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101 Gordon Drive

Lionville, Pennsylvania 19341

NOTICE OF 2010 ANNUAL MEETING OF SHAREHOLDERS

Dear Shareholder,

The 2010 Annual Meeting of Shareholders of West Pharmaceutical Services, Inc. will be held at our headquarters, 101 Gordon Drive, Lionville, Pennsylvania 19341, on Tuesday, May 4, 2010, at 9:30 AM.  The items of business at the meeting are:

1.               to elect Thomas W. Hofmann, L. Robert Johnson, John P. Neafsey and Geoffrey F. Worden as Class II Directors, each for a term of three years;

2.               to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2010 fiscal year; and

3.               to transact any other business that may properly come before the meeting and any adjournment or postponement.

The Board of Directors unanimously recommends a vote “FOR” proposals 1 and 2 above.

Only shareholders of record on March 19, 2010 may vote at the meeting.

Your vote is important.  Please vote your shares promptly.  You can vote your shares electronically via the Internet or by completing and returning the proxy card or voting instruction card or in person at the Annual Meeting.  You can revoke a proxy at any time prior to its exercise at the Annual Meeting by following the instructions in this proxy statement.

Important Notice Regarding the Availability of Proxy Materials for

the Shareholder Meeting May 4, 2010:

Our proxy statement and annual report are available at http://www.westpharma.com/na/en/Investors/Pages/ProxyMaterials.aspx

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Note on Incorporation by Reference:

We include the names, ages, and background information about our directors in our 2009 Form 10-K Annual Report by incorporating that information by reference to the heading in this proxy statement where the information can be found.  The Form 10-K incorrectly identifies the heading as “Board of Directors.”  The director information is found under “Item 1 — Election of Directors” beginning on page 11.

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WEST PHARMACEUTICAL SERVICES, INC.

PROXY STATEMENT

GENERAL INFORMATION ABOUT THE MEETING

Proxy Solicitation

Our Board of Directors is soliciting your vote on matters that will be presented at our 2010 Annual Meeting of Shareholders and at any adjournment or postponement.  This proxy statement, the accompanying proxy card or voting instructions and our 2009 annual report are being mailed on or about March 25, 2010.  This proxy statement contains information on these matters to assist you in voting your shares.

Shareholders Entitled to Vote

If you were a shareholder of record of our common stock, par value $.25 per share, at the close of business on March 19, 2010, you can vote.  For each matter presented for vote, you have one vote for each share you own.

Shareholders of Record and Beneficial Owners

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered the “shareholder of record” of those shares.  We have mailed these proxy materials directly to you.

If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in street name.  These proxy materials have been forwarded to you by your broker, bank or other holder of record who is considered the shareholder of record of those shares.  As the beneficial owner, you may direct your broker, bank or other holder of record on how to vote your shares by using the proxy card included in the mailing or by following their instructions for voting on the Internet.

Voting Methods

You may vote using any of the following methods:

Proxy Card or Voting Instruction Card.  Be sure to complete, sign and date the card and return it in the prepaid envelope.

Via the Internet.  The Internet voting procedure is designed to authenticate votes cast by use of a personal identification number.  The procedure allows shareholders to appoint a proxy, provides voting instructions and confirms that your actions have been properly recorded.  The website for Internet voting is www.voteproxy.com.  The enclosed proxy card contains specific instructions on Internet voting.  Please have your proxy card handy when you go online.  Internet voting facilities for shareholders of record will be available 24 hours a day and will close at 11:59 PM Eastern Time on May 3, 2010.

In Person at the Meeting.  If you are a shareholder of record and attend the meeting, you may deliver your completed proxy card in person.  If you are a beneficial owner, you must obtain a proxy from your broker, bank or other holder of record and present it to the judge of elections with your ballot in order to vote.

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Participants in West 401(k) Plan.  Any shares you may hold in our 401(k) plan have been added to your other holdings on your proxy card.  Your completed proxy card serves as voting instructions to the trustee of that plan.  You may direct the trustee how to vote your plan shares by submitting your proxy vote for those shares, along with the rest of your shares, by Internet or mail, all as described on the enclosed proxy card.  If you do not instruct the trustee how to vote, your plan shares will be voted by the trustee in the same proportion that it votes shares in other plan accounts for which it received timely voting instructions.

In each case, your shares will be voted as you instruct.  If you return a signed card but do not provide voting instructions, your shares will be voted FOR the nominees for election as directors and FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2010.

