public disclosure of King’s proposal, a 49% premium over the closing price of Alpharma common stock on August 4, 2008, the date of King’s initial written offer to Alpharma, and a premium in excess of approximately 38% over Alpharma’s

average closing price during the one, three and twelve-month periods ended August 21, 2008. We are convinced that our proposal provides a unique opportunity for Alpharma’s stockholders to realize full and immediate value. Our proposal is not conditioned on financing.

 

Our Board has authorized this proposal and we are ready to move forward expeditiously. As mentioned to you previously, we have conducted due diligence relating to Alpharma based on publicly available information and we have retained Credit Suisse and Wachovia Securities as our financial advisors and Dewey & LeBoeuf LLP as our legal advisor. Our proposal is conditioned upon, among other things, the negotiation and execution of mutually acceptable definitive transaction documents containing provisions customary for transactions of this type, including the receipt of any required regulatory and third party approvals and consents.

 

We remain ready to meet with you and your representatives at your earliest convenience to discuss our proposal in detail and conduct confirmatory due diligence, to negotiate definitive transaction documents and to obtain all necessary regulatory approvals.

 

We hope that you and your Board of Directors will reconsider this proposal and view it as we do — an excellent opportunity for the stockholders of Alpharma to realize full value for their shares to an extent not likely to be available to them in the marketplace. We are prepared to discuss all aspects of our proposal with you, including structure and economics. We have great respect for your organization and would expect to combine the strengths and competencies of Alpharma’s employees into our company.

 

We continue to prefer to work together with you and your Board to complete a negotiated transaction, and we are prepared to commit all necessary resources to do so. If we are unable to negotiate a transaction, we are prepared to take this offer directly to your stockholders.

 

We trust that you and your Board of Directors will give this proposal serious consideration. We would appreciate your prompt reply to our proposal.

 

We look forward to your prompt and favorable response.

 

Very truly yours,

 

Brian A. Markison
Chairman of the Board,
President and Chief Executive Officer

 

cc: To the attention of Alpharma Inc.’s Board of Directors

Mr. Peter G. Tombros, Chairman of the Board

Mr. Finn-Berg Jacobsen, Director

Mr. Peter Ladell, Director

Mr. Ramon Perez, Director

Mr. David U’Prichard, Director

 

On the morning of August 22, 2008, the entire Board of Directors met with the Company’s management and financial and legal advisors to discuss the status of the King offer, including the letter from Mr. Markison that had been released publicly earlier that morning reiterating King’s offer to acquire the Company at $33.00 per Share and the conversations that had taken place the prior day between Messrs. Mitchell and Markison and representatives of the Company’s and King’s respective financial advisors. The Board of Directors carefully considered the Company’s business, financial condition and prospects and the terms of the King proposal. Following further discussion by the Board of Directors, the Board unanimously reaffirmed its view that the current $33.00 per Share offer from King was inadequate from a financial point of view and not in the best interest of shareholders. In addition, the Board of Directors discussed generally various strategic alternatives and business opportunities that might be available to the Company, as well as the Company’s current ongoing strategic plan. Following this discussion, the Board of Directors discussed with its legal advisors the possibility of adopting a shareholder rights plan, and the benefits (and the corresponding risks) that adoption of such a rights plan might provide the Company in light of the outstanding King offer and the absence of customary takeover defenses in place at the Company that could serve to provide the Board with more time to negotiate with King or to review other potential strategic alternatives.

Following the Company’s Board meeting, on August 22, 2008, Mr. Mitchell responded to Mr. Markison in a letter, which the Company then made publicly available in a press release. The full text of the letter follows:

 

August 22, 2008

 

Mr. Brian A. Markison

Chairman of the Board,

President and Chief Executive Officer

King Pharmaceuticals, Inc.

501 Fifth Street

Bristol, Tennessee 37620

 

Dear Mr. Markison:

 

Our Board has received your letter, which you also made public earlier today, outlining King Pharmaceuticals’ unsolicited, non-binding proposal to acquire Alpharma for $33.00 per share in cash.

 

As you know, since you first approached me in July expressing King’s interest in a potential acquisition of our Company, I indicated, even as late as this week, that while Alpharma is not for sale and we are encouraged by our future prospects, we would consider seriously any bona fide proposal that reflected the fair value of our Company.

 

You have now made three non-binding acquisition proposals, including today’s, all at the price of $33.00 per share. In consultation with its financial and legal advisors, our Board of Directors has carefully reviewed your proposals over the course of several meetings. As I communicated to you, the Board unanimously believes that the $33.00 per share proposal is inadequate and does not reflect the Company’s inherent value. Accordingly, we would not accept an acquisition of Alpharma at the price you are proposing.

 

That said, our Board takes its fiduciary duties seriously and is deeply committed to enhancing value for our shareholders. It is in that spirit that we offered to provide you with a due diligence opportunity so that we could demonstrate to you the fair and appropriate value for Alpharma. However, you declined to enter into a customary confidentiality agreement that would enable us to have an orderly evaluation process and ensure that we are able to protect the long-term interests of our shareholders. As you are well aware, a confidentiality agreement will enable us to provide non-public information that we firmly believe will demonstrate that $33.00 per share significantly undervalues Alpharma. A confidentiality agreement is also very important for us to protect sensitive, non-public information when it is being disclosed to a direct competitor.

 

Our Board has deep confidence in Alpharma’s future and believes we are executing well on our strategic plan. We also believe there are a number of near-term events surrounding EMBEDA^tm that will drive increased value for our shareholders in addition to the potential value of the rest of our pipeline. We are currently in a phase of investment for the Company, which we are confident will create significant value for our shareholders and do not believe is reflected in your proposal.

 

We are willing to entertain a proposal from you that we believe more appropriately values the Company. To that end, we remain open to discussions with you at a price that we believe reflects the inherent value of Alpharma as well as the significant benefits, as your letter and comments to investors earlier today describe, that would accrue to King as a result of the transaction. If you have an interest in engaging in a dialogue on that basis, please contact me at your earliest convenience.

 

Sincerely,

 

Dean J. Mitchell

President and Chief Executive Officer

 

On August 27, 2008, the entire Board of Directors of the Company held a meeting with members of management and representatives of the Company’s legal and financial advisors to discuss recent developments and the Company’s ongoing strategic plan, including further discussion of the potential adoption of a shareholder rights plan. Representatives of Simpson Thacher presented a form of shareholder rights plan, discussed with the Board the terms and conditions of a shareholder rights plan and reviewed the Board’s fiduciary duties in connection with the adoption of a shareholder rights plan. Representatives of Banc of America Securities reviewed with the Board an exercise price analysis in connection with the shareholder rights plan. Mr. Mitchell and representatives of Banc of America Securities also updated the Board on multiple expressions of interest in the Company that, following King’s public disclosure of its proposal, third parties had conveyed to representatives of Banc of America Securities or to the Company directly on an unsolicited basis.

 

On August 28, 2008, the full Board of Directors of the Company met to discuss recent developments and ongoing activities at the Company in light of the King offer. Mr. Mitchell informed the Board that King had notified the Company in writing of its intent to make a Hart-Scott-Rodino filing to pursue antitrust clearance for its proposed transaction. The Board authorized Banc of America Securities to contact certain third parties that were determined to be potentially interested in exploring a business combination with the Company, including those that had already conveyed expressions of interest as well as additional parties, to gauge interest in a potential transaction with the Company should the Company decide to pursue a potential transaction. The Board also discussed with its advisors the need to protect shareholder interests by incentivizing the general workforce to remain focused during the uncertainty created by the King offer and a potential sale process. To that end, the Board unanimously approved the implementation of a severance plan that had been reviewed and recommended by the Company’s compensation committee providing all employees other than the Company’s executive officers with a payment equal to six months’ base salary in the event of certain terminations after a change of control of the Company. The Board further discussed the desirability of retaining certain key employees of the Company in light of the King offer and re-commenced discussions undertaken by the Company’s Board of Directors and previously studied by the compensation committee earlier in the year regarding possible amendments to the Company’s Executive Change in Control Plan.

 

On September 1, 2008, the full Board of Directors of the Company held a meeting with members of management and representatives of the Company’s legal and financial advisors to discuss the recent developments relating to the King offer. As part of this discussion, representatives from Banc of America Securities and Simpson Thacher had a further discussion with the Board regarding the adoption of a shareholder rights plan, the form of which had been previously presented by Simpson Thacher. Representatives of Banc of America Securities then reviewed with the Board Banc of America Securities’ exercise price analysis relating to the shareholder rights plan. The Board and its advisors discussed that the adoption of a shareholder rights plan would not preclude a change of control transaction, but would rather provide the Board with additional time and flexibility in the face of the King offer to explore various strategic alternatives to enhance shareholder value and/or to consider any offers, including the King offer, to acquire the Company. The Board and its legal and financial advisors also discussed the fact that a consent solicitation process to remove and replace the incumbent Board could be initiated in a relatively short time-period by shareholders who were dissatisfied with the implementation of the rights plan. Representatives of Simpson Thacher reviewed with the Board its fiduciary duties, including its duties in the context of the adoption of a shareholder rights plan and its fiduciary duties in the context of a sale or break-up of the Company. Following the discussion, the Board unanimously adopted a limited duration shareholder rights plan. Based on the recommendation of the Board’s compensation committee, a presentation by the Company’s outside benefits consultant and advice from Simpson Thacher, the Board also unanimously adopted certain modifications to the Company’s Executive Change in Control Plan.

 

On September 2, 2008, the Company issued a press release announcing the adoption of the Rights Plan and filed a Current Report on Form 8-K regarding the amendments made to the Executive Change in Control Plan.

 

Later on September 2, 2008, representatives of Credit Suisse contacted representatives of Banc of America Securities via telephone to inform them that King was contemplating an increase in their offer to

acquire all outstanding Shares to a price of $37.00 per Share, subject to the opportunity to conduct due diligence without entering into a “standstill” agreement, and that the Company would receive confirmation of the increase in price in several days.

 

On September 2, 2008, Mr. Mitchell had a meeting with the Chief Executive Officer of Company X. During the meeting, the Chief Executive Officer of Company X indicated an interest in pursuing a negotiated business combination between the Company and Company X.

 

On September 3, 2008, the full Board of Directors of the Company held a meeting with members of management and representatives of the Company’s legal and financial advisors to discuss updates on the King offer and third party interest in a potential business combination with the Company. As part of this discussion, the Board discussed King’s indication of a potential willingness to increase its offer to $37.00 per Share and Banc of America Securities reported on preliminary interest expressed by third parties in a potential transaction with the Company. Mr. Mitchell informed the Board about his September 2, 2008 meeting with the Chief Executive Officer of Company X and in Company X’s interest in a business combination with the Company. After these discussions, the Board unanimously determined that: (1) the Company should initiate a process to explore all strategic alternatives, including a potential sale of the company, and Banc of America Securities should more formally contact third parties that could have an interest in a potential business combination with the Company, (2) Banc of America Securities should deliver a message to King that the Company was planning to initiate an auction process as part of its review of strategic alternatives and, in light of its proposal at a price of $37.00 per Share, King would be invited to participate in that process if they signed a confidentiality agreement which would not include a “standstill” provision; however, a price in excess of $40.00 per Share would be required for the Company to forego a process that would allow the Company to seek to obtain the highest value reasonably attainable under the circumstances for their shareholders and (3) Mr. Mitchell should communicate back to the chief executive from Company X the Board’s interest in better understanding the structure and per Share value to be offered in connection with a potential transaction.

 

On September 4, 2008, a representative of Credit Suisse contacted a representative of Banc of America Securities and communicated that King would consider increasing its offer price to $37.00 per Share.

 

Later in the afternoon on the same day, a representative of Banc of America Securities communicated to a representative of Credit Suisse that, if King submitted an offer in writing at $37.00 per Share, the Company would be willing to enter into discussions and due diligence with King, that the Company would not require a “standstill” provision as part of a confidentiality agreement with King, and that King would be part of an auction process that would include other potential bidders for the Company. During that conversation, Credit Suisse indicated that King was likely to be unwilling to enter into an auction process, as King wanted to, and believed it could, complete its due diligence review more quickly than an auction process would require.

 

Representatives of Credit Suisse contacted representatives of Banc of America Securities later on the same day and confirmed that King was not willing to participate in an auction process. A representative of Credit Suisse informed Banc of America Securities that King would be willing to enter into a merger agreement at $37.00 with a “go-shop” mechanism that permitted the Company to solicit other bids during a limited time period after signing a definitive agreement with King and subject to a break-up fee.

