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`program, half of the stock options granted to our Named Executives are subject to performance-based vesting based on
`our achievement of specified adjusted EBITDA goals or generating certain returns on the Sponsor's investment in us.
`See "Annual cash incentive" and "Long-term incentive" below.
`
`• No tax gross ups and limited benefits . We do not provide our executive officers with special benefits, supplemental
`executive retirement plans, or tax gross-ups. We provide our executive officers with modest perquisites and other
`personal benefits which we believe are reasonable and serve as useful retention tools. See "Traditional employee
`benefits and executive perquisites" below.
`
`• Compensation risk assessment . We believe that our compensation programs are not designed to encourage our
`Named Executives or other employees to take unnecessary risks that would be reasonably likely to have a material
`adverse effect on us. See "Compensation risk assessment" below.
`
`• Clawback policy . Each of our Named Executives is subject to our Executive Financial Recoupment Program under
`which we can recoup incentive compensation in the event the executive engages in certain types of misconduct or fails to
`properly supervise employees who engage in misconduct.
`
`No single trigger vesting . We do not provide for automatic single trigger vesting of our long-term incentive awards.
`
`Highlights of our 2014 performance and related compensation decisions
`
`The following are highlights of our 2014 performance and related compensation decisions:
`
`• We achieved adjusted EBITDA (as described below) of $433.8 million for the year, exceeding our adjusted EBITDA
`target by 18.5%.
`
`• We generated $414.8 million in operating cash flow (as described below) in 2014, which exceeded our operating cash
`flow target by 29.8%.
`
`• Consistent with the Company's strategic goal of obtaining exclusive marketing rights for generic pharmaceutical products,
`we submitted 30 ANDAs to the FDA in 2014, exceeding our target by 15.4%.
`
`• We significantly bolstered our product offerings through the acquisition and integration of Par Sterile.
`
`• In accordance with our "pay for performance" philosophy, because we significantly exceeded most of our financial targets
`and strategic objectives for 2014, we funded our annual incentive bonus plan at 193% of the aggregate target for the
`Named Executives (154% of the aggregate target for all other eligible employees). See "Annual cash incentive" below.
`
`Compensation philosophy and policies regarding executive compensation
`In addition to maintaining an executive compensation program that will provide competitive levels of total compensation
`necessary to attract and retain talented executives who will contribute to our financial success, our executive compensation
`program is guided by a "pay for performance" philosophy. This philosophy is intended to align executives' interests with
`those of our stockholders and to reward executives when Company and individual performance are strong. Therefore, we
`provide a substantial portion of Named Executives' overall compensation opportunity in the form of an annual incentive
`bonus, the payment of which is subject to the achievement of key financial and strategic business objectives. We also
`provide a substantial portion of Named Executives' overall compensation opportunity in the form of stock options, the value
`of which is directly tied to the performance of our stock. In addition, half of the stock options granted to our Named
`Executives are subject to time-based vesting and the other half are subject to performance-based vesting based on our
`achievement of specified adjusted EBITDA goals or generating certain returns on the Sponsor's investment in us.
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`JAZZ EXHIBIT 2015
`Amneal Pharms. et al. (Petitioners) v. Jazz Pharms., Inc. (Patent Owner)
`Case IPR2015-00554
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`The following principles influence and guide our compensation decisions:
`
`• compensation should attract, motivate and retain qualified executives;
`
`• compensation should reflect a "pay for performance" philosophy by focusing on financial targets and strategic objectives;
`
`• compensation should reflect accountability and achievement; and
`
`• compensation decisions should reflect alignment with stockholder interests.
`The Committee follows these principles when making compensation decisions with respect to our Named Executives.
`
`The compensation setting process and benchmarking
`A year-round process
`
`Our compensation planning process, including evaluation of management performance and consideration of the business
`environment, is a year-round process. Compensation decisions are designed to promote our fundamental business
`objectives and strategies which, in turn, drive long-term stockholder value.