Changing Your Vote

Even after you have submitted your proxy, you may revoke or change your vote at any time before the proxy is exercised by filing with our corporate secretary either a notice of revocation or a duly executed proxy bearing a later date.  You may also vote in person at the meeting, although attendance at the meeting will not by itself revoke a previously granted proxy.

Quorum and Vote Required

A quorum is necessary to conduct business at the annual meeting.  A quorum consists of the presence at the meeting either in person or represented by proxy of the holders of a majority of the outstanding shares of our common stock entitled to vote.  You are part of the quorum if you have voted by proxy.  As of the record date for the meeting, 33,221,220 shares of our common stock were issued and outstanding.

Abstentions, including brokers holding customers’ shares of record who cause abstentions to be recorded at the meeting, and broker non-votes are considered shareholders who are present and entitled to vote, and they count toward the quorum.  A broker non-vote occurs when a broker or other nominee that holds shares for another does not vote on a particular item because the nominee does not have discretionary voting authority for that item and has not received instructions from the owner of the shares.  Although there are no controlling precedents under Pennsylvania law regarding the treatment of broker non-votes in certain circumstances, we intend to apply the principles set forth below.

Election of Directors:  Directors are elected by a plurality, which means that the director nominee with the most votes for a particular slot is elected for that slot.  Abstentions and broker non-votes will not be taken into account in determining the outcome of the election.  Please note that this year the rules regarding how brokers may vote your shares have changed.  Brokers may no longer vote your shares on the election of directors without your specific instructions on how to vote so we encourage you to provide instructions to your broker regarding how to vote your shares.

Ratification of Auditors:  To be approved, this matter must receive the affirmative vote of the holders of a majority of the shares present and entitled to vote on the item.  Shares held by brokers that have not received instructions from their customers can vote on this matter.  Therefore, abstentions and broker non-votes have the effect of negative votes.

Costs of Solicitation

We pay the cost of soliciting proxies.  Proxies will be solicited on behalf of the Board by mail, telephone, other electronic means or in person.  We have retained Innisfree M&A Incorporated, 501 Madison Avenue, New York, NY 10022, to help with the solicitation for a fee of $25,000 plus reasonable out-of-pocket costs and expenses.  We will reimburse brokerage firms and other custodians, nominees and fiduciaries their reasonable out-of-pocket expenses for forwarding solicitation materials to shareholders and obtaining their votes.

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table shows the number of shares of our common stock beneficially owned by (a) each of our directors; (b) each named executive officer; (c) all directors and executive officers as a group; and (d) each person or group known by us to own more than five percent of the outstanding shares of our common stock.  The information is stated as of December 31, 2009.  Unless otherwise noted, the beneficial owners exercise sole voting and/or dispositive power over their shares.

* Less than one percent of the outstanding shares of our common stock.

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(2)          Includes 35,083 shares held by our charitable foundation.  Paula A. Johnson, a member of our Board, and Richard D. Luzzi, one of our executive officers, are trustees of the foundation and, in that capacity, are each deemed to be the beneficial owner of the shares held by the foundation because they share voting and dispositive power over those shares.  Dr. Johnson and Mr. Luzzi disclaim any economic interest in shares held by the foundation.

(3)          Based on information contained in a Schedule 13G filing dated February 1, 2010 made by Franklin Resources, Inc. (“FRI”), Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Advisory Services, LLC (“FAS”).  Represents shares beneficially owned by one or more open or closed-end investment companies or other managed accounts, which are advised by direct and indirect investment advisory subsidiaries of FRI.  Charles B. Johnson and Rupert H. Johnson, Jr. are principal owners of FRI, and they, along with FRI and each of FRI’s advisory subsidiaries, including FAS, disclaim any economic interest or beneficial ownership in any of the shares covered by the Schedule.  They disclaim the existence of a group.  FAS has sole dispositive power with respect to 3,430,603 of the shares and sole voting power with respect to 3,415,903 of the shares.

(4)          Based on information contained in a Schedule 13G filing dated January 20, 2010 made by BlackRock, Inc.

(5)          Based on information contained in a Schedule 13G filing dated February 8, 2010 made by Munder Capital Management.

(6)          Based on information contained in a Schedule 13G filing dated February 11, 2010 made by Allianz Global Investors Management Partners LLC and its wholly owned subsidiaries Nicholas-Applegate Capital Management LLC (“NACM”), Oppenheimer Capital LLC (“OpCap”) and NFJ Investment Group LLC (“NFJ”).  Represents shares held by investment advisory clients or discretionary accounts of which NACM, OpCap or NFJ is the investment adviser.  They disclaim the existence of a group.