 

On the morning of September 6, 2008, the full Board of Directors of the Company held a meeting with members of management and representatives of the Company’s legal and financial advisors to discuss King’s offer of $37.00 per Share, Company X’s continued interest and the status of outreach efforts to third parties as well as interest expressed by certain of these parties. After a lengthy discussion and following presentations by the Company’s management and the Board’s financial and legal advisors, the Board unanimously reaffirmed that at a price of $37.00 per Share it would be willing to engage in discussions with, and provide due diligence to, King as part of an auction process, but that King would have to raise its offer to $40.00 per Share to induce the Board to sign a merger agreement in lieu of conducting an auction process. The Board authorized Banc of America Securities to communicate this response to Credit Suisse.

 

On September 8, 2008, King responded through Credit Suisse that it would not be willing to raise its offer price.

At a meeting of the Board of Directors of the Company on September 8, 2008 at which all of the directors were present, the Board met with members of management and representatives of the Company’s legal and financial advisors to discuss the King offer and expressions of interest received from third parties. Representatives of Banc of America Securities and Mr. Mitchell informed the Board that Company X had informed the Company and Banc of America Securities that it was preparing to submit a written preliminary indication of interest relating to a potential business transaction with the Company in a day or two. Representatives of Banc of America Securities and Mr. Mitchell further stated that, based on the prior discussions with Company X, they each believed that the indication of interest submitted by Company X would be at a price in excess of $37.00 per Share. The Board and its advisors also discussed the potential chilling effect that a go-shop and break-up fee merger structure with King could have on the willingness of potential bidders for the Company (including Company X and other parties) to pursue a possible transaction with the Company at a per share value in excess of $37.00. Following discussion and consideration, the Board unanimously determined that it would not be in the best interests of the Company’s shareholders to enter into a merger agreement at $37.00 per Share with a “go-shop” provision in lieu of conducting an auction process but resolved that it would be willing to consider moving to an accelerated process with King if King were willing to raise its offer to $39.00 per Share.

 

On September 9, 2008, representatives of Banc of America Securities informed representatives of Credit Suisse of the Board’s decision and counteroffer. Later that day, representatives of Credit Suisse informed representatives of Banc of America Securities that King was not prepared to raise its offer and encouraged the Company to reconsider its position.

 

On September 10, 2008, the full Board of Directors of the Company met with members of management and representatives of the Company’s legal and financial advisors. Mr. Mitchell informed the board that the Company had received a written preliminary indication of interest from Company X for a business combination contingent on due diligence, with the proposed merger consideration to be a mixture of cash and equity in Company X, valued in total in the range of $38.00 to $42.00 per Share. The Board unanimously agreed to continue to invite King to participate in its sale process at $37.00 per Share, but was not prepared to move forward with King on an accelerated basis at such price level. The Board also unanimously agreed that outbound efforts to encourage other potential bidders to participate in an auction process should move forward expeditiously and the Company should enter into a confidentiality agreement with Company X and allow Company X to promptly initiate due diligence following receipt of its preliminary indication of interest letter.

 

On September 10, 2008, representatives of Banc of America Securities informed representatives of Credit Suisse that the Company’s position remained unchanged from the day before. Later that evening, a representative of Credit Suisse informed a representative of Banc of America Securities that King was planning to launch a tender offer to acquire all of the outstanding Shares at $37.00 per Share in cash, unless the Company reconsidered its position.

 

On September 11, 2008, Mr. Markison sent the following letter to Mr. Mitchell and to the Company’s Board of Directors and issued a press release announcing its intention to commence a tender offer to acquire all of the outstanding Shares at $37.00 per Share in cash:

 

Mr. Dean J. Mitchell

President and Chief Executive Officer

Alpharma Inc.

440 Route 22 East

Bridgewater, NJ 08807

 

Dear Dean:

 

I am disappointed that you and your Board of Directors have rejected our enhanced offer.

 

In light of your decision, we have decided to publicly disclose our latest proposal to acquire all of the outstanding shares of Alpharma Class A Common Stock at a price of $37 per share in cash and to take this

offer directly to your stockholders. This price represents a premium of 67% over the closing price of the Alpharma Class A Common Stock on August 4, 2008, the date of King’s initial private written proposal to Alpharma, and premium of 54% over the closing price on August 21, 2008, the last trading day prior to public disclosure of King’s initial proposal. We believe this is a compelling offer that your stockholders will find extremely attractive.

 

Since early July of 2008, I have attempted to engage Alpharma’s management and Board of Directors in a substantive discussion of the merits of a negotiated business combination between King and Alpharma, without result.

 

In our latest private offer of $37 per share in cash, we stated that we were prepared to enter into a merger agreement containing a “go-shop” provision whereby Alpharma would be permitted, after signing, to actively solicit third-party offers during an agreed-upon period of time. You have also declined this offer.

 

While we would prefer to work cooperatively with you and your Board to complete a negotiated transaction, our Board of Directors has authorized management to commence a tender offer to purchase all of the outstanding shares of Class A Common Stock of Alpharma for $37 per share in cash, which we intend to do promptly.

 

As you know we have retained Credit Suisse and Wachovia Securities as our financial advisors and Dewey & LeBoeuf LLP as our legal advisor to assist in completing this transaction. King and its advisors are ready to meet with you and your representatives to complete the transaction promptly.

 

I hope to hear from you soon.

 

Very truly yours,

 

Brian Markison

Chairman of the Board,

President and Chief Executive Officer

 

cc: To the attention of Alpharma Inc.’s Board of Directors

Mr. Peter G. Tombros, Chairman of the Board

Mr. Finn-Berg Jacobsen, Director

Mr. Peter Ladell, Director

Mr. Ramon Perez, Director

Mr. David U’Prichard, Director

 

On September 11, 2008, the Company issued a press release urging its shareholders to take no action with respect to the King tender offer, when commenced, until the Company’s Board of Directors had issued its recommendation and announcing the Board had initiated a process to explore all strategic alternatives, including a possible sale of the Company. The Board also continued to review the Company’s business plans, growth prospects and operating environment.

 

On September 12, 2008, King filed the Schedule TO with the SEC, commencing the Offer, and filed a Complaint for declaratory and injunctive relief in Delaware Chancery Court against the Board of Directors for breach of fiduciary duty.

 

Later on September 12, 2008, the full Board of Directors held meetings with the Company’s management and its financial and legal advisors to evaluate the Offer, the Board’s fiduciary duties in the context of the Offer and various strategic alternatives, including a potential sale of the Company, and business opportunities available to the Company. The Board also continued to review the Company’s business plans, growth prospects and operating environment and the status of the auction process that the Company was undertaking.

 

On September 18, 2008, the full Board of Directors again held meetings with the Company’s management and its financial and legal advisors to evaluate the Offer, the Board’s fiduciary duties in the context of the Offer and various strategic alternatives, including a potential sale of the Company, and business opportunities available to the Company. As part of these discussions, the Board discussed its pending agreement with DURECT Corporation, subsequently announced on September 22, 2008, relating to the licensing of certain rights to develop and commercialize an investigational transdermal bupivacaine patch under development. The

Board and its advisors discussed that this licensing arrangement should not affect the auction process but that, in light of the potential value that the licensing arrangement would bring to the Company, it could have a positive impact on the auction process.

 

On September 19, 2008, representatives of Credit Suisse contacted representatives of Banc of America Securities to inquire as to whether the Board of Directors’ position had changed such that the Company would consider entering into negotiations with King immediately with respect to a potential transaction. In response to questions from representatives of Banc of America Securities, representatives of Credit Suisse indicated that King was not willing to raise the price of its offer. On September 22, representatives of Credit Suisse contacted representatives of Banc of America Securities to follow up on the prior conversation. Representatives of Banc of America Securities responded that in light of King’s unwillingness to raise its offer price, the Company was not prepared to enter into immediate negotiations with King at this time. But representatives of Banc of America Securities did reiterate the Company’s invitation to King to enter into the auction process on the same basis as other parties.

 

On September 23, 2008 and September 25, 2008, the full Board met with the Company’s management and its legal and financial advisors to discuss and evaluate the Offer. At the September 25, 2008 meeting, after careful consideration, including further consultation with the Company’s management and the Company’s financial and legal advisors and taking into account the factors described under “Reasons for the Recommendation of the Board” in the Company’s original Solicitation/Recommendation on Schedule 14D-9 which was filed with the SEC on September 26, 2008, the Board of Directors unanimously determined that the Offer was financially inadequate and not in the best interests of the shareholders and unanimously recommended that the Company’s shareholders reject the Offer and not tender their Shares to Purchaser pursuant to the Offer. The Board of Directors also authorized the issuance of a press release and the filing of a recommendation statement with the SEC setting forth the Board of Directors’ recommendation that the shareholders of the Company reject the Offer.

 

On September 30, 2008, representatives of Credit Suisse contacted representatives of Banc of America Securities to discuss the Offer. Representatives of Credit Suisse informed representatives of Banc of America Securities that King had decided to accept the Company’s invitation to enter into a confidentiality agreement in order to receive certain confidential information concerning the Company. Following such discussion, the Company and King negotiated, and on October 3, 2008 entered into, a confidentiality agreement governing disclosure of confidential information and certain related matters.

 

Following the Board’s determination that the Offer was financially inadequate and not in the best interests of the shareholders, the Company continued to explore strategic alternatives, including a potential sale of the Company. During the period from September 3, 2008 through the date on which the Merger Agreement was executed, Banc of America Securities, at the Company’s direction, contacted numerous parties to determine their interest in a potential business combination with the Company. During this period, the Company entered into confidentiality agreements with eight other potential bidders, provided access to Company documents and information through an online data room and held multiple due diligence sessions with potential bidders. Of the eight other parties that executed confidentiality agreements with the Company, two parties, Company X and Company Y, submitted preliminary indications of interest to the Company.

 

As discussed above, in its preliminary indication of interest, Company X reaffirmed a price range with a low-end that was in excess of the Offer Price. However, after conducting due diligence and holding multiple full day due diligence sessions with members of the Company’s management, Company X informed the Company that, due to market conditions and certain other factors, it was no longer willing to pursue a negotiated transaction with the Company.

 

The Company also received a written preliminary indication of interest from Company Y in which Company Y indicated that it would be interested in potentially acquiring the Company. After conducting due diligence, however, Company Y informed the Company that it was not interested in pursuing an acquisition of the entire Company. Company Y instead indicated that it would be potentially interested in purchasing the Company’s pharmaceutical business but that it did not have any interest in purchasing the Company’s animal health business. The Company and its representatives had numerous discussions with Company Y concerning

its willingness to pursue an acquisition of the entire Company but Company Y indicated repeatedly that it was no longer interested in pursuing such a transaction. Although the Board considered the possibility of selling just the pharmaceutical business to Company Y or attempting to find a third party to partner with Company Y to acquire the entire Company, the Board concluded that such a transaction would take significantly longer, would be significantly more challenging to implement, would be subject to much greater uncertainty, would potentially have adverse tax consequences and an adverse effect on the Company’s outstanding series of convertible notes and would be unlikely to result in a transaction that would be more favorable to the Company’s shareholders than the Revised Offer.

 

As a part of the Company’s auction process, after the execution of a confidentiality agreement with King on October 3, 2008, the Company also provided King with a similar level of access to due diligence materials and members of its management team as were provided to other bidders in the auction process. Throughout October, Mr. Mitchell had numerous conversations with Mr. Markinson relating to the potential terms of a negotiated transaction and the Board held several meetings to review these discussions and the status of the auction process and other potential bidders. In light of the drastic decline in the financial markets, the lack of a compelling alternative transaction and the Board’s belief that pursuing a transaction with King represented the best value reasonably available under the circumstance to the Company’s shareholders, on October 30, 2008, the Board authorized the Company to attempt to negotiate a definitive merger agreement with King while at the same time continuing to pursue its auction process. On October 30, 2008, Simpson Thacher delivered a draft merger agreement to Dewey & LeBoeuf LLP (“Dewey”), King’s legal advisor. Thereafter, the Company and its financial and legal advisors held numerous conversations with King and its financial and legal advisors to negotiate the terms of the transaction and the merger agreement and Simpson Thacher and Dewey exchanged numerous drafts of the merger agreement.

 

On November 19, 2008, the Company’s Board of Directors met with the Company’s management and its legal and financial advisors to review the status of the Company’s discussions with King. Simpson Thacher provided an overview of the status of the merger agreement negotiations and outlined for the Board the principal provisions of the merger agreement that were being negotiated. Banc of America Securities provided the Board with an overview of its discussions with Credit Suisse regarding the status of King’s discussions with its lenders about the financing of the proposed transaction. Banc of America Securities also reviewed with the Board the current status of the auction process. Following discussion of these matters, the Board instructed management to continue to negotiate the merger agreement with King.