`
`The Committee's role in the process
`
`The compensation of our Named Executives is determined by the Committee, except where our board of directors has
`approved certain arrangements, such as Mr. Coughlin's compensation arrangements and grants of certain equity awards
`The Committee's responsibilities generally include:
`
`• reviewing and evaluating our equity incentive arrangements and granting equity incentive awards to our Named
`Executives;
`
`• determining bonus payouts under the prior year's annual incentive program;
`
`• reviewing performance milestones and strategic objectives for the annual incentive program for the upcoming year;
`
`• reviewing management recommendations regarding our compensation program;
`
`• reviewing our Chief Executive Officer's achievement of the prior year's goals and setting of objectives for the upcoming
`year; and
`
`• addressing any other compensation related matters that require the attention of the Committee.
`
`Mr. Campanelli recuses himself from all Committee determinations of his own compensation.
`
`Management's role in the process
`
`Management plays a role in the compensation-setting process, other than with respect to compensation for our Chief
`Executive Officer. The most significant aspects of management's role are:
`
`• our Chief Executive Officer, Chief Financial Officer and Senior Vice President of Human Resources review and
`recommend compensation plans;
`
`• our Named Executives recommend business targets and goals;
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`our Chief Executive Officer evaluates the performance of the other Named Executives based on agreed-upon objectives;
`and
`
`• our Chief Executive Officer recommends salary, bonus levels and awards and long-term incentive awards for the other
`Named Executives.
`
`Our Chief Executive Officer and Senior Vice President of Human Resources establish the agenda for Committee meetings.
`Our Chief Executive Officer provides compensation recommendations as to our Named Executives and other key
`employees (other than himself) and participates in Committee meetings as the chair of the Committee.
`
`Competitive compensation practices
`
`Our compensation arrangements must be competitive in the marketplace in order to attract and retain highly-qualified
`executives to lead the Company. We have not, however, engaged in formal benchmarking practices with a third-party
`consultant since prior to the Merger in 2012. The components and levels of compensation for our Named Executives (other
`than Mr. Coughlin) were established by our board of directors in 2012 after the completion of the Merger, and have been
`adjusted since the Merger, after considering the factors described below. The components and levels of Mr. Coughlin's
`compensation arrangement were negotiated between Mr. Coughlin, on the one hand, and the Company and Par
`Pharmaceutical, Inc., on the other hand in connection with his commencement of employment with us, based on industry
`compensation practices for the position of chief operating officer and Mr. Coughlin's prior experience.
`The Committee has also relied on the experience of its Sponsor-affiliated members and on analysis performed by the
`Sponsor that considers the compensation of our Named Executives in light of the compensation structure of other portfolio
`companies or private equity-backed companies in general.
`
`Employment agreements
`
`We have entered into employment agreements with our Named Executives in order to attract a high level of talent to the
`Company and, equally important to our success, to retain key executives to execute our business strategies. Our executive
`employment agreements also protect us by setting forth the applicable terms for terminations of employment and provide
`valuable protection against improper use of our confidential business information, competition with our business and
`solicitation of employees and customers during and following the employment term.
`
`A more detailed description of our employment agreements appears under the heading "Narrative disclosure to summary
`compensation table and grants of plan based-awards table" below.
`
`Components of executive compensation and decisions related to 2014 compensation for Named Executives
`Described below are the key components and objectives of our executive compensation program for 2014 as it relates to
`our Named Executives.
`
`Base salary
`
`Base cash compensation is a critical element of executive compensation because it enables us to recruit and retain key
`executives. Base salaries for our Named Executives are set forth in employment agreements that were negotiated between
`each individual, on the one hand, and the Company and Par Pharmaceutical, Inc., on the other hand.
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`The following table sets forth, as of December 31, 2014, each Named Executive's base salary and percentage increase
`over the prior year.
`
`Name / position
`Paul V. Campanelli, Chief Executive Officer
`Michael A. Tropiano, Executive Vice President and Chief Financial Officer
`Thomas J. Haughey, General Counsel and Chief Administrative Officer
`Terrance J. Coughlin, Chief Operating Officer
`
`Base salary
`871,250
`$
`486,875
`$
`666,250
`$
`550,000
`$
`
`Increase over
`prior year
`2.5%
`2.5%
`2.5%
`N/A
`
`The increases shown above reflect cost-of-living increases in base salaries that were approved for our employees generally
`and became effective in 2014.