CORPORATE GOVERNANCE

Corporate Governance Principles

Our Board has adopted corporate governance principles to provide guidance to our Board and its committees on the Board’s and committees’ roles, director qualifications and responsibilities, board and committee composition, organization and leadership.  As part of its review of corporate governance developments, the Board modifies the corporate governance principles as warranted.  Together with our Articles of Incorporation, Bylaws, Board committee charters and Code of Business Conduct, these guidelines present a comprehensive picture of how the Board addresses its governance responsibilities to ensure our vitality and success.  The governance principles and any modifications made to them are published on our website under the Investors — Corporate Governance captions at www.westpharma.com.  You may request a printed copy of the principles from our corporate secretary.

Board Leadership Structure

The Board believes that our CEO is best situated to serve as Chairman because he is the director most familiar with our business and industry and most capable of effectively identifying strategic priorities and leading the discussion and implementation of strategy.  Independent directors and management have different perspectives

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and roles in strategy development.  Our independent directors bring experience, oversight skills and expertise from outside our organization and industry, while the CEO brings company-specific experience and expertise.  The Board believes that the combined role of Chairman and CEO promotes strategy development and implementation, and facilitates information flow between management and the Board, which are essential to effective governance.

One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for implementing the strategy once it is developed.  The Board believes the combined role of Chairman and CEO, together with the Chairman, Independent Directors having the duties described below, is in the best interest of shareholders because it provides the appropriate balance between strategy development and independent oversight of management.

Chairman, Independent Directors

Anthony Welters, an independent director who serves as Chairman of the Nominating and Corporate Governance Committee, was selected by the Board to serve as the Chairman, Independent Directors for all meetings of non-management directors held in executive session.  The Chairman, Independent Directors confers with the CEO on Board agenda items, meeting schedules, presentations and other communications; acts as Chairman for Board discussions on any subject where the CEO would not be the appropriate person to chair such discussions; and serves as principal liaison between the CEO and the independent directors.

The CEO and the Chairman, Independent Directors create the agenda for each Board meeting.  Each independent director may add items to the agenda.  Independent directors meet in regularly scheduled executive sessions and in special executive sessions called by the Chairman, Independent Directors.

The Board’s Role in Risk Oversight

The Board has an active role, as a whole and at the committee level, in overseeing management of our risks.  The Board regularly reviews information about our financial condition and operations, and the risks associated with each.  Our Board’s Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements.  The Audit Committee oversees management of financial reporting risks.  The Nominating and Corporate Governance Committee manages risks associated with the independence of the Board of Directors and potential conflicts of interest.  Although each committee is responsible for evaluating certain risks and overseeing the management of those risks, the entire Board of Directors is regularly informed about them through committee reports.

Communicating with the Board

Interested parties can communicate with the Chairman, Independent Directors or the non-management directors as a group by sending a letter addressed to our Board of Directors, c/o Vice President, General Counsel and Secretary, West Pharmaceutical Services, Inc., 101 Gordon Drive, Lionville, PA 19341.  Communications to a particular director should be addressed to that director at the same address.

Our corporate secretary maintains a log of all communications received through this process.  Communications to specific directors are forwarded to those directors.  All other communications are transmitted directly to the Chairman, Independent Directors who decides whether they should be forwarded to a particular Board committee or to management for further handling.

Director Independence Standards

Our Board of Directors has adopted a formal set of categorical director qualification standards used to determine director independence.  The standards meet or exceed the independence requirements of the NYSE corporate governance listing standards.  Under the standards, a director must be determined to have no material relationship with us other than as a director.  The standards specify the criteria for determining director independence, including strict guidelines for directors and their immediate families regarding employment or

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affiliation with us or our independent registered public accounting firm.  The standards also prohibit Audit Committee members from having any direct or indirect financial relationship with us and they restrict not-for-profit relationships of all directors with us.  The full text of our Standards may be found on our website at www.westpharma.com under the Investors — Corporate Governance captions.

With the assistance of our General Counsel, the Nominating and Corporate Governance Committee has reviewed the applicable legal standards for Board and Board committee member independence, our standards of independence and the criteria applied to determine “audit committee financial expert” status.  The Committee has also reviewed a summary of the answers to annual questionnaires completed by each director.  On the basis of this review, the Nominating and Corporate Governance Committee has reported its findings to the full Board and the Board has affirmatively determined that each of its non-employee directors is independent of us and our management under our standard of independence.  In making its determination, the Board considered relevant facts and circumstances, including direct and indirect transactions and relationships between each director and us.