 

On November 23, 2008, the Company’s Board of Directors met with the Company’s management and its legal and financial advisors to discuss the Revised Offer, the Merger and the Merger Agreement, and the legal, financial and other considerations relevant thereto. Simpson Thacher presented a summary of the terms and conditions of the Merger Agreement and reviewed with the Board its fiduciary duties. Also at this meeting, Banc of America Securities reviewed with the Company’s Board of Directors its financial analysis of the Offer Price and delivered to the Company’s Board of Directors an oral opinion, which was confirmed by delivery of a written opinion dated November 23, 2008, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the Offer Price to be received by holders of the Class A Common Stock (other than King and its affiliates), was fair, from a financial point of view, to such holders. After careful consideration, including consultation with the Company’s management and the Company’s legal and financial advisors, and taking into account the factors described under “Reasons for the Recommendation of the Board” below, the Board of Directors unanimously determined that the terms of the Revised Offer, the Merger and the Merger Agreement were fair to, and in the best interests of, the Company’s shareholders and approved and declared advisable the Revised Offer, the Merger and the Merger Agreement. The Board unanimously determined to recommend that the Company’s shareholders accept the Revised Offer, tender their Shares to Purchaser pursuant to the Revised Offer and, if required by applicable Delaware law, adopt the Merger Agreement.

 

On November 24, 2008, the Company and King issued a joint press release announcing the execution of the Merger Agreement. A copy of the press release is filed as exhibit (a)(4) to the Statement and is incorporated herein by reference.

Item 4 is hereby further amended by amending and restating the paragraphs under the heading“Reasons for the Recommendation of the Board”as follows:

 

In reaching the conclusion that the Revised Offer, the Merger and the Merger Agreement are fair to, and in the best interests of, the Company’s shareholders, and in making the recommendations described above, the Board of Directors consulted with management of the Company and its financial and legal advisors, and took into account numerous other factors. The primary reasons for the Board’s conclusion are as follows:

 

 

 

Item 4 is hereby further amended by amending and restating the paragraphs under the heading “Considerations of the Board” as follows:

 

The foregoing discussion of the information and factors considered and reasons cited by the Board of Directors is not meant to be exhaustive, but includes the material information, factors and reasons considered by the Board of Directors in reaching its conclusions and recommendations in relation to the Revised Offer, the Merger Agreement and the Merger. The members of the Board of Directors evaluated the various factors listed above in light of their knowledge of the business, financial condition and prospects of the Company, taking into account the advice of the Company’s financial and legal advisors. In light of the variety of factors and amount of information that the Board of Directors considered, the members of the Board of Directors did not find it practicable to provide specific assessment of, quantify or otherwise assign any relative weights to, the factors considered in determining its recommendation. However, the recommendation of the Board of Directors was made after considering the totality of the information and factors involved. Individual members of the Board of Directors may have given different weight to different factors. In addition, in arriving at its recommendation, the directors of the Company were aware of the interests of certain officers and directors of the Company as described under “Past Contacts, Transactions, Negotiations and Agreements.”

 

Item 4 is hereby further amended by amending and restating the paragraphs under the heading “Recommendation of the Board” as follows:

 

In light of the factors described above, the Board of Directors has unanimously determined that the Revised Offer, the Merger Agreement and the Merger are fair to, and in the best interests of, the Company’s shareholders and approved and declared advisable the Revised Offer, the Merger Agreement and the Merger.

 

Therefore, the Board of Directors unanimously recommends that the Company’s shareholders accept the Revised Offer, tender their shares to Purchaser for purchase pursuant to the Revised Offer and, if required by applicable Delaware law, adopt the Merger Agreement.

 

Item 4 is hereby further amended by amending and restating the paragraphs under the heading “Intent to Tender” as follows:

 

To the knowledge of the Company, each of the Company’s executive officers, directors, affiliates or subsidiaries currently intend to tender Shares held of record or beneficially by such person for purchase pursuant to the Revised Offer.

 

 

The information disclosed above under Items 2, 3, and 4 is hereby incorporated by reference into this Item 7.

 

 

Item 8 is hereby amended by inserting the following at the end of the section entitled “Board Action Regarding Rights Plan”:

 

At its meeting on November 23, 2008, the Board of Directors took action to amend the Rights Plan to render the Rights issued pursuant to the Rights Plan inapplicable to the Revised Offer, the Merger and the

Merger Agreement and the other transactions contemplated thereby. A copy of the First Amendment to the Rights Plan is filed as an exhibit to a Registration Statement on Form 8-A/A dated November 24, 2008 and is incorporated herein by reference.

 

Item 8 is hereby further amended by amending and restating the paragraphs under the heading “Litigation Matters” as follows:

 

Putative Class Actions

 

On August 26, 2008, a purported class action captioned Brockton Contributory Retirement System v. Alpharma Inc., et al., Docket No. SOM-C-12087-08, was filed by an alleged shareholder of the Company in the Superior Court of New Jersey, Chancery Division, Somerset County. The complaint, which was amended on September 16, 2008, alleges that the Company’s directors breached their fiduciary duties in connection with the Offer, including by adopting and maintaining the Rights Plan, and seeks declaratory, injunctive and other relief.

 

On September 4, 2008, a purported class action and shareholder derivative action captioned Plumbers Local Union No. 519 Pension Trust Fund v. Dean J. Mitchell, et al., and Alpharma Inc., Docket No. SOM-L-1316- 08, was filed by an alleged shareholder of the Company in the Superior Court of New Jersey, Law Division, Somerset County. The complaint alleges that the Company’s directors breached their fiduciary duties to the shareholders and to the Company in connection with the Offer, including by adopting and maintaining the Rights Plan, and seeks declaratory, injunctive and other relief.

 

On September 4, 2008, Richard Chan, on September 8, 2008, Shirley Simon, and on September 9, 2008, John Holler, all of whom purport to be shareholders of the Company, each commenced a purported class action on behalf of the shareholders of the Company against the Company and its directors in the Superior Court of New Jersey, Chancery Division, Hunterdon County. These cases are captioned Richard Chan v. Alpharma, Inc., et al. (“Chan”), Docket No. HNT-C-14039-08; Shirley Simon v. Alpharma Inc., et al. (“Simon”), Docket No. HNT-C-14040-08; and John Holler v. Alpharma, Inc., et al. (“Holler”), Docket No. HNT-C-14041-08. Each complaint alleges that the Company’s directors breached their fiduciary duties in connection with the Offer, including by adopting and maintaining the Rights Plan, and seeks declaratory, injunctive and other relief.

 

On October 6, 2008, the New Jersey Superior Court issued an order consolidating the foregoing five lawsuits into one action styled In re Alpharma Inc. Shareholder Litigation, Consolidated Case No. HNT-C-14039-08. On October 10, 2008, the Court appointed Brockton Contributory Retirement System and its counsel to serve as lead plaintiff and lead plaintiff’s counsel. A consolidated amended complaint has not yet been filed.

 

On September 18, 2008, a purported class action captioned City of Lincoln Park Police and Fire Retirement System v. Finn Berg Jacobsen, et al., Case No. 4043-VCS, was filed by an alleged shareholder of the Company in the Court of Chancery of the State of Delaware. The complaint alleges that the Company’s directors breached their fiduciary duties in connection with the Offer, including by adopting and maintaining the Rights Plan, and seeks injunctive and other relief. On October 13, 2008, the Company and the individual defendants filed a motion to dismiss or, in the alternative, stay the action. The Court has not yet set a briefing schedule.

 

King Litigation

 

On September 12, 2008, King and Purchaser filed a lawsuit against the Company and its directors captioned King Pharmaceuticals, et al. v. Alpharma Inc., et al., Case No. 4033-VCS, in the Court of Chancery of the State of Delaware. The complaint alleges that the Company’s directors breached their fiduciary duties in connection with the Offer by adopting and maintaining the Rights Plan, and seeks declaratory, injunctive and other relief. Pursuant to the terms of the Merger Agreement, King and Purchaser are required to promptly enter into stipulations staying this lawsuit. If the Revised Offer is completed, King and Purchaser are required under the Merger Agreement to enter into and file stipulations dismissing this lawsuit with prejudice.

The Company and the individual defendants believe that the claims made in each of the foregoing lawsuits are without merit and intend to vigorously defend against these lawsuits.

 

Item 8 is hereby further amended and supplemented by inserting the following at the end thereof:

 

Opinion of the Company’s Financial Advisor

 

The Company has retained Banc of America Securities to act as the Company’s financial advisor in connection with its evaluation of strategic alternatives, including the Revised Offer and the Merger. Banc of America Securities is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Company selected Banc of America Securities to act as the Company’s financial advisor in connection with the Revised Offer and the Merger on the basis of Banc of America Securities’ experience in similar transactions, its reputation in the investment community and its familiarity with the Company and its business.

 

On November 23, 2008, at a meeting of the Company’s Board of Directors held to evaluate the Revised Offer and the Merger, Banc of America Securities delivered to the Company’s Board of Directors an oral opinion, which was confirmed by delivery of a written opinion dated November 23, 2008, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in its opinion, the Offer Price to be received by holders of the Class A Common Stock (other than King and its affiliates) was fair, from a financial point of view, to such holders.

 

The full text of Banc of America Securities’ written opinion to the Company’s Board of Directors, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex I hereto and filed as exhibit (a)(6) to the Statement and is incorporated by reference herein in its entirety. The following summary of Banc of America Securities’ opinion is qualified in its entirety by reference to the full text of the opinion. Banc of America Securities delivered its opinion to the Company’s Board of Directors for the benefit and use of the Company’s Board of Directors in connection with and for purposes of its evaluation of the Offer Price from a financial point of view. Banc of America Securities’ opinion does not address any other aspect of the Revised Offer or the Merger and does not constitute a recommendation to any shareholder as to whether any shareholder should tender such holder’s shares of Class A Common Stock or how to vote or act in connection with the proposed Merger.

 

In connection with rendering its opinion, Banc of America Securities:

 

(i) reviewed certain publicly available business and financial information relating to the Company;

 

(ii) reviewed certain internal financial and operating information with respect to the business, operations and prospects of the Company furnished to or discussed with Banc of America Securities by the management of the Company, including certain financial forecasts relating to the Company prepared by the management of the Company (such forecasts, the “Alpharma Forecasts”);

 

(iii) discussed the past and current business, operations, financial condition and prospects of the Company with members of senior management of the Company;

 

(iv) reviewed the trading history for the Class A Common Stock;

 

(v) compared certain financial and stock market information of the Company with similar information of other companies Banc of America Securities deemed relevant;

 

(vi) compared certain financial terms of the Merger to financial terms, to the extent publicly available, of other transactions Banc of America Securities deemed relevant;

 

(vii) considered the fact that the Company publicly announced that it would explore its strategic alternatives and the results of Banc of America Securities’ efforts to solicit, at the direction of the

Company, indications of interest and definitive proposals from third parties with respect to certain strategic alternatives of the Company;

 

(viii) considered the fact that the Company provided King with confidential non-public information pursuant to a confidentiality agreement as part of the sales process conducted by the Company following King’s commencement of its tender offer on September 12, 2008 and that King received and reviewed such information prior to executing and delivering the Agreement;

 

(ix) reviewed the Merger Agreement; and

 

(x) performed such other analyses and studies and considered such other information and factors as Banc of America Securities deemed appropriate.

 

In arriving at its opinion, Banc of America Securities assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the management of the Company that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the Alpharma Forecasts, Banc of America Securities was advised by the Company, and assumed, that such forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future financial performance of the Company. Banc of America Securities did not make and was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor did it make any physical inspection of the properties or assets of the Company. Banc of America Securities did not evaluate the solvency of the Company or King under any state or federal laws relating to bankruptcy, insolvency or similar matters. Banc of America Securities assumed, at the Company’s direction, that the Revised Offer and the Merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Revised Offer and Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the contemplated benefits of the Revised Offer and Merger.

 

Banc of America Securities expressed no view or opinion as to any terms or other aspects of the Revised Offer and Merger (other than the Offer Price to the extent expressly specified in its opinion), including, without limitation, the form or structure of the Revised Offer or the Merger. Banc of America Securities’ opinion was limited to the fairness, from a financial point of view, of the Offer Price to be paid to the holders of the Class A Common Stock (other than King and its affiliates) and no opinion or view was expressed with respect to any consideration received in connection with the Merger by the holders of any other class of securities, creditors or other constituencies of the Company. In addition, no opinion or view was expressed with respect to the fairness of the amount, nature or any other aspect of the compensation to any of the officers, directors or employees of any party to the Merger, or class of such persons, relative to the Offer Price. Furthermore, no opinion or view was expressed as to the relative merits of the Revised Offer or the Merger in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the Merger. In addition, Banc of America Securities expressed no opinion or recommendation as to how any shareholder should vote or act in connection with the Revised Offer or the Merger. Except as described above, the Company imposed no other limitations on the investigations made or procedures followed by Banc of America Securities in rendering its opinion.