`In December 2014, each of our Named Executives (other than Mr. Campanelli) received an additional 2.5% cost of living
`increase in his base salary and, in recognition of his success in driving the Company's exceptional performance,
`Mr. Campanelli's base salary was increased to $950,000. The base salary increases approved in December 2014 became
`effective on January 1, 2015, and are not reflected in the table above.
`
`Annual cash incentive
`
`We provide an annual cash bonus opportunity to our Named Executives under our annual incentive program in order to
`drive Company and individual performance. Cash bonus payouts under the program are contingent on the achievement of
`key financial and strategic goals that are established at the beginning of the year by our Named Executives under the
`guidance and ultimate approval of the Committee. However, we do not follow a strict mathematical formula-based approach
`for determining the actual bonus awards, except that, as described below, threshold and maximum bonuses are determined
`based on the achievement of specified performance targets. Instead, we weigh each individual's contribution to our
`performance in determining individual awards, as described below.
`The "target" amount of each Named Executive's cash bonus award is set as a percentage of his base salary. As position
`and responsibility increase, a greater portion of the Named Executive's overall cash compensation opportunity is
`attributable to the annual incentive program, subjecting it to the achievement of our performance targets and thus placing it
`"at risk." Accordingly, for 2014, the target bonus amount was set at 100% of base salary for Mr. Campanelli, 65% of base
`salary for Mr. Tropiano (increased from 60% for 2013 based on his outstanding performance and in recognition of the
`importance of his responsibilities for the business as a whole), 75% of base salary for Mr. Haughey, and 70% of base salary
`for Mr. Coughlin, which was pro-rated based upon the commencement date of his employment.
`
`The chief component of the bonus funding target for 2014 consisted of key financial metric targets approved by our board of
`directors at the beginning of the year and formally incorporated in our 2014 operating plan. We chose these metrics based
`upon our detailed analysis of projected sales, on a product-by-product basis, and expenses, based on annual spending
`required to achieve our short- and long-term goals. Taken as a group, these selected financial parameters provided an
`objective basis for determining whether our executives had
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`successfully executed on our 2014 operating plan. The second component of the bonus funding target consisted of key
`strategic objectives that our board of directors determined would contribute to our longer-term growth and increased
`stockholder value. The following table sets forth the key financial targets set by our board of directors for 2014 and our
`actual performance for 2014:
`
`2014 Financial performance objectives and actual performance
`
`% of
`2014 performance
`2014
`Performance Performance
`target
`results
`target
`achieved
`2014 Financial metrics:
`$433.8 million
`$366.1 million
`118.5%
`Adjusted EBITDA(1)
`$674.7 million
`$613.3 million
`110%
`Adjusted Gross Margin(2)
`$319.5 million
`$414.8 million
`129.8%
`Operating Cash Flow(3)
`$52.1 million
`$45.5 million
`87.3%
`Capital Expenditures
`$119.1 million
`$124.2 million
`95.9%
`Research & Development Expenditures
`21 -26
`30
`115.4%
`ANDAs Submitted
`18 - 24
`13
`54.2%
`Product Launches(4)
`(1) "Adjusted EBITDA" is a non-GAAP financial measure that generally represents earnings (e.g., revenues less expenses) excluding interest, taxes, depreciation
`and amortization. In calculating adjusted EBITDA for cash incentive purposes in 2014, we added back to loss from continuing operations before benefit for
`income taxes: (a) amortization of inventory step up established with the purchase accounting related to the acquisition of Par Sterile, (b) certain legal and
`restructuring costs, (c) amortization expense related to intangible assets as well as intangible asset impairment recorded, (d) certain transaction costs,
`(e) litigation settlements and loss contingencies, (f) depreciation expense related to property, plant and equipment, (g) interest expense, including costs
`associated with debt repricing and extinguishment, (h) share-based compensation and (i) management fees. See the reconciliation of net income (loss) to
`adjusted EBITDA contained under "Selected historical consolidated financial data" above.
`(2) "Adjusted Gross Margin" is a non-GAAP measure that represents GAAP gross margin excluding amortization expense.
`(3) "Operating Cash Flow" is a non-GAAP measure that represents adjusted EBITDA, as defined above, adjusted for the net change in working capital (current
`assets less current liabilities) and other cash settled items related to restructuring charges, an annual monitoring fee paid to the Sponsor, and certain legal and
`accounting fees.