Criteria for Board Membership

As a leading manufacturer of pharmaceutical packaging and delivery systems with global operations, we believe that our Board should include a mix of backgrounds and expertise that enhances the ability of the directors collectively to understand the issues facing us and to fulfill the Board’s and the Board committees’ responsibilities.  Members of our Board should have high standards of integrity and commitment, exhibit independence of judgment, be willing to ask hard questions of management and work well with others.  Directors are expected to devote sufficient time to our affairs and be free of conflicts of interest; engage in constructive discussion with each other and management and demonstrate diligence and faithfulness in attending Board and committee meetings.

The Nominating and Corporate Governance Committee reviews annually with the Board the size and composition of the Board as a whole to determine the qualifications and areas of expertise needed to further enhance the composition of the Board.  As a result of this process, the Nominating and Corporate Governance Committee has identified the following specific criteria as important for potential director candidates: (1) senior level executive leadership at public companies, particularly companies with international operations; (2) leadership in the healthcare or public health fields; (3) science or technology backgrounds; and (4) financial expertise.  The Committee works with management and the other directors to attract candidates with those qualifications.  The goal of the Committee is to achieve a Board that reflects the appropriate balance and diversity of knowledge, experience, skills and expertise.

Nomination of Directors

To identify new, non-management director candidates, the Nominating and Corporate Governance Committee considers individuals suggested or recommended from a variety of sources, including Committee members, other directors, our CEO, customers, suppliers, Board advisors and our shareholders.  The Committee has not employed a third-party search firm, but it reserves the right to do so.  All persons recommended for nomination to our Board, regardless of the source of the recommendation, are evaluated in the same manner by the Committee.  Shareholders who wish to recommend or nominate director candidates must provide information about themselves and their candidates and comply with procedures and timelines contained in our Bylaws. These procedures are described under “Deadlines and Procedural Requirements for Submission of Proxy Proposals and Nomination of Directors for the Next Year; Other Matters” on page 47.

Code of Business Conduct

All of our employees, officers and directors are required to comply with our Code of Business Conduct.  The Code of Business Conduct covers fundamental ethical and compliance-related principles and practices such as accurate accounting records and financial reporting, avoiding conflicts of interest, the protection and use of our property and information and compliance with legal requirements.  The Board has adopted a comprehensive corporate compliance and ethics program and has named John R. Gailey III our chief compliance officer. 

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The chief compliance officer delivers semi-annual reports on the corporate compliance and ethics program to the Audit Committee.

Our Code of Business Conduct can be found on our website at www.westpharma.com under the Investors — Corporate Governance — Code of Business Conduct captions.  You may request a printed copy from our corporate secretary.

Board and Committee Membership

During 2009, our Board met six times.  Each director attended at least 75% of the Board meetings and the meetings of the Board committees on which he or she served.  Our Board holds regular executive sessions of only non-management directors to conduct a self-assessment of its performance and to review management’s strategy and operating plans, the criteria by which our CEO and other senior executives are measured, management’s performance against those criteria and other relevant topics.  Last year, non-management directors held three executive sessions in conjunction with regularly scheduled Board meetings, and the independent directors held two separate meetings.

All directors are expected to attend the annual meeting of shareholders, and all of our directors attended the 2009 annual meeting.

The current standing committees of the Board are the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, the Finance Committee and the Innovation and Technology Committee.  The Board has adopted a written charter for each committee, which can be found on our website at www.westpharma.com under the Investors — Corporate Governance captions.  You may request a printed copy of each committee’s charter from our corporate secretary.

2009 Committee Memberships

M = Member                C = Chair

The Audit Committee.  The Audit Committee assists our Board in its oversight of (1) the integrity of our financial statements; (2) the independence and qualifications of our independent auditors; (3) the performance of our internal audit function and independent auditors; and (4) our compliance with legal and regulatory requirements.  In carrying out these responsibilities, the Audit Committee, among other things:

·                  Reviews and discusses our annual and quarterly financial statements with management and the independent auditors;

·                  Manages our relationship with the independent auditors, including having sole authority for its appointment, retention and compensation; reviewing the scope of its work; approving non-audit and audit services; and confirming the independence of the independent auditors; and

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·                  Oversees management’s implementation and maintenance of disclosure controls and procedures and internal control over financial reporting.

Audit Committee Financial Experts.  The Board has determined that each current member of the Audit Committee is an “audit committee financial expert” within the meaning of SEC regulations.