 

Banc of America Securities’ opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to Banc of America Securities as of, the date of its opinion. It should be understood that subsequent developments may affect its opinion, and Banc of America Securities does not have any obligation to update, revise or reaffirm its opinion. The issuance of Banc of America Securities’ opinion was approved by Banc of America Securities’ Fairness Opinion Review Committee.

The following represents a brief summary of the material financial analyses presented by Banc of America Securities to the Company’s Board of Directors in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by Banc of America Securities, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by Banc of America Securities. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Banc of America Securities.

 

Sum of the Parts Financial Analysis

 

Banc of America Securities performed a pre-tax sum of the parts financial analysis to calculate the implied equity value of the Class A Common Stock based on the sum of the implied enterprise valuations for the Company’s pharmaceuticals business (“Pharmaceuticals”) and animal health business (“Animal Health”) derived from the financial analyses described below plus the amount of the Company’s cash, less the amount of the Company’s outstanding debt. This analysis indicated the following implied per share equity value reference range for the Company, as compared to the Offer Price:

 

 

Financial Analyses — Pharmaceuticals

 

Selected Publicly Traded Companies Analysis — Pharmaceuticals.  Banc of America Securities reviewed publicly available financial and stock market information for the Company and the following 12 publicly traded companies in the pharmaceuticals industry:

 

 

Banc of America Securities reviewed, among other things, enterprise values (calculated as equity value plus debt minus cash), based on closing stock prices on November 21, 2008, of the selected publicly traded companies as a multiple of calendar years 2008, 2009 and 2010 estimated revenue and equity values, based on closing stock prices on November 21, 2008, of the selected publicly traded companies as a multiple of calendar 2008 and 2010 estimated net income. Banc of America Securities then applied a range of selected multiples of calendar years 2008, 2009 and 2010 estimated revenue derived from the selected publicly traded companies to corresponding data of Pharmaceuticals and applied a range of selected multiples of calendar years 2008 and 2010 estimated net income derived from the selected publicly traded companies to the

Company’s 2011 and 2010 estimated Pharmaceuticals’ net income, respectively (which in the case of calendar year 2011 estimated net income was discounted three years at a discount rate of 27.5%) in order to derive implied enterprise value reference ranges for Pharmaceuticals. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates. Estimated financial data of the Company were based on the Alpharma Forecasts.

 

No company used in this analysis is identical or directly comparable to the Company. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which the Company was compared.

 

Selected Precedent Transactions Analysis — Pharmaceuticals.  Banc of America Securities reviewed, to the extent publicly available, financial information relating to the following 19 selected transactions involving companies in pharmaceuticals industry:

 

 

Banc of America Securities reviewed transaction values, calculated as the enterprise value (calculated as equity value plus debt minus cash) implied for the target company based on the consideration payable in the selected transaction, as a multiple of the target company’s one-year forward estimated net revenue. Banc of America Securities then applied a range of selected multiples of one-year forward estimated net revenue derived from the selected transactions to the Company’s calendar year 2009 estimated Pharmaceuticals’ revenue to derive an implied enterprise value reference range for Pharmaceuticals. Estimated financial data of the selected transactions were based on publicly available information. Estimated financial data of the Company were based on the Alpharma Forecasts.

 

No company, business or transaction used in this analysis is identical or directly comparable to the Company or the Merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and

operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which the Company and the Merger were compared.

 

Discounted Cash Flow Analysis- Pharmaceuticals.  Banc of America Securities performed a discounted cash flow analysis of Pharmaceuticals to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that the Company could generate during the Company’s fiscal years 2008 through 2013 based on the Alpharma Forecasts. Banc of America Securities calculated terminal values for Pharmaceuticals by applying a perpetuity growth rate of 2.0% to 5.0%. The cash flows and terminal values were then discounted to present value as of September 30, 2008 using discount rates ranging from 25% — 30% to derive an implied enterprise value reference ranges for Pharmaceuticals.

 

Financial Analysis — Animal Health

 

Selected Precedent Transaction Analysis- Animal Health.

 

Banc of America Securities reviewed, to the extent publicly available, financial information relating to the following 2 transactions relevant to the animal health industry:

 

 

Banc of America Securities reviewed (i) the transaction value, implied by 3i Group’s investment in Phibro, as a multiple of Phibro’s last twelve months estimated earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, as of June 30, 2007 and (ii) the transaction value based on the consideration payable in the API transaction as a multiple of API’s last twelve months EBITDA. Banc of America Securities then applied a range of selected EBITDA multiples derived from the selected transactions to calendar year 2008 estimated EBITDA for Animal Health to derive an implied enterprise value reference range for Animal Health. Estimated financial data of the selected transactions were based on publicly available information. Estimated financial data of the Company were based on the Alpharma Forecasts.

 

No company, business or transaction used in this analysis is identical or directly comparable to the Company or the Merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which the Company was compared.

 

Discounted Cash Flow Analysis- Animal Health.  Banc of America Securities performed a discounted cash flow analysis of Animal Health to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that the Company could generate during the Company’s fiscal years 2008 through 2013 based on the Alpharma Forecasts. Banc of America Securities calculated terminal values for Animal Health by applying a perpetuity growth rate of 0.0% to 2.0%. The cash flows and terminal values were then discounted to present value as of September 30, 2008 using discount rates ranging from 10% — 11% to derive an implied enterprise value reference range for Animal Health.

 

Pro Forma Accretion/Dilution Analysis.

 

Banc of America Securities reviewed the potential pro forma financial effect of the Merger on King calendar years 2009 through 2011 estimated earnings per share. Estimated financial data of King were based on the King forecasts obtained from Wall Street equity research and FirstCall consensus estimates and estimated financial data of the Company were based on the Alpharma Forecasts. Based on the Offer Price, this analysis indicated that the Merger could be dilutive to King estimated earnings per share for calendar years 2009 and accretive to King’s estimated earnings per share for calendar years 2010 and 2011. The actual results achieved by the combined company may vary from projected results and the variations may be material.

Miscellaneous

 

As noted above, the discussion set forth above is a summary of the material financial analyses presented by Banc of America Securities to the Company’s Board of Directors in connection with its opinion and is not a comprehensive description of all analyses undertaken by Banc of America Securities in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. Banc of America Securities believes that its analyses summarized above must be considered as a whole. Banc of America Securities further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Banc of America Securities’ analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.

 

In performing its analyses, Banc of America Securities considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company and King The estimates of the future performance of the Company and King in or underlying Banc of America Securities’ analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by Banc of America Securities’ analyses. These analyses were prepared solely as part of Banc of America Securities’ analysis of the fairness, from a financial point of view, of the Offer Price and were provided to the Company’s Board of Directors in connection with the delivery of Banc of America Securities’ opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be Banc of America Securities’ view of the actual values of the Company or King.

 

The type and amount of consideration payable in the Merger was determined through negotiations between the Company and King, rather than by any financial advisor, and was approved by the Company’s Board of Directors. The decision to enter into the Merger Agreement was solely that of the Company’s Board of Directors. As described above, Banc of America Securities’ opinion and analyses were only one of many factors considered by the Company’s Board of Directors in its evaluation of the Revised Offer and the Merger and should not be viewed as determinative of the views of the Company’s Board of Directors or management with respect to the Merger or the Offer Price.

 

Banc of America Securities has acted as financial advisor to the Company in connection with its evaluation of certain strategic alternatives, including the Merger, and Banc of America Securities has received or will receive a fee for its services currently estimated to be approximately $13.6 million, a portion of which was paid upon rendering an opinion in connection with King’s previously announced tender offer, a portion of which was payable upon rendering its opinion and a significant portion of which is contingent upon consummation of the Merger. In addition, the Company has agreed to reimburse Banc of America Securities’ expenses and indemnify Banc of America Securities against certain liabilities arising out of Banc of America Securities’ engagement.

 

Banc of America Securities and its affiliates comprise a full service securities firm and commercial bank engaged in securities trading and brokerage activities and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of corporations and individuals. In the ordinary course of their businesses, Banc of America Securities and its affiliates may actively trade the debt, equity or other securities or financial instruments (including bank loans or other obligations) of the Company, King and certain of their respective affiliates for their own accounts or for the accounts of customers, and accordingly,

Banc of America Securities or its affiliates may at any time hold long or short positions in such securities or financial instruments.

 

Banc of America Securities and its affiliates in the past have provided, currently are providing, and in the future may provide investment banking, commercial banking and other financial services to the Company and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as bookrunning manager, lead arranger and administrative, syndication and collateral agent for, and a lender under, certain credit facilities of the Company and certain of its affiliates, (ii) having acted as financial advisor to the Company in connection with certain mergers and acquisitions transactions, (iii) having acted as sole bookrunning manager to the Company in connection with a convertible offering and (iv) having provided or providing certain cash management, trading and foreign exchange services to the Company In addition, Banc of America Specialist Inc., an affiliate of Banc of America Securities, acts as a specialist for the Class A Common Stock on the New York Stock Exchange.

 

In addition, Banc of America Securities and its affiliates in the past have provided, currently are providing and in the future may provide investment banking, commercial banking and other financial services to King and have received or in the future may receive compensation for the rendering of these services, including (i) having acted as co-syndication agent for, and a lender under, certain credit facilities of King and (ii) having provided or providing certain cash management, trading and foreign exchange services to King.

 

Financial Projections

 

The Company does not publicly disclose forecasts of future financial performance, earnings or other results and is especially wary of making projections for extended periods due to the unpredictability of the underlying assumptions and estimates. However, the Company provided Banc of America Securities with projected financial information in connection with the preparation of its fairness opinion and related financial analysis. The following is a summary of the material projections that were provided to Banc of America Securities.

 

Financial Projections
(in millions)

 

 

The projections set forth above were not prepared with a view to public disclosure and are being included in the Statement only because such information was provided to Banc of America Securities and was relied upon by Banc of America Securities in performing its analysis. The projections were not prepared with a view to compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The projections do not purport to present operations in accordance with U.S. generally accepted accounting principles, and the Company’s registered public accounting firm has not examined, compiled or otherwise applied procedures to the projections and accordingly assumes no responsibility for them. The projections have been prepared by, and are solely the responsibility of, management of the Company. The inclusion of the projections in the Statement should not be regarded as an indication that such projections will be predictive of actual future results, and the forecasts should not be relied upon as such. No representation is made by the Company or any other person to any security holder of the Company regarding the ultimate performance of the Company compared to the information contained in the projections. Although presented with numerical specificity, the projections are not fact and reflect numerous assumptions and estimates as to future events made by the Company’s management that the Company’s management believed were reasonable at the time the projections were prepared and other factors such as industry performance and general business, economic,

regulatory, market and financial conditions, as well as factors specific to the Company’s business, all of which are difficult to predict and many of which are beyond the control of the Company’s management. In addition, the projections do not take into account any circumstances or events occurring after the date that they were prepared and, accordingly, do not give effect to the Revised Offer or the Merger or any changes to the Company’s operations or strategy that may be implemented after the consummation of the Revised Offer and the Merger. Further, the projections do not take into account the effect of any failure to occur of the Revised Offer or the Merger and should not be viewed as accurate or continuing in that context. Accordingly, there can be no assurance that the projections will be realized, and actual results may be materially greater or less than those reflected in the projections. The Company does not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. The projections are forward-looking statements. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Information on other important potential risks and uncertainties not discussed herein may be found in the Company’s filings with the Securities and Exchange Commission including its Annual Report on Form 10-K for the year ended December 31, 2007 and its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008.

 

In light of the foregoing factors and the uncertainties inherent in the projections, shareholders of the Company are cautioned not to place undue reliance on the projections included in the Statement.

 

 

Item 9 is hereby amended and supplemented by adding the following thereto:

 

 

SIGNATURE

 

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

 

ALPHARMA INC.