`(4) Our achievement level relative to our target number of products launched in 2014 was largely due to delays in the regulatory approval process that were
`outside of our control. We anticipate introducing many of the products we expected to launch in 2014 after receiving further regulatory approvals.
`
`Evaluation of achievement
`We set a minimum threshold and a maximum payout for cash bonus payments: In the event that less than 85% of our
`targeted 2014 adjusted EBITDA goal was achieved, there would be no bonus payable (irrespective of the executive's
`individual performance and the achievement of our other targets) unless the Committee exercised its discretion to fund the
`bonus pool for achievement against the other financial and performance metrics; and in the event that 133% or greater of
`targeted 2014 adjusted EBITDA goal was achieved, the bonus pool would be funded at 200% of target, subject to the
`Committee's ability to make downward adjustments in amounts earned. The "Grants of plan-based awards for fiscal year
`2014" table sets forth the hypothetical bonus awards available to our Named Executives in 2014 for achieving the minimum
`(or "threshold") performance target, the "target" bonus award, and the maximum bonus award.
`
`The Committee viewed 2014 as a very successful year as measured by our financial and operational performance and
`determined that it was appropriate to fund our annual incentive bonus plan at 193% of the aggregate target for our Named
`Executives. The primary reason for this funding level was the fact that the Company substantially exceeded its 2014
`adjusted EBITDA goal and exceeded, or performed well against, a number of its other key financial metrics. In determining
`the funding level, the Committee also reviewed and took into account our strong 2014 operational performance, focusing
`specifically on the number of ANDAs
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`submitted, the successful acquisition and integration of Par Sterile, which substantially enhanced our competitive standing,
`and the approval and launch of our generic version of Lovaza®, which represented the successful achievement of a long-
`term goal of the Company. For actual amounts awarded to each Named Executive, see the "Non-equity incentive plan
`compensation" column of the "Summary compensation table for fiscal years 2014, 2013 and 2012" below.
`
`Long-term incentive
`
`Equity-based compensation is an important element of our compensation program for our Named Executives. We believe
`that equity-based compensation is an effective long-term incentive and retention tool, and serves to align the interests of
`our Named Executives with our stockholders.
`Our board of directors has granted options to purchase common stock of the Company ("options" or "stock options") to
`senior management, including our Named Executives, under the Sky Growth Holdings Corporation 2012 Equity Incentive
`Plan, as amended (the "2012 EIP").
`
`All of our Named Executives, other than Mr. Coughlin, were employed at the time the Merger occurred and were granted
`option awards at that time that were intended to serve as long-term incentives covering a five-year time frame. In
`determining the size of each executive's equity award, our board of directors considered factors such as the estimated long-
`term values of these awards, the size of prior awards granted to the executive, and the executive's position and
`responsibilities. In 2014, we made additional option grants to each of our Named Executives (other than Mr. Coughlin)
`following the Sponsor's purchase of additional shares of our common stock in connection with the acquisition of Par Sterile
`(described above under the heading "Recent acquisitions"), which had resulted in the equity ownership of our Named
`Executives (other than Mr. Coughlin) and other holders of our common stock being diluted. Our board of directors decided
`to make these grants in order to generally maintain the equity ownership levels of our Named Executives (on a fully diluted
`basis) before and after the additional equity purchase by the Sponsor. Because the long-term equity incentive grants made
`to our Named Executives (other than Mr. Coughlin) in 2012 were intended to provide incentives over a multi-year period,
`except for the anti-dilution grants described above, no equity grants were made to our Named Executives in 2014, other
`than Mr. Coughlin's grants, as described below.
`
`Mr. Coughlin's option award, granted at his time of hire, was intended to be comparable in size to the awards made to our
`Named Executives who were employed at the time of the Merger, while still providing an appropriately-sized incentive
`based on factors such as internal equity and market conditions. Mr. Coughlin's option award was also intended to cover a
`'four-year time frame that generally aligns with the last four years of vesting opportunities for option awards granted to our
`other Named Executives in connection with the Merger. The Committee, upon the recommendation of Mr. Campanelli, also
`approved a supplemental stock option award to Mr. Coughlin in December 2014, which was granted to him on January 26,
`2015, and therefore does not appear in the tables below. This supplemental grant of 588,235 stock options was made in
`recognition of Mr. Coughlin's successful assumption of a key leadership role within the Company and contributions to our
`financial and operational results in 2014 and has vesting terms that align with the grants made to other Named Executives
`in connection with the Merger, except that it is intended to cover a three-year time frame that generally aligns with the last
`three years of vesting opportunities for those option awards.