The Compensation Committee.  The Compensation Committee monitors the effectiveness of our executive compensation programs in realizing our compensation philosophy; reviews and approves corporate goals and objectives relevant to the compensation of our executive officers and evaluates their performance against those goals and objectives; and, either as a committee or together with the other independent directors, determines and approves our executive officers’ compensation levels based on that evaluation.  Final decisions on the compensation of our Chief Executive Officer are discussed with and approved by the independent directors in executive session.  The Compensation Committee also makes recommendations to our Board on incentive and equity-based compensation plans.  In overseeing the administration of those plans, the Compensation Committee approves all grants and awards to executive officers, establishes performance goals and determines whether or not those goals have been met.

Our Compensation Committee has delegated certain authority, responsibilities and duties to a committee of senior officers, referred to as the “plan committee.”  The plan committee may make equity awards to newly- hired employees as part of a new-hire package and to existing employees in connection with promotions or for retention purposes, subject to guidelines and an overall annual share limitation.  The plan committee may not make any awards or grants to our officers.  The plan committee is composed of our CEO, Vice President, Human Resources, General Counsel and Corporate Controller.

Compensation Consultant and 2009 Fees.  The Compensation Committee has retained Towers Perrin, now known as Towers Watson, to provide executive compensation consulting services.  Towers Perrin also provides non-executive compensation consulting services to us.  The executive compensation consulting services provided during 2009 totaled $162,786.  The non-executive compensation consulting services provided during 2009 totaled $358,279.

The Nominating and Corporate Governance Committee.  The Nominating and Corporate Governance Committee identifies qualified individuals to serve as Board members; recommends nominees for director and officer positions; determines the appropriate size and composition of our Board and its committees; monitors a process to assess Board effectiveness; reviews related-party transactions; and considers matters of corporate governance.  After review by the independent directors, the Nominating and Corporate Governance Committee formally recommends to our Board a successor to our CEO.  The committee also reviews and makes recommendations to the Board on the form and level of director compensation.  The Nominating and Corporate Governance Committee administers director equity-based compensation awards.

The full charter of the Nominating and Corporate Governance Committee, which was amended by our Board in December 2009, is attached to this proxy statement as Appendix A.

The Finance Committee.  The Finance Committee serves as our Board’s liaison with management on important financial transactions and financial-policy matters.  The Finance Committee consults with and advises management on financial strategies and procedures, acquisitions, divestitures and capital-expenditure requests.

The Innovation and Technology Committee.  The Innovation and Technology Committee provides guidance to our Board on technical and commercial innovation strategies; reviews emerging technology trends that may affect our business; reviews our major innovation and technological programs and overall patent strategies; and assists our Board in making well-informed choices about investments in new technology.

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Recovery of Incentive Compensation

In February 2010, our Board of Directors adopted a policy regarding the recovery or cancellation of annual or long-term equity-based and performance-based compensation for all employees, including our named executive officers.  The policy allows us to cancel or seek repayment of incentive awards from any employee who engages in conduct materially harmful to us or whose fraud or misconduct gives rise to a significant or material restatement of financial results.  It also allows us to seek repayment of award amounts that were overpaid due to mathematical errors, fraud, misconduct or gross negligence.  Recovery may be obtained from any award recipient during the three-year period following payment of the award.  This new incentive compensation recovery policy applies to all awards made on or after February 2010 and will be incorporated into all future awards.

The Compensation Committee has the sole and absolute authority to exercise discretion in the application of the incentive compensation recovery policy with respect to all executive officers and directors.  We believe the new policy preserves value for our shareholders by providing the Compensation Committee with a specific method to recover amounts that should not have been paid.

COMPENSATION OF NON-EMPLOYEE DIRECTORS

Our non-employee directors receive annual grants of deferred stock and cash compensation, in the form of an annual retainer, meeting and committee fees.  The following table shows the meeting fees and retainers we paid to non-employee directors for 2009:

The total 2009 compensation of our non-employee directors is shown in the following table.  All directors are currently serving on our Board.

Director Compensation For Fiscal 2009

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(1)         The amounts in this column are comprised of: (i) the dividend equivalents credited to each account under the Director Deferred Compensation Plan, and (ii) with respect to Mr. Hofmann, Dr. Paula Johnson, Mr. Neafsey, Mr. Weiland, Mr. Worden, Dr. Young, and Mr. Zenner, charitable contributions of $1,000 each made under our non-discriminatory charitable contribution matching program, which is available to all our employees and directors.