 

Name:     Thomas J. Spellman III

 

Date: December 8, 2008

 

EXHIBIT INDEX

 

 

 

 

Annex I

 

 

November 23, 2008

 

The Board of Directors
Alpharma Inc.
440 U.S. Highway 22 East
Bridgewater, New Jersey 08807

 

Members of the Board of Directors:

 

We understand that Alpharma Inc. (“Alpharma”) proposes to enter into an Agreement and Plan of Merger, dated November 23, 2008 (the “Agreement”), among Alpharma, King Pharmaceuticals, Inc. (“King”) and Albert Acquisition Corp, a wholly owned subsidiary of King (“Merger Sub”), which provides, among other things, for (i) the tender offer made by King on September 12, 2008 to purchase all of the outstanding shares of Class A Common Stock, par value $0.20 per share (“Alpharma Common Stock”), of Alpharma at a purchase price of $37.00 per share in cash to be amended and, subject to the amended terms and conditions, consummated, in each case, as set forth in the Agreement (as so amended, the “Offer”) and (ii) the subsequent merger of Merger Sub with and into Alpharma (the “Merger” and, together with the Offer, the “Transaction”). The Agreement provides that, pursuant to the Offer and the Merger, holders of Alpharma Common Stock will be entitled to receive consideration of $37.00 per share in cash (the “Consideration”) for each share of Alpharma Common Stock held by them. The terms and conditions of the Transaction are more fully set forth in the Agreement.

 

You have requested our opinion as to the fairness, from a financial point of view, to the holders of Alpharma Common Stock (other than King and its affiliates) of the Consideration to be received by such holders in the Transaction.

 

In connection with this opinion, we have, among other things:

 

(i) reviewed certain publicly available business and financial information relating to Alpharma;

 

(ii) reviewed certain internal financial and operating information with respect to the business, operations and prospects of Alpharma furnished to or discussed with us by the management of Alpharma, including certain financial forecasts relating to Alpharma prepared by the management of Alpharma (such forecasts, the “Alpharma Forecasts”);

 

(iii) discussed the past and current business, operations, financial condition and prospects of Alpharma with members of senior management of Alpharma;

 

(iv) reviewed the trading history for Alpharma Common Stock;

 

(v) compared certain financial and stock market information of Alpharma with similar information of other companies we deemed relevant;

 

(vi) compared certain financial terms of the Transaction to financial terms, to the extent publicly available, of other transactions we deemed relevant;

 

(vii) considered the fact that Alpharma publicly announced that it would explore its strategic alternatives and the results of our efforts to solicit, at the direction of Alpharma, indications of interest and definitive proposals from third parties with respect to certain strategic alternatives of Alpharma;

 

(viii) considered the fact that Alpharma provided King with confidential non-public information pursuant to a confidentiality agreement as part of the sales process conducted by Alpharma following

The Board of Directors

Alpharma Inc.

November 23, 2008

Page 2

 

King’s commencement of its tender offer on September 12, 2008 and that King received and reviewed such information prior to executing and delivering the Agreement;

 

(ix) reviewed the Agreement; and

 

(x) performed such other analyses and studies and considered such other information and factors as we deemed appropriate.

 

In arriving at our opinion, we have assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with us and have relied upon the assurances of the management of Alpharma that they are not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the Alpharma Forecasts, we have been advised by Alpharma, and have assumed, that such forecasts have been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Alpharma as to the future financial performance of Alpharma. We have not made or been provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Alpharma, nor have we made any physical inspection of the properties or assets of Alpharma. We have not evaluated the solvency of Alpharma or King under any state or federal laws relating to bankruptcy, insolvency or similar matters. We have assumed, at Alpharma’s direction, that the Transaction will be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Transaction, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on Alpharma, King or the contemplated benefits of the Transaction.

 

We express no view or opinion as to any terms or other aspects of the Transaction (other than the Consideration to the extent expressly specified herein), including, without limitation, the form or structure of the Transaction. Our opinion is limited to the fairness, from a financial point of view, of the Consideration to be paid to the holders of Alpharma Common Stock (other than King and its affiliates) and no opinion or view is expressed with respect to any consideration received in connection with the Transaction by the holders of any other class of securities, creditors or other constituencies of Alpharma. In addition, no opinion or view is expressed with respect to the fairness of the amount, nature or any other aspect of the compensation to any of the officers, directors or employees of any party to the Transaction, or class of such persons, relative to the Consideration. Furthermore, no opinion or view is expressed as to the relative merits of the Transaction in comparison to other strategies or transactions that might be available to Alpharma or in which Alpharma might engage or as to the underlying business decision of Alpharma to proceed with or effect the Transaction. In addition, we express no opinion or recommendation as to whether any stockholders should tender such stockholder’s shares of Alpharma Common Stock into the Offer or how any stockholder should vote or act in connection with the Transaction.

 

We have acted as financial advisor to Alpharma in connection with its evaluation of certain strategic alternatives, including the Transaction, and have received or will receive a fee for our services, a portion of which was paid upon rendering an opinion in connection with King’s previously announced tender offer, a portion of which is payable upon rendering this opinion and a significant portion of which is contingent upon consummation of the Transaction. In addition, Alpharma has agreed to reimburse our expenses and indemnify us against certain liabilities arising out of our engagement.

 

We and our affiliates comprise a full service securities firm and commercial bank engaged in securities trading and brokerage activities and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of corporations and individuals. In the ordinary course of our businesses,

The Board of Directors

Alpharma Inc.

November 23, 2008

Page 3

 

we and our affiliates may actively trade the debt, equity or other securities or financial instruments (including bank loans or other obligations) of Alpharma, King and certain of their respective affiliates for our own account or for the accounts of customers, and accordingly, we or our affiliates at any time may hold long or short positions in such securities or financial instruments.

 

We and our affiliates in the past have provided, currently are providing, and in the future may provide investment banking, commercial banking and other financial services to Alpharma and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as bookrunning manager, lead arranger and administrative, syndication and collateral agent for, and a lender under, certain credit facilities of Alpharma and certain of its affiliates, (ii) having acted as financial advisor to Alpharma in connection with certain mergers and acquisitions transactions, (iii) having acted as sole bookrunning manager to Alpharma in connection with a convertible offering and (iv) having provided or providing certain cash management, trading and foreign exchange services to Alpharma. In addition, Banc of America Specialist Inc., an affiliate of ours, acts as a specialist for Alpharma Common Stock on the New York Stock Exchange.

 

In addition, we and our affiliates in the past have provided, currently are providing and in the future may provide investment banking, commercial banking and other financial services to King and have received or in the future may receive compensation for the rendering of these services, including (i) having acted as co-syndication agent for, and a lender under, certain credit facilities of King and (ii) having provided or providing certain cash management, trading and foreign exchange services to King.

 

It is understood that this letter is for the benefit and use of the Board of Directors of Alpharma in connection with and for purposes of its evaluation of the Transaction.

 

Our opinion is necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to us as of, the date hereof. It should be understood that subsequent developments may affect this opinion, and we do not have any obligation to update, revise, or reaffirm this opinion. The issuance of this opinion was approved by our Fairness Opinion Review Committee.

 

Based upon and subject to the foregoing, including the various assumptions and limitations set forth herein, we are of the opinion on the date hereof that the Consideration to be received in the Transaction by holders of Alpharma Common Stock (other than King and its affiliates) is fair, from a financial point of view, to such holders.

 

Very truly yours,

 

 

BANC OF AMERICA SECURITIES LLC

 

Annex II

 

ALPHARMA, INC.

 

440 ROUTE 22

BRIDGEWATER, NJ 08807

 

INFORMATION STATEMENT PURSUANT TO SECTION 14(f)

 

OF THE SECURITIES EXCHANGE ACT OF 1934

AND RULE 14f-1 THEREUNDER

 

This Information Statement is being mailed on or about December 8, 2008 with Amendment No. 5 to the Solicitation/ Recommendation Statement on Schedule 14D-9 (as amended, the “Schedule 14D-9”) of Alpharma Inc. (the “Company” or “Alpharma”). You are receiving this Information Statement in connection with the possible election of persons designated by King Pharmaceuticals, Inc. (“King”) to a majority of the seats on the Board of Directors of the Company (the “Board”). You are urged to read this Information Statement carefully. You are not, however, required to take any action. Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Schedule 14D-9.

 

Albert Acquisition Corp. (“Purchaser”), a wholly-owned subsidiary of King, has commenced a tender offer to purchase any and all of the outstanding shares of Class A Common Stock, par value $0.20 per share, of the Company (the “Class A Common Stock”), together with the associated preferred stock purchase rights, at a purchase price of $37.00 per share net to the seller in cash, without interest and subject to any required withholding of taxes (the “Offer Price”). The value of the consideration offered, together with all of the terms and conditions applicable to the tender offer is referred to in this Information Statement as the “Offer”. The Offer is scheduled to expire at 5:00 p.m., New York City time, on December 19, 2008, subject to extension in certain limited circumstances. The Offer is made upon the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of November 23, 2008, among the Company, King and Purchaser and in any supplements or amendments thereto (the “Merger Agreement”) and in the amended and restated Offer to Purchase and related amended and restated Letter of Transmittal (the “Amended and Restated Offer to Purchase”) filed under Schedule TO by King and Purchaser on December 8, 2008 with the Securities and Exchange Commission (the “SEC”) (as amended from time to time, the “Schedule TO” and together with the Merger Agreement, the “Offer Documents). Pursuant to the Merger Agreement, at the expiration of the Offer, upon the terms and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement and the Amended and Restated Offer to Purchase, it is contemplated that Purchaser will purchase all of the Class A Common Stock validly tendered pursuant to the Offer and not withdrawn.

 

The consummation of the Offer pursuant to the terms of the Merger Agreement and the Amended and Restated Offer to Purchase would result in a change of control of the Company. Following the consummation of the Offer and subject to the other conditions contained in the Merger Agreement, including, if required by Delaware law, obtaining the necessary vote of the Company’s shareholders in favor of adoption of the Merger Agreement, Purchaser will be merged with and into the Company (the “Merger”) and each outstanding share of Class A Common Stock not tendered into the Offer (other than shares held by the Company, King or its subsidiaries or shareholders who properly perfect appraisal rights under Delaware law) will be converted into the right to receive the Offer Price. Following the consummation of the Merger, the Company will continue as the surviving corporation and will become a wholly-owned subsidiary of King.

 

The information contained in this Information Statement concerning King, Purchaser and the King Designees (as defined below) has been furnished to the Company by King and Purchaser, and the Company assumes no responsibility for the accuracy or completeness of such information.

 

BOARD OF DIRECTORS

 

General

 

The Class A Common Stock and the Company’s Class B Common Stock, par value $0.20 per share (the “Class B Common Stock”), are the only classes of voting stock of Alpharma outstanding. Under the Company’s Certificate of Incorporation, the holders of the Class A Common Stock are entitled, voting as a separate class, to elect at least 331/3% of the Company’s Board of Directors (rounded to the nearest whole number, but in no event less than two members of the Board), and the holders of the Class B Common Stock are entitled, voting separately as a class, to elect the remaining directors. However, since the Class B Common Stock is currently held by two wholly-owned subsidiaries of the Company and is treated as treasury stock, its voting rights are not exercisable and the holders of the Class A Common Stock are entitled to vote for 100% of the directors. The holders of Class A Common Stock are entitled to one vote per share. As of December 3, 2008, there were 41,884,780 shares of Class A Common Stock outstanding.

 

The Board currently consists of six members, and there are currently no vacancies; the size and composition of the Board are subject to certain contractual commitments set forth in the Merger Agreement and described below. Each director of Alpharma holds office until such director’s successor is elected and qualified or until such director’s earlier resignation, retirement or removal.

 

Right to Designate Directors

 

The Merger Agreement provides that, effective upon the purchase of any shares of Class A Common Stock by Purchaser pursuant to the Offer, King will be entitled to designate such number of directors, rounded to the nearest whole number, of the Board as will make the percentage of Alpharma’s directors designated by King (the “King Designees”) approximately equal to the percentage of Class A Common Stock held by King and its affiliates. This will be accomplished either by increasing the size of the Board or obtaining the resignations of incumbent directors. At least one (1) director who was a director of the Company as of the date of the Merger Agreement will continue to serve on the Board until the effectiveness of the Merger. Alpharma’s obligation to cause designees of King to be elected or appointed to the Board is subject to Rule 14f-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Following the election or appointment of the King Designees to the Board, the approval of the majority of directors of the Company then in office who were not designated by King will be required to authorize any termination of the Merger Agreement by the Company or the Company’s agreement to any amendment to the Merger Agreement, any extension of time for performance of any obligation or action by King or Purchaser under the Merger Agreement, or any waiver of compliance with any of the agreements or conditions contained in the Merger Agreement for the benefit of the Company.

 

The King Designees

 

King has informed the Company that the King Designees will be selected by King from among any of the directors and executive officers of King set forth below. The following table sets forth certain information with respect to individuals King may designate as the King Designees (including age as of the date hereof,

current principal occupation or employment and five-year employment history). Unless otherwise indicated below, each occupation set forth opposite each person refers to employment with King.

 

 

King has informed the Company that each of the individuals listed above has consented to act as a director, if so designated. If necessary, King may choose additional or other King Designees, subject to the requirements of Rule 14f-1 of the Exchange Act.