`
`Half of the stock options granted to our Named Executives in connection with the Merger are subject to time-based vesting;
`the other half of the stock options are subject to performance-based vesting. The time-based stock options vest over a five-
`year period and the performance-based stock options are eligible to vest over a five-year period based on our achievement
`of specified adjusted EBITDA goals for each of the five fiscal years beginning with our 2013 fiscal year, subject to the
`executive's remaining in continuous employment with (or provides other service to) us through an applicable anniversary of
`the vesting commencement date (which is September 28, 2012
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`for option awards granted in connection with the Merger). To the extent the performance-based stock options do not vest
`because the adjusted EBITDA goal is not met (and is not met based on the combined adjusted EBITDA for a given fiscal
`year and the next succeeding fiscal year), the stock options will remain outstanding and vest (together with any other
`unvested performance-based stock options) if the Sponsor realizes certain returns on its investment in us. Each stock
`option award granted to our Named Executives in 2014 was also evenly split between time- and performance-based stock
`options and was subject to the same vesting conditions as are described above, except that, other than the supplemental
`grant approved for Mr. Coughlin at the end of 2014, the stock options are generally subject to vesting over a four-year
`period beginning in our 2014 fiscal year.
`
`The vesting of stock options is described in greater detail in footnote 2 to the "Outstanding equity awards at 2014 fiscal
`year-end" table below. In addition, as discussed below in "Potential payments upon termination or change in control for
`fiscal year 2014-2012 EIP," time-based stock options are subject to accelerated vesting in limited circumstances relating
`to change in control events and certain terminations of employment.
`
`For our 2014 fiscal year, performance-based stock options were eligible to vest if we achieved an adjusted EBITDA of $374
`million (determined in the same manner as is described above). Because we achieved adjusted EBITDA of $433.8 million
`for our 2014 fiscal year, performance-based stock options that were first eligible to vest with respect to our 2014 fiscal year
`have vested or, in certain cases, will vest if the holder remains employed with (or otherwise provides service to) us through
`an applicable anniversary of the vesting commencement date as set forth in his or her option agreement.
`
`In connection with the Merger, we also provided our Named Executives (and other executives) with the opportunity to roll
`over outstanding equity of Par Pharmaceutical Companies, Inc. held by them immediately prior to the consummation of the
`Merger into our equity, and each of our Named Executives (other than Mr. Coughlin, who was not employed by us at the
`time) elected to do so.
`
`Traditional employee benefits and executive perquisites
`In 2014, we maintained broad-based benefits programs for all eligible employees, including our Named Executives, which
`included health insurance, life and disability insurance and dental insurance, to remain competitive in the marketplace and
`enable us to attract and retain quality employees. We maintained a 401(k) plan, in which eligible employees, including our
`Named Executives, were permitted to contribute from 1% to 25% of their compensation to the plan. We also matched
`employee contributions, including those made by our Named Executives, to our 401(k) plan in an amount equal to 50% of
`up to 6% of the employee's compensation.
`
`In addition, we provided our Named Executives with perquisites and other personal benefits that we believed were
`reasonable and consistent with our overall compensation program and were intended to enable us to attract and retain
`highly-qualified employees for key positions. In 2014, perquisites granted to our Named Executives included an automobile
`allowance, supplemental life insurance, supplemental disability benefits, gym memberships and executive physicals. Please
`see "Summary compensation table for fiscal years 2014, 2013 and 2012" for a further description of the value of perquisites
`provided to each of our Named Executives.
`
`Compensation mix
`
`The mix of fixed versus variable compensation is an important factor in motivating our Named Executives and other key
`employees to contribute to our financial performance over the short- and long-term and in aligning management interests
`with stockholder interests. Our view is that, the more senior the executive, (i) the greater the percentage of the executive's
`cash compensation that should be in the form of an annual bonus opportunity, which is contingent on achieving the
`Company's short-term performance objectives, and (ii) the greater the percentage of the executive's overall target total
`direct compensation that should be comprised of
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`equity compensation, the value of which is dependent on the Company's stock performance. We believe this compensation
`framework focuses executives on improving financial results and creating value for our stockholders.