Fees Earned and Paid in Cash.  The amounts in the “Fees Earned and Paid in Cash” column are retainers and meeting fees earned for serving on our Board, Board committees and as committee chairs and Chairman, Independent Directors.  All annual retainers and meeting fees are paid quarterly.  The amounts do not reflect elections to defer fees under the Non-Qualified Deferred Compensation Plan for Non-Employee Directors (“Director Deferred Compensation Plan”).  With respect to the first three quarters’ payments in 2009, Mr. Neafsey, Mr. Weiland and Mr. Welters deferred 100% of their cash compensation and Dr. Young deferred 50% of his cash compensation.  With respect to the last quarter of 2009, Mr. Welters and Mr. Weiland deferred 100% of their cash compensation and Dr. Young deferred 50% of his cash compensation.

Stock Awards.  The amounts in the “Stock Awards” column reflect the grant date fair value for deferred stock awards made in 2009.  The grant date fair value is determined under FASB Accounting Standards Codification (“ASC”) Topic 718 — Stock Compensation.  In 2009, each non-employee director was awarded 2,100 shares of deferred stock.  The 2009 deferred stock had a grant date fair market value of $33.24 per share based on the closing price of our common stock on the award date, May 5, 2009.  For a more detailed discussion on the grant date fair value for our deferred stock awards, refer to Note 17, Stock-Based Compensation, to the consolidated financial statements contained in our 2009 Form 10-K.  Deferred-stock awards are made on the date of our annual meeting and vest on the date of the following year’s annual meeting, provided that the director continues to serve on our Board on that date.  Deferred-stock awards also vest on a director’s retirement, if earlier.

All deferred stock is credited to an account under the Director Deferred Compensation Plan and is distributed as shares of common stock according to the terms of that plan, as described below.  When dividends are paid on common stock, additional shares of deferred stock are credited to each director’s deferred stock account as if those dividends were used to purchase additional shares.

Stock Options.  Prior to 2007, non-employee directors received annual grants of stock options, which vested on the first anniversary of the grant date.  After benchmarking this practice, our Board of Directors stopped granting stock options to directors.

The following table presents information on stock awards and stock options as of December 31, 2009 for each person who served as a non-employee director during that year.

Outstanding Director Stock Awards and Stock Options At Fiscal Year-End 2009

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Director Deferred Compensation Plan

All non-employee directors may participate in the Director Deferred Compensation Plan, which permits participants to defer all or a part of their annual cash retainers and meeting fees until their Board service terminates.  Deferred fees may be credited to a “stock-unit” account that is deemed invested in our common stock or to an account that earns interest at the prime rate of our principal commercial bank.  The stock-unit accounts also are credited with dividend equivalents based on the number of stock units having been credited to the account as of the dividend record date.

The value of a director’s account balance is distributed on termination of Board service.  The value of a director’s stock-unit account is determined by multiplying the number of stock units credited to the account by the fair market value of our common stock on the termination date.

Directors may receive their distribution as a lump sum or in up to 10 annual installments.  Separate elections may apply to amounts earned and vested before 2005 and amounts earned and vested after December 31, 2004.  Deferred stock is distributed in shares of stock and deferred stock units are distributed in cash.  If a director elects the installment option, any cash-account balances during the distribution period will earn interest at the prime rate of our principal commercial bank and deferred stock will be credited with dividends until paid.  Partial shares are distributed in cash.

The following table summarizes the amounts credited to each Director Deferred Compensation Plan account as of December 31, 2009:

(1)         Value is determined by multiplying the number of stock units or shares of deferred stock, as applicable, times the fair market value of a share of stock on December 31, 2009, $39.20.

(2)         Mr. Worden is the only director with amounts invested in the interest-bearing account.  This account earned interest at a rate of 3.25%, compounded quarterly, which resulted in $2,195 being credited to his account in 2009.

ITEM 1 — ELECTION OF DIRECTORS

Our Board of Directors is currently divided into three classes, with each class serving a three-year term.  The Board has nominated Thomas W. Hofmann, L. Robert Johnson, John P. Neafsey and Geoffrey F. Worden for election as Class II directors.  All of the nominees have agreed to be named and to serve, and we expect each nominee to be able to serve if elected.  If any nominee is not able to serve, the nominating and corporate governance committee will recommend to our board a replacement nominee.  The Board may then designate the other nominee to stand for election.  If you voted for the unavailable nominee, your vote will be cast for his or her replacement.

At the 2011 annual meeting, our Board will recommend that shareholders approve an amendment to our Articles of Incorporation requiring annual director elections.  If approved, all directors would stand for re-election each year, beginning with the 2012 annual meeting.