 

None of the King Designees is currently a director of, or holds any position with, the Company. King and Purchaser have advised the Company that none of the King Designees or any of his or her affiliates (i) has a familial relationship with any directors or executive officers of the Company, or (ii) has been involved in any transactions with the Company or any of its directors, officers or affiliates which are required to be disclosed pursuant to the rules and regulations of the SEC, except as may be disclosed herein.

 

King and Purchaser have advised the Company that none of the King Designees during the past five years has (i) been party to federal bankruptcy law or state insolvency law proceedings, whereby a petition was filed by or against such designee or a receiver, fiscal agent or similar officer was appointed by a court for the business of property of such designee, (ii) been convicted in a criminal proceeding (excluding traffic misdemeanors and other minor offenses), (iii) been subject to any order, judgment or decree enjoining the person from acting as a futures commission merchant, broker, commodity trading advisor or any other person regulated by the Commodity Futures Trading Commission, engaging in any type of business practice or engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of securities or commodities laws, (iv) been the subject of any order, judgment or decree banning or suspending the rights of such person to engage in any activity for more than 60 days, (v) been found by a court in a civil action or by the SEC to have violated any Federal or state securities laws or (vi) been found by a court in a civil action or by the Commodity Future Trading Commission to have violated any Federal commodities laws.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Security Ownership of Certain Beneficial Owners

 

The following table sets forth, as of December 3, 2008 (unless otherwise noted), certain information with respect to those persons known to the Company to be the beneficial owners of more than 5% of the outstanding shares of Class A Common Stock. Unless otherwise indicated, each beneficial owner possesses sole voting and dispositive power with respect to the shares listed for such beneficial owner in this table.

 

 

 

 

Security Ownership of Management

 

The following table sets forth, as of December 3, 2008 (unless otherwise noted), certain information with respect to each director of the Company, each of the Company’s named executive officers and all directors and executive officers of the Company as a group. Unless otherwise indicated, each beneficial owner possesses sole voting and dispositive power with respect to the shares listed for such beneficial owner in this table.

 

 

 

 

Current Board of Directors

 

To the extent the Board will consist of persons who are not King Designees, the Board is expected to consist of those persons who are currently directors of the Company who do not resign.

 

The names of the current members of the Board and certain information about them are set forth below:

 

 

Executive Officers of the Company

 

The following is a list of the names and ages of all of the Company’s corporate executive officers, indicating all positions and offices with the Company held by each such person and each such person’s principal occupation or employment during the past five years.

 

 

There are no family relationships among any of the Company’s executive officers and directors.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act, as amended, requires the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership of the Company’s stock on Forms 3, 4 and 5 with the SEC and the NYSE. Executive officers, directors and greater than 10% beneficial shareholders are required by SEC regulation to furnish the Company with copies of all Forms 3, 4 and 5 that they file. The Company is not aware of any late or missed filings (or other noncompliance), during the 2007 fiscal year, by any of its executive officers, directors and greater than 10% beneficial shareholders with the Section 16(a) filing requirements.

 

CORPORATE GOVERNANCE

 

Board Meetings, Annual Meeting and Attendance of Directors

 

The Board held eighteen meetings in 2007. Each person who served as a director in 2007 attended at least 75% of the aggregate of (i) the total number of meetings of the Board held while such person was a member, and (ii) the total number of meetings held by all committees of the Board on which such person served while a member of such committee, except for David C. U’Prichard who attended 61.5% of the meetings. The Company does not have a policy requiring directors to attend its annual meeting of shareholders. However, the Company encourages the attendance of all directors standing for reelection, and five of the then-current directors attended the 2007 Annual Meeting of Shareholders held on June 5, 2007 and all of the current directors attended the 2008 Annual Meeting of Shareholders held on May 8, 2008.

 

Board and Committee Independence

 

The Board complies with the independence criteria established by the NYSE and with the independence standards of the SEC. In determining Board independence in compliance with the NYSE rules, the Board considers whether directors or director nominees have a material relationship with the Company or any of its subsidiaries. When assessing materiality, the Board weighs all relevant facts and circumstances, using the following categorical standards to determine director independence: (1) whether the director or nominee, or his or her immediate family member, is currently or has been within the last three years: (a) an employee or executive officer of the Company; (b) receiving more than $100,000 during any 12 month period in direct compensation from the Company (other than director and committee fees and pension or other forms of deferred compensation for prior service — unless such compensation is contingent in any way on continued service); (c) affiliated with or employed in a professional capacity by a present or former internal or external auditor of the Company; (d) employed as an executive officer of another company where any of the Company’s present executive officers serves as a member of such other company’s compensation committee; or (e) an executive officer or an employee of another company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; and (2) whether certain other factors or circumstances external to the Company exist that would materially interfere with the director

or nominee making decisions without regard to such factors or circumstances. The Board has reviewed all such relationships of each outside director.

 

The current members of the Board are Peter G. Tombros (Chairman), Dean J. Mitchell, Finn Berg Jacobsen, Peter W. Ladell, Ramon M. Perez and David C. U’Prichard. Glen E. Hess and Ingrid Wiik served as directors through June 5, 2007. The Board affirmatively determined in June 2007 and May 2008 that the following directors, constituting a majority of the Board, qualify as “independent” members of the Board: Peter G. Tombros, Finn Berg Jacobsen, Peter W. Ladell, Ramon M. Perez and David C. U’Prichard. The Board affirmatively determined in May 2006 that Mr. Hess qualified as an “independent” member of the Board; however, the Board did not analyze his independence in June 2007 due to the fact that Mr. Hess was not standing for re-election to the Board.

 

None of the directors determined to be independent engaged in any transaction, relationship or arrangement that might affect the determination of their independence, or which required Board review except for Mr. Tombros, who serves as a director of one of the Company’s suppliers.

 

In determining Audit Committee independence, the Board first considers whether directors or director nominees qualify as “independent” to serve on the Board (as set forth above), and, if answered affirmatively, whether they satisfy two additional independence requirements: (1) whether the director or nominee currently receives (or in the past has received), directly or indirectly, compensation of any kind (including salary, legal fees, consulting fees and auditing fees) from the Company or any of its subsidiaries, other than director’s compensation for prior service that is not contingent in any way on continued service, and (2) whether the director or nominee is an “affiliated person” of the Company, in that he or she directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Company (e.g., is an executive officer of the Company or a shareholder holding 10% or more of any class of Company securities). Applying these standards, the Board determined in June 2007 and May 2008 that the following directors, constituting the entire Audit Committee, qualify as “independent” to serve on the Board’s Audit Committee: Finn Berg Jacobsen (Chairman), Ramon M. Perez and Peter G. Tombros.

 

In determining Compensation Committee independence, the Board first considers whether directors or director nominees qualify as “independent” to serve on the Board (as set forth above), and, if answered affirmatively, whether they satisfy two additional independence requirements: (1) whether the director or nominee is a “Non-Employee Director” under Rule 16b-3 of the Exchange Act, which means a director or nominee who: (a) is not currently an officer or employee of the Company or its subsidiaries; (b) does not receive more than $120,000 in compensation annually from the Company or its subsidiaries for services rendered as a consultant or in any capacity other than as a director; and (c) does not possess a direct or indirect material interest in any transaction or proposed transaction in which the Company or its subsidiaries were or are to be participants and the amount involved exceeds $120,000; and (2) whether the director or nominee is an “Outside Director” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), in that he or she: (a) is not currently an officer or employee of the Company or its subsidiaries; (b) is not a former employee of the Company or its subsidiaries who is currently receiving remuneration from the Company or its subsidiaries for prior services; (c) has not been an officer of the Company or its subsidiaries; and (d) is not currently receiving, directly or indirectly, compensation of any kind from the Company other than director’s compensation. Applying these standards, the Board determined in June 2007 and May 2008 that the following directors, constituting the entire Compensation Committee, qualify as “independent” to serve on the Board’s Compensation Committee: Ramon M. Perez (2007 Chairman), Peter W. Ladell and Peter G. Tombros.

 

In determining Nominating and Corporate Governance Committee independence, the Board considers whether directors or director nominees qualify as “independent” to serve on the Board (as set forth above). Applying these standards, the Board determined in June 2007 that the following directors, constituting the entire Nominating and Corporate Governance Committee, qualify as “independent” to serve on the Board’s Nominating and Corporate Governance Committee: Peter G. Tombros (2007 Chairman), Finn Berg Jacobsen, Ramon M. Perez and David C. U’Prichard.

Committees of the Board

 

Pursuant to its Bylaws, as amended, the Company has established standing Audit, Compensation and Nominating and Corporate Governance Committees. The charters for each of these committees are available on the Company’s website, at www.Alpharma.com by clicking first on the “About Alpharma” tab and then on the “Our Business Guidelines” tab, and in print, without charge, upon a shareholder’s written request sent to the attention of “Investor Relations” at the Company’s offices located at 440 Route 22 East, Bridgewater, New Jersey 08807.

 

Audit Committee

 

The Audit Committee provides assistance to the Board in fulfilling the Board’s oversight responsibility to shareholders, potential shareholders, the investment community, and others relating to the integrity of the Company’s financial statements and the financial reporting process, compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, the systems of internal accounting and financial controls, the annual independent audit of the Company’s financial statements, and the performance of the Company’s internal audit function and independent auditors. In so doing, it is the responsibility of the committee to maintain free and open communications between the committee, independent auditors, and management of the Company. In discharging its oversight role, the committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and has the power to retain outside counsel or other experts (The Company will provide funding necessary for the committee to retain such outside counsel and experts). The committee is charged with taking the appropriate actions to set the overall corporate “tone” for quality financial reporting, sound business risk, and ethical business behavior. The Audit Committee has a charter which governs its operations, and requires that the committee be comprised of at least three directors, each of whom is an “independent” director. (See “Corporate Governance; Board and Committee Independence” above for a description of such independence criteria). All committee members will be financially literate, or will become financially literate within a reasonable period of time after appointment to the committee, and at least one member will have accounting or related financial management expertise necessary to be considered an “audit committee financial expert” in accordance with the rules of the SEC. The Board determined, in June 2007, that Mr. Finn Berg Jacobsen, Chairman of the Audit Committee, qualifies as an “audit committee financial expert” pursuant to these rules, based on his attributes, education and experience. In addition, the Board also determined, in June 2007, that all of the members of the Audit Committee qualify as “financially literate.” The current members of the Audit Committee are Finn Berg Jacobsen (Chairman), Ramon M. Perez and Peter G. Tombros, none of whom serves on more than three audit committees of public companies. The Audit Committee held seven meetings in 2007.

 

Compensation Committee

 

The Compensation Committee has the authority of the Board with respect to compensation, benefit and employment policies and arrangements for directors, the CEO, executive officers and other key employees of the Company. The committee leads the processes for CEO succession planning and CEO performance evaluation. The committee also has authority with respect to the compensation and benefit plans generally applicable to the Company’s employees. The Compensation Committee has a charter which governs its operations and requires that the committee be comprised of at least three directors, each of whom is an “independent” director. (See “Corporate Governance; Board and Committee Independence” above for a description of such independence criteria.) The current members of the Compensation Committee are Ramon M. Perez (2007 Chairman), Peter G. Tombros, and Peter W. Ladell (Chairman). The Compensation Committee held eight meetings in 2007.

 

Compensation Committee Processes and Procedures

 

Scope of Authority

 

The Compensation Committee is responsible for establishing and administering the policies that govern the compensation of the CEO and other members of senior management as well as our non-employee directors. The committee’s scope of authority includes establishing the goals and objectives relevant to CEO

compensation, establishing the compensation and benefits of the CEO, reviewing and approving the compensation and benefits for other executive officers, highly paid employees and non-employee directors, administering our short and long-term incentive plans, administering plans intended to qualify for exemptions under § 162(m) of the Code, and establishing and maintaining a management succession plan.

 

Delegation of Authority

 

The committee may from time to time form and delegate authority to a subcommittee of one or more members, when appropriate. Generally, the committee does not delegate responsibility for the items under its purview to subcommittees; however, the committee has delegated responsibility for the technical administration of the Company’s benefit plans to a Benefits Committee made up of members of management, and as discussed below, management takes a role in developing and making recommendations regarding compensation matters to the committee.

 

Role of Executives

 

The CEO, EVP, Human Resources and Communications (“EVP, HR”) and a representative of the Company’s Law Department attend all of the committee’s meetings. However, the committee conducts an executive session following each of these meetings. When appropriate, key members of the management team are invited to join these executive sessions for discussion purposes. Typically during executive sessions, the Committee’s compensation consultant remains to provide advice and counsel. Members of management also work with the Company’s outside compensation consultant to provide data to the consultant and to ensure that data in reports and analyses is correct.