`
`Our philosophy on the appropriate compensation mix for our Named Executives is evident in the long-term incentive awards
`we have granted to them since the Merger in 2012. As shown in the "Summary compensation table for fiscal years 2014,
`2013 and 2012" below, a very significant portion of the compensation paid to our Named Executives since the Merger has
`been in the form of stock options (including, in 2012, grants to Messrs. Campanelli, Tropiano and Haughey that were
`intended to serve as an incentive to them over a five-year vesting period). The Committee views long-term incentive
`compensation as a critical tool for linking executive pay with the interests of our stockholders and therefore has weighted it
`heavily in our overall compensation program. For more information on these awards, see the "Outstanding equity awards at
`2014 fiscal year-end" table below.
`
`Severance and change of control
`
`We provide our Named Executives with certain benefits upon termination of their employment in various circumstances,
`including in connection with a change of control, pursuant to employment agreements and our Change in Control
`Severance Policy (the "Change in Control Policy"). However, the benefits payable to a Named Executive under the Change
`in Control Policy would be reduced by the severance benefits provided under an applicable employment or severance
`agreement. We believe providing severance benefits to our Named Executives helps retain their continued services and
`keep them focused on our long-term interests. Please see "Potential payments upon termination or change of control for
`fiscal year 2014" for a description of the benefits provided to our Named Executives upon termination of their employment in
`various circumstances.
`
`Executive financial recoupment program
`
`We established the Executive Financial Recoupment Program (the "Recoupment Program"), which generally permits us to
`recover incentive compensation (which includes equity awards and cash bonuses) from a "covered person" upon a
`determination that (a) such covered person engaged in significant misconduct (e.g., a violation of a significant law or
`regulation or our policy) and/or (b) a company representative for whom such covered person had supervisory responsibility
`engaged in significant misconduct that does not constitute an isolated occurrence and that such covered person knew or
`should have known was occurring, with respect to the circumstances described in each of subsections (a) and (b), which
`makes (or with respect to cash bonuses or equity awards already made, would have made) such covered person and/or
`company representative ineligible for an annual bonus, bonus deferral or other deferred or unvested equity award in the
`applicable plan year or subsequent plan year. Subject to applicable law, the Recoupment Program permits us to recover
`incentive compensation from an executive (i) in the case of a cash bonus, for a period of three years from the date that such
`bonus was paid (or if the payment of the bonus is deferred, the date that such bonus would have been paid but for the
`deferral), (ii) in the case of deferred or unvested equity awards, until three years after such executive's employment
`termination date and (iii) in the case of vested equity awards, for the three-year period prior to the date that the applicable
`recoupment determination is made. Under the Recoupment Program, a "covered person" is any company executive at the
`level of Vice President or above, including each of our Named Executives.
`
`Tax consequences and deductibility of executive compensation
`
`Because our common stock is not currently publicly traded, executive compensation paid in our 2014 fiscal year was not
`subject to the provisions of Section 162(m) of the Internal Revenue Code, which limits the deductibility of compensation
`paid to certain individuals to $1 million, excluding qualifying performance-based compensation and certain other
`compensation. Following this offering, at such time as we are subject to the
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`deduction limitation under Section 162(m) of the United States Internal Revenue Code of 1986, as amended (the "Internal
`Revenue Code"), we expect that the Committee will consider the impact of Section 162(m) of the Internal Revenue Code
`when structuring our executive compensation arrangements with our Named Executives. However, the Committee will
`retain flexibility to approve compensation arrangements that promote the objectives of our compensation program but that
`may not qualify for full or partial tax deductibility.
`
`Accounting considerations with regard to compensation practices
`
`We review on an on-going basis our compensation programs and the impact of such compensation programs on our
`financial statements, including the accounting treatment of equity-based compensation, and our compensation decisions
`may be influenced by such factors.
`
`Compensation risk assessment
`We last completed a comprehensive compensation risk assessment in 2012, when the common stock of th