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The Board of Directors recommends a vote

FOR the election of each of the nominated directors.

NOMINEES FOR DIRECTORS IN CLASS II FOR TERMS TO EXPIRE IN 2013

Thomas W. Hofmann, 58, has served as a director since October 2007.  He is the retired Senior Vice President and Chief Financial Officer of Sunoco, Inc., an oil refining and marketing company, where he served in that capacity from January 2002 until December 2007.  Mr. Hofmann was Sunoco’s Vice President and Chief Financial Officer from July 1998 to January 2002 and its Comptroller from July 1995 to July 1998.  He is a director of Penn Virginia Resource Partners, L.P., Fox Chase Cancer Center and Young Scholars Charter School and a member of the Advisory Board of the Boys & Girls Clubs of Philadelphia.

Mr. Hofmann has nearly 35 years of expertise in all areas of finance, including tax, accounting, auditing, treasury, investor relations and budgeting, and he is well-versed in corporate governance, strategic planning and risk-management issues.  Over the course of his distinguished career with Sunoco, Inc., Mr. Hofmann was involved in a number of unique transactions, including significant acquisitions and divestitures.  Mr. Hofmann qualifies as an audit committee financial expert under SEC guidelines.

L. Robert Johnson, 68, has served as a director since March 1989.  He is Managing Partner of Founders Capital Partners, a venture capital angel group he established in 1988.  He is a life member of the Corporation of the Massachusetts Institute of Technology, a director of the Scholarship Foundation of Santa Barbara, the Santa Barbara Center for the Performing Arts and Affinity Biosensors, LLC.

Mr. Johnson is a seasoned investment and biotechnology business professional, with over 40 years’ experience.  He has invested in and operated technology-based companies in a variety of fields, including medical care and genomics.  He brings a wealth of financial and transactional expertise to our Board.  Mr. Johnson spent 16 years developing his expertise in research, private equity and venture capital activities through his affiliations with the firms of Donaldson, Lufkin & Jenrette, Inc. and Kidder Peabody & Co., Incorporated.

John P. Neafsey, 70, has served as a director since November 1987.  He is President of JN Associates, an investment consulting firm he formed in November 1993, and was President and CEO of Greenwich Capital Markets from August 1990 to November 1993.  Mr. Neafsey is Chairman of the Board of Alliance Resource Partners, L.P.  He is a trustee emeritus and presidential counselor of Cornell University and a former member of the Board of Overseers of Weill Cornell Medical College.  Mr. Neafsey is also a director of Stepping Stones Museum for Children and the Cornell Club of New York City.

Mr. Neafsey has an extensive background in finance and international business.  He served as head of Greenwich Capital Markets, an investment banking firm specializing in the trading of government and asset-backed securities and derivatives, which he left to form his own investment consulting firm.  He also had a distinguished 23-year career with Sun Company (now Sunoco, Inc.) where, after rising through the ranks, he served as Chief Financial Officer and Executive Vice President for Canadian operations, coal and financial services activities.  Mr. Neafsey qualifies as an audit committee financial expert under SEC guidelines.

Geoffrey F. Worden, 70, has served as a director since November 1993.  He has been President of South Street Capital, Inc., an investment company, since 1991.  He is a director of Princess House, Inc., a privately owned direct sales company, and a director or trustee of the following not-for-profit organizations:  New York City Outward Bound School; North Carolina Outward Bound; The Episcopal Academy; and Bridges Outreach Inc.

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Mr. Worden has over 40 years’ experience with financial and investment matters, including strategic, corporate and financial planning, mergers, acquisitions and divestitures and their implementation, and the public and private placement of debt and equity securities.  Prior to forming South Street Capital, Mr. Worden built his financial career over 27 years at Kidder, Peabody & Co., Incorporated.  He qualifies as an audit committee financial expert under SEC guidelines.

CONTINUING CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 2011

Donald E. Morel, Jr., Ph.D., 52, has served as a director since March 2002.  He has been our Chief Executive Officer since April 2002 and Chairman of the Board since March 2003.  Dr. Morel was our President from April 2002 to June 2005.  He serves as a director of Fox Chase Cancer Center and Kensey Nash Corporation and as a member of the board of trustees of The Franklin Institute and of Lafayette College.

Dr. Morel has served with us in a variety of increasingly responsible roles, including Chief Operating Officer, head of our drug-delivery division, and Vice President of Research and Development.  He has over 20 years’ experience developing and managing programs involving advanced materials for aerospace, biomedical and pharmaceutical applications.