 

The CEO, together with the EVP, HR, develops recommendations on compensation for the Leadership Team (which is made up of the CEO and the senior executives which report directly to the CEO) other than the CEO, which they present to the committee for consideration.

 

The CEO and the EVP, HR have put forward recommendations to the committee on compensation matters, including:

 

 

Compensation Consultant

 

The committee has the authority to secure the services of third party service providers (e.g., accountants, attorneys, compensation consultants and other experts) in carrying out its duties. In September 2007, the committee retained the services of Pearl Meyer & Partners, a compensation consulting firm (the “Compensation Consultant”), to assist it in analyzing and considering executive compensation proposals. Prior to retaining Pearl Meyer, the committee had retained Exequity LLP. Management does not retain any compensation consultant, but as described above, members of management may work with the Compensation Consultant to provide data and to ensure that data in reports and analyses is correct.

 

The committee makes all decisions on the nature and scope of the Compensation Consultant’s role and interactions with the Company. The Compensation Consultant provides no services to the Company other than executive and Board of Director compensation consulting services, and its assignments cover the full range of executive and Board of Director compensation issues. While the Compensation Consultant participates in all

Compensation Committee calls and meetings, the Compensation Consultant does not set compensation for the executives or directors.

 

The committee, in discussion with management, determines the Compensation Consultant’s assignments. During 2007, the Compensation Consultant completed the following various projects for the committee: peer group review/development; executive compensation competitive analysis; competitive compensation analysis for director compensation, including a review of stock ownership guidelines and deferred compensation plans; a review of the short-and long-term incentive plans; preparation and review of proxy materials including 280G calculations; a review of the Company’s compensation philosophy; tally sheets; and development of the recommended long term incentive grant guidelines. With respect to all projects completed by the Compensation Consultant, the committee receives copies of all reports developed by the Compensation Consultant after the management team has had an opportunity to review the report to ensure data accuracy.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee was established in January 2007 and is entrusted with the responsibility to assist the Board in fulfilling its oversight responsibility with respect to corporate governance principles, directorship practices and the recommendation of qualified candidates for election to the Board. The Nominating and Corporate Governance Committee recommended the 2008 slate of director nominees to the Board, which subsequently approved the nominations. The Nominating and Corporate Governance Committee also monitors the Company’s Corporate Governance Principles. The Nominating and Corporate Governance Committee has a charter which governs its operations, and requires that the committee be comprised of at least three directors, each of whom is an “independent” director. (See “Corporate Governance; Board and Committee Independence” above for a description of such independence criteria). During 2007, the Nominating and Corporate Governance Committee held five meetings. The current members of the Nominating and Corporate Governance Committee are Peter G. Tombros (2007 Chairman), Finn Berg Jacobsen, Ramon M. Perez (Chairman) and David C. U’Prichard.

 

Corporate Governance Principles, Business Conduct Guidelines and Code of Ethics

 

The Board has adopted Corporate Governance Principles (which are available on the Company’s website at www.Alpharma.com by clicking first on the “About Alpharma” tab and then on the “Our Business Guidelines” tab, and in print, without charge, upon a shareholder’s written request sent to the attention of “Investor Relations” at the Company’s offices located at 440 Route 22 East, Bridgewater, New Jersey 08807) to provide the general framework for the governance of the Company. The Corporate Governance Principles specifically address the role of the Board and management, the functions of the Board, qualifications of directors, independence of directors and committees, the prohibition on making loans to directors and executive officers, size of the Board and selection process, Board committees, meetings of outside (non-management) directors, setting the Board agenda, ethics and conflicts of interest, reporting of concerns to the Audit Committee, Board compensation, access to senior management and independent advisors, director orientation and continuing education, succession planning, and the Board’s annual performance evaluation.

 

The Board has adopted Business Conduct Guidelines (which are available on the Company’s website at www.Alpharma.com by clicking first on the “About Alpharma” tab and then on the “Our Business Guidelines” tab, and in print, without charge, upon a shareholder’s written request sent to the attention of “Investor Relations” at the Company’s offices located at 440 Route 22 East, Bridgewater, New Jersey 08807) that set forth principles and standards to guide the business behavior of members of the Board, officers and all other Company employees worldwide. The Business Conduct Guidelines specifically address compliance with laws (including food and drug, environmental, copyright and competition laws), fairness in employment, safety and health, reporting to governmental agencies, confidentiality, the protection of Company assets, conflicts of interest, political contributions, the extended application of certain U.S. laws, relationships with medical professionals, and fair dealings with third parties.

 

The Board has adopted a Code of Ethics (which is available on the Company’s website at www.Alpharma.com by clicking first on the “About Alpharma” tab and then on the “Our Business Guidelines” tab, and in print, without charge, upon a shareholder’s written request sent to the attention of “Investor

Relations” at the Company’s offices located at 440 Route 22 East, Bridgewater, New Jersey 08807) that, in addition to the Business Conduct Guidelines, applies to the Company’s CEO, Chief Financial Officer and Controller. The Code of Ethics requires such officers to engage in and promote honest and ethical conduct, protect the Company’s and its customers’ confidential information, produce full, fair, accurate, timely and understandable disclosure in reports to the SEC and other regulators and in other public communications, to comply with applicable laws, rules and regulations of governments and self-regulatory organizations, and to report promptly to the Audit Committee violations of the Code of Ethics.

 

Director Identification and Selection

 

In identifying acceptable potential director candidates, the Nominating and Corporate Governance Committee seeks input from Board members and other sources so that a variety of viewpoints are considered. The Nominating and Corporate Governance Committee may also engage independent search firms to help identify director candidates. However, the Nominating and Corporate Governance Committee ultimately determines which candidates are to be recommended to the Board for approval. Board candidates are considered based on various criteria which may change over time and as the composition of the Board changes. At a minimum, the Nominating and Corporate Governance Committee considers a candidate’s personal and professional ethics, integrity and values, commitment to representing the interests of the shareholders, demonstrated wisdom and mature judgment and diversity of experience at policy-making levels in business, government, education and technology, and in other areas that are relevant to the Company’s global activities. The Board does not believe that arbitrary term limits on directors’ service are appropriate, nor does it believe that directors should expect to be routinely re-nominated on an annual basis. The Nominating and Corporate Governance Committee also considers such other factors as may be appropriate including the current composition of the Board and evaluations of prospective candidates.

 

The Nominating and Corporate Governance Committee will consider director candidates recommended by shareholders. Shareholders wishing to submit a director candidate for consideration by the committee should submit the recommendation to Alpharma Inc. Nominating and Corporate Governance Committee, c/o Secretary, 440 Route 22 East, Bridgewater, New Jersey 08807 not less than 120 days nor more than 150 days prior to the annual meeting date (determined based on the same date as the previous year’s annual meeting). The request must be in a writing setting forth the following information regarding the person to be nominated: (i) the name of the person to be nominated, (ii) the number and class of all shares of each class of stock of the Company beneficially owned by such person, (iii) the information regarding such person required by paragraphs (a), (d), (e) and (f) of Item 401 (director identification, family relationships, business experience and involvement in legal proceedings) of Regulation S-K adopted by the SEC (or the corresponding provisions of any regulation subsequently adopted by the SEC applicable to the Company), and (iv) such person’s signed consent to serve as a director of the Company if elected. The written request must also set forth the following information regarding the shareholder: (i) such shareholder’s name and address, as well as the name and address of the beneficial owner, if any, (ii) the number and class of all shares of each class of stock of the Company beneficially owned or owned of record by such shareholder and, if any, the beneficial owner, (iii) any material interest of the shareholder in the proposed business, (iv) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at the Annual Meeting and intends to appear in person or by proxy at the Annual Meeting, and (v) if the shareholder intends to solicit proxies in support of such proposal, a statement to that effect. The Nominating and Corporate Governance Committee may also request additional background or other information.

 

Executive Sessions of Outside (Non-Management) Directors

 

The Chairman of the Board (currently Mr. Tombros) presides at executive sessions of outside (non-management) directors, held at regularly scheduled times throughout the year. Outside (non-management) directors are those who are not Company officers. Except for Mr. Mitchell, all of the Company’s directors are outside (non-management) directors and are “independent,” as set forth above under “Corporate Governance; Board and Committee Independence.”

Communications from Shareholders and Other Interested Parties

 

Shareholders and other interested parties may send communications to the Board (and to individual directors) through the Secretary of the Company, Mr. Thomas J. Spellman III. The Secretary will forward to the directors all communications that, in his judgment, are appropriate for consideration by the directors. The Secretary will consider most commercial solicitations and other matters not relevant to the Company’s shareholders, the Board, or to the Company in general, to be inappropriate for consideration by the directors. Shareholders and other interested parties may communicate directly with the Chairman of the Company’s Audit Committee by sending an e-mail to auditchair@alpharma.com. Shareholders and other interested parties may communicate with outside (non-management) directors, individually or as a group, by sending an e-mail to outsidedirectors@alpharma.com.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

ACTIVITIES OF THE COMPENSATION COMMITTEE IN 2007

 

The Committee held eight meetings in 2007. The Committee has a set calendar for taking up routine compensation matters throughout the year and adds items and meetings, as necessary, to address non-routine compensation matters and developments.

 

At each meeting there is a standing agenda of discussion topics to be addressed. As noted above, the Committee meetings are generally attended by each Committee member, the CEO, the EVP, HR, a representative of the Company’s Law Department and the Compensation Consultant.

 

In addition to making all decisions on the compensation and benefit arrangements covering the Company’s Leadership Team, the Committee in 2007 also:

 

 

During 2007, the Compensation Committee worked with the CEO and EVP, HR to determine the appropriate terms of transition of Mr. Campbell from interim Chief Financial Officer to fully appointed Chief Financial Officer.

GENERAL COMPENSATION PHILOSOPHY AND PROGRAMS

 

Executive Attributes

 

The Company has identified several executive attributes that should be supported by prospective pay arrangements:

 

 

General Compensation Objectives

 

The Compensation Committee believes that the Company’s prospective strategic operating objectives will be best supported by executives who exhibit the above attributes. The Compensation Committee believes that the Company’s pay programs should:

 

 

In addition, the Committee believes that executive pay opportunities should focus in a more tailored way on each executive’s line-of-sight authority and accountabilities. Accordingly, the Committee is receptive to allowing some variance between internal pay positioning, with the objective of crafting appropriate opportunities based on each executive’s specific contributions and potential. At the same time, the Committee desires to maintain a significant degree of internal parity in order to encourage teamwork.

 

Attainment of the above objectives requires a mix of fixed and variable compensation, with an emphasis on variable compensation. The mix between fixed and variable compensation emphasizes variable compensation to support the Company’s goals of providing competitive compensation packages and motivating executives to achieve short- and long- term Company objectives. The Company also emphasizes long over short-term compensation for executives to ensure that executives are focused on creating long-term shareholder value. The mix between short- and long-term compensation generally targets a mix similar to Peer Group companies (as defined below).

 

The Company’s executive compensation philosophy is intended to provide direction and guidance to Compensation Committee decisions, not to initiate sudden and radical changes year to year.

Principal Compensation Programs

 

Compensation Elements

 

The Company seeks to deliver compensation through three core compensation elements:

 

 

Each element of compensation is considered individually and in total when considering compensation adjustments. Compensation adjustments also generally consider the interrelation between each compensation element to ensure that the entire compensation program is appropriately aligned.

 

Other Executive Compensation Programs

 

Change in Control/General Severance Coverage

 

The Compensation Committee believes that offering termination protection similar to those provided at the companies in the Peer Group is an important element of providing competitive total compensation and benefits. These programs provide the executive a degree of security in the event of a corporate transaction and allow for better alignment between the executive and shareholders interests.

 

Retirement, Savings, and Deferred Compensation Programs

 

The Compensation Committee believes that contemporary retirement programs that assist executives in preparing for retirement is essential to attract and retain senior talent. The Leadership Team is currently eligible to participate in a nonqualified deferred compensation program to help them accrue sufficient assets for retirement. The details of that program are described more specifically in the Pension and Deferred Compensation Tables.

 

Perquisites

 

The Compensation Committee believes that an executive allowance delivered in lieu of perquisites is preferable. This allowance provides for individual flexibility in addressing financial planning, tax planning, Company vehicle, and other perquisites offered by Peer Group companies. The Executive Allowance is $35,000 per annum for the CEO, and $28,600 per annum for Leadership Team members based in the United States. The Executive Allowance is delivered in lieu of executive perquisites. This arrangement provides comparable value to executives for perquisites commonly offered to similarly situated officers in Peer Group companies.

 

Health, Life Insurance, Disability, and Similar Benefits

 

The Compensation Committee recognizes that the Company’s greatest resource is its employees, and therefore believes that it is appropriate to offer comprehensive and affordable health and welfare benefits to all employees and their eligible family members. Such programs vary by country. Leadership Team members based in the United States receive the same benefits as offered to all other full-time employees, with the exception of Company provided life insurance and accidental death and dismemberment insurance.

Compensation Determinations and Adjustments

 

Specific compensation determinations for each major compensation element generally consider the following factors:

 

 

In addition, the Compensation Committee will apply discretion in determining the specific compensation levels of individual executives. The compensation programs will be evaluated annually in light of the evolving business strategies and plans of the Company. The Compensation Committee will endeavor to ensure the compensation programs align with shareholders interests and current market trends.

 

Competitive Market and Compensation Positioning

 

Competitive Market Defined

 

The Compensation Committee believes the most relevant talent pool for its executives is the specialty pharmaceutical industry. The Compensation Committee will rely on the Committee’s Compensation Consultant to make recommendations regarding the appropriate companies to comprise a Peer Group of comparator companies and the appropriate compensation surveys. Generally, the factors considered for determining the Peer Group are:

 

 

The Compensation Committee will track the current compensation practices for Peer Group companies and surveys and the relative positioning of the Company’s executive pay program annually. To achieve this, an annual process to review the Peer Group, recommend changes to it, and report on trends within it, will be undertaken by the Committee’s Compensation Consultant. This Peer Group will serve as the primary source for determining market trends, and assessing the market competitiveness of the Company’s pay practices. Survey data from surveys that cover appropriate companies will be used to supplement the Peer Group data (at least four different surveys are used covering a substantial number of size- and industry-appropriate companies).

 

For 2007, the Peer Group consisted of the following companies:

 

Competitive Positioning of Compensation

 

The executive compensation competitive targeting strategy is as follows:

 

 

Actual pay levels can be significantly above or below the targeted pay level depending on factors such as individual or Company performance, tenure and executive potential. In general, the Committee desires to balance internal and external equity but preserves the discretion to deviate when necessary to recruit executives and/or retain the right executive talent.

 

INCENTIVE COMPENSATION DETAILS

 

2007 Annual Bonus Plan

 

The annual bonus plan for the executive team is designed to incent executives to meet key business goals critical to the success of the Company. Members of the Leadership Team (excluding the CEO) had 80% of their total annual bonus opportunity tied to the achievement of corporate results at the consolidated corporate level, and 20% of the opportunity tied to the accomplishment of goals relating to each executive’s business unit or functional goals. The CEO had 100% of his total annual bonus opportunity tied to the achievement of corporate results at the consolidated corporate level. The Committee believes that this created the appropriate line-of-sight accountability for each executive, based on relative contribution to overall corporate results and line of business or functional results.

 

With respect to the corporate-wide performance goals, three financial metrics were used to measure success in 2007: operating income, cash flow and revenue growth. The weightings as among these metrics was as follows:

 

 

The Committee believes that in 2007 these were the appropriate metrics to incent the executive team to drive disciplined Company growth, while maintaining appropriate levels of profitability. In addition, these metrics are widely understood and accepted among the executive team, and are representative of typical annual bonus program design, and thereby contribute to the degree of conformity with market practice.

 

The targeted bonus amounts as a percent of base pay for Leadership Team members in 2007 were also the same in 2006 (targeted bonus of 100% of base pay for the CEO and 50% of base pay for the other members of the Leadership Team). The Committee believes it is important to maintain the consistency of this relationship across the members of the Leadership Team in order to encourage a common focus and teamwork among these executives.

The performance-payout relationship for the 2007 annual bonus opportunity for members of the Leadership Team was similar to the 2006 design, as follows:

 

 

 

 

The Committee believes that the above performance-payout relationships appropriately reward performance above targeted levels, and provide for significantly reduced payouts when performance falls short of goals. The Committee believes the steep performance-payout slope is properly reflective of the desired performance-based culture sought at the Company.

 

In 2007, the performance of the Company on each of the corporate performance metrics was as follows:

 

 

After applying the weightings for each corporate performance metric, the overall corporate performance (weighted 80% of the total bonus opportunity) versus target was 112.9% which extrapolates to a target bonus payout of 128.7%. With respect to the functional component or business unit component (weighted 20% of the total bonus opportunity), functional performance or business unit performance for the Leadership Team ranged from 50% of target to 125% of target. After combining the corporate and functional or business unit components of the bonus opportunity, bonus payouts ranged from 89% of target to 117.3% of target.

 

The Company is not disclosing the specific corporate or functional performance metrics because it believes in good faith that disclosure of the specific metrics could cause the Company competitive harm. Specific concerns relating to competitive harm include the fact that disclosure of the specific target metrics would provide competitors with harmful competitive pricing information that, in a highly competitive business, could affect the value of the Company’s contracts with its customers. In addition, disclosure of the specific metrics could provide competitors with valuable profitability information that would enable competitors to adjust their pricing accordingly and gain a competitive advantage. The Company believes that the corporate performance metrics are set with a reasonable level of difficulty as evidenced by the funding as a percent of target over the last few years:

 

2007 Long Term Incentive Awards

 

2007 long-term incentive awards were granted to the Leadership Team in the form of a mix of stock options and performance-based restricted stock (PBRS) awards. Stock options were granted to align executives with the Company’s shareholders and to incent executives to increase shareholder value. PBRS awards were granted to align executives with shareholders, incent executives to increase shareholder value, retain executives through time-based vesting, and incent executives to meet 3-year cumulative earnings before interest, taxes, depreciation and amortization (“EBITDA”) goals.

 

The above considerations resulted in awards of equity-based long-term incentives in 2007 having the following characteristics:

 

 

Consistent with past practice, regular annual awards of equity-based incentives in 2007 were generally made in the first quarter. As has been the Company’s practice in past years, all options were granted with an exercise price equal to the Company’s closing stock price on the date of grant. The Committee believes that this is the most appropriate benchmark for stock price on the date of grant.

 

In late 2007, it became clear to the Committee that the PBRS awards with a three-year cumulative EBITDA measurement period were not an appropriate incentive for executives for 2008 and 2009 because the significant amount of business and corporate development activity necessary to further the Company’s strategy made it impracticable to predict EBITDA over a three year period. As such, there was no line-of-sight for executives between their activities and the potential reward. After careful deliberation and consideration of alternatives in early 2008, the Committee determined that the PBRS awards should be converted to a time-based award at 102.4% of the initial target value (which is where performance through one year was situated), thereby eliminating the executives ability to earn above- or below-target performance and creating a retention-oriented award with three-year cliff vesting.

 

In order to enhance the retention incentives of the Company’s senior executives, the Committee placed a heavier emphasis on time-vested restricted stock with three-year cliff vesting in the 2008 grant mix. The equity mix for 2008 will be approximately 50% stock options and 50% time-vested restricted stock for top executives with some variation to that mix depending on the specific executive.

 

EXECUTIVE RETENTION INCENTIVE AND TERMINATION

 

Retention Incentives

 

During fiscal year 2007, the Company initiated a process to review strategic alternatives for the Active Pharmaceutical Ingredients (“API”) business. In order to help minimize the potential talent flight from API, at the end of 2007 the Company extended a cash-based retention opportunity to the President of the Company’s API division, Carl-Aake Carlsson. This cash based retention bonus incentive was designed to ensure that Mr. Carlsson remained the President of API while the Company explored strategic alternatives for the API business. The potential bonus was established on a sliding scale depending on the sale price received for the API business. The objective of the bonus was to retain Mr. Carlsson throughout the sale process and to incent him to obtain the highest possible price for the API business.

 

Executive Retirement

 

In July 2007, Mr. Wrobel retired from the Company and was provided his then-earned bonus, severance, and other benefits as outlined in the Summary Compensation Table.

CHANGE IN CONTROL/GENERAL SEVERANCE COVERAGE

 

The section of this proxy entitled “Change in Control/Termination Payments” provides a comprehensive description of the various severance benefits offered by the Company to its executive officers. The Committee believes that offering termination protection along the lines provided in the Company’s severance programs is an important element of providing total compensation and benefits that is competitive with the Company’s competitors for executive talent.

 

Consistent with general market practice, and in line with the objective of offering compensation arrangements aligned with median practices, the vesting of equity-based incentives that are outstanding at the time of a change in control is accelerated upon consummation of the transaction. The Committee believes that, in addition to providing market-competitive coverage, this “single trigger” activation provision appropriately protects incentive values that have been earned up to the point of a transaction. In addition, the vesting activation encourages the successor entity to implement new arrangements aligned with post-change in control objectives following the close of the transaction.

 

In order to further align with competitive market practices, cash severance protections associated with a qualifying termination following a change in control become activated only upon the employment termination (i.e., “double trigger” activation). The Committee believes that, in addition to aligning with prevalent practices, this design helps encourage executive retention following a transaction.

 

IMPACT OF REGULATORY AND SIMILAR REQUIREMENTS:

 

Section 162(m) of the Code places a limit of $1,000,000 on the annual amount of compensation (other than compensation that qualifies as “qualified performance-based compensation”) that publicly held companies may deduct for federal income tax purposes for certain executive officers.

 

The Committee believes that tax deductibility is an important factor, but only one factor, to be considered in evaluating a compensation program. Thus, while our performance-based incentive plans have generally been designed and administered to maintain tax deductibility, including shareholder approval of the plans, the Company believes competitive and other circumstances may require, in some instances, that the interests of the Company and its shareholders are best served by providing compensation that is not fully tax deductible. Accordingly, the Committee may continue to exercise discretion to provide base salaries or other compensation that may not be fully tax deductible to the Company.

 

Many other tax code requirements, SEC regulations and accounting rules affect the delivery of executive pay and are generally taken into consideration as programs are designed and developed. The Company’s goal is to create and maintain plans that are in full compliance with these requirements, and that provide for the most efficient delivery of compensation, both with respect to payment by the Company and receipt by the employee. These include but are not limited to FAS 123R and IRC 409A, and Section 16 of the Exchange Act.

 

SUMMARY COMPENSATION TABLE

 

The following table provides information concerning the compensation of the President and Chief Executive Officer, the Chief Financial Officer, the three other most highly compensated executive officers and the former Chief Legal Officer & Secretary for fiscal 2007, our named executive officers (“NEOs”).

 

 

Footnotes:

 

 

 

GRANTS OF PLAN-BASED AWARDS

 

The following table provides information concerning the grants made to each of our named executive officers in fiscal 2007 under the Alpharma Inc. Executive Bonus Plan and the 2003 Omnibus Incentive Compensation Plan.

 

 

Footnotes:

 

Plan Award Terms

 

The plan awards reported above for the 2007 fiscal year were made under our 2003 Omnibus Incentive Compensation Plan and our Executive Bonus Plan.

 

As more fully discussed in the CD&A under “Incentive Compensation Details — 2007 Annual Bonus Plan,” awards under the Executive Bonus Plan may be made to executive officers and key employees performing services for the Company in the form of a cash bonus at a target level. Target levels for each NEO are set as a percentage of base salary. Each of the NEOs may receive more or less than his or her target level bonus, based upon the Company’s ability to achieve certain operating income, cash flow and revenue growth targets for the fiscal year. In addition, for executive officers who are responsible for a specific business segment, a portion of his or her bonus depends on such business segment’s achievement of certain income, cash flow and revenue targets for the fiscal year. As provided in the Executive Bonus Plan, the Compensation Committee has the discretion to vary any individual bonus award from the amount derived by the application of the criteria described above.

 

Plan awards to our NEOs under our 2003 Omnibus Incentive Compensation Plan for the 2007 fiscal year were made in the form of stock options and performance-based restricted stock unit awards. Stock option awards vest at the rate of 25% on each of the first four anniversaries of the date of grant and have a ten year term. During fiscal year 2007, performance-based restricted stock unit awards were also granted under the Plan. These awards are scheduled to vest on the third anniversary of the grant date, and according to the original terms of the grant, the amount of shares to be earned upon vesting was to be determined as a percentage of a target level based on the Company’s attainment of certain levels of earnings before interest, taxes, depreciation and amortization (EBITDA). However, for the reasons described above in the CD&A under “Incentive Compensation Details — 2007 Long Term Incentive Awards,” the Compensation Committee amended these awards in January 2008 to eliminate the performance component of the vesting and such awards will cliff vest on the third anniversary of the grant date. The restricted stock units convert to Class A Common Stock on a one-for-one basis.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table provides information concerning the current holdings of unexercised and unvested stock options and unvested restricted stock awards for each of the named executive officers as of the end of fiscal 2007.