Robert C. Young, M.D., 70, has served as a director since July 2002.  He has been President of RCY Medicine, a healthcare policy consulting firm, since July 2009.  He served as Chancellor of Fox Chase Cancer Center from June 2007 to his retirement in July 2009 and as its President from December 1988 to June 2007.  Dr. Young currently serves as a member of the Board of Scientific Advisors of the National Cancer Institute and as a director of Human Genome Sciences and AVEO Pharmaceuticals, Inc.  He is also a past President of the American Society of Clinical Oncology, the American Cancer Society and the International Gynecologic Cancer Society.  Dr. Young is a former member of the National Cancer Policy Board of the Institute of Medicine.

Dr. Young, a medical oncologist with over 30 years’ healthcare experience, is internationally known for his work in the treatment of lymphoma and ovarian cancer, and is a past President of the American Cancer Society, the American Society of Clinical Oncology, one of the world’s largest oncology societies, and of the International Gynecologic Cancer Society.

John H. Weiland, 54, has served as a director since May 2007.  He has been President and Chief Operating Officer of C. R. Bard, Inc., a medical-device company, since August 2003, and served as its Group President from April 1997 to August 2003 and its Group Vice President from March 1996 to April 1997.

With 25 years of experience in the healthcare industry, Mr. Weiland has considerable expertise in medical-device company operations with significant international business expertise.  As President and Bard’s Chief Operating Officer, Mr. Weiland has responsibility for all of its business operations.

CONTINUING CLASS I DIRECTORS WHOSE TERMS EXPIRE IN 2012

Paula A. Johnson, M.D., MPH, 50, has served as a director since October 2005.  She is a cardiologist and has been the Executive Director of the Connors Center for Women’s Health and Gender Biology and Chief of the Division of Women’s Health at Brigham and Women’s Hospital since January 2002.  Dr. Johnson also is an Associate Professor at Harvard Medical School.

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Dr. Johnson brings a wealth of leading healthcare expertise to our Board.  She is a nationally recognized expert in cardiology and women’s and minority healthcare issues.  In her role as Chief of the Division of Women’s Health at Brigham and Women’s Hospital,  Dr. Johnson has built a novel, interdisciplinary research, education, clinical and policy program in women’s health whose mission is to improve the health of women and to transform their medical care.  Dr. Johnson is the recipient of many awards recognizing her contributions to women’s and minority health and is featured as a national leader in medicine by the National Library of Medicine.  She has also received the Abigail Adams Award from the Massachusetts Women’s Political Caucus, which honors Massachusetts women leaders who have demonstrated an outstanding commitment to the realization of equal political, economic and social rights for women.

Anthony Welters, 55, has served as a director since March 1997.  He has been Executive Vice President, UnitedHealth Group Inc., a diversified health and well-being company, since November 2006 and President of the Public and Senior Markets Group since September 2007.  Mr. Welters was President and Chief Executive Officer of AmeriChoice Corporation, a UnitedHealth Group Company, and its predecessor companies from 1989 until November 2006.  Mr. Welters also serves as Vice Chair of New York University, Chairman of Morehouse School of Medicine, a director of C. R. Bard, Inc. and Qwest Communications International, Inc., the Chair of the New York University School of Law Board of Trustees and a trustee of the New York University School of Medicine and the Library of Congress.

Mr. Welters has distinguished himself as a visionary yet practical business leader, with demonstrated entrepreneurial, operations and management expertise.  As CEO of AmeriChoice Corporation, he directed a highly successful managed care plan while pursuing new market opportunities in the field of managed healthcare.  Mr. Welters is the recipient of the prestigious Horatio Alger award and serves as a director of the Horatio Alger Association.

Patrick J. Zenner, 63, has served as a director since July 2002.  He is retired from Hoffmann-La Roche Inc., North America, the prescription drug unit of the Roche Group, a leading research-based healthcare enterprise, where he served as President and Chief Executive Officer from 1993 to January 2001.  He is a director and the Chairman of the Board of Exact Sciences Corporation, and from July 2007 until March 2008, served as its Interim CEO.  He also served as Interim Chief Executive Officer of CuraGen Corporation from May 2005 through March 2006.  Mr. Zenner serves as Chairman of the Board and a director of ArQule, Inc. and a director of Geron Corporation and Xoma Ltd.

Mr. Zenner’s career in the pharmaceutical industry spans 31 years.  Since retiring from Hoffmann-La Roche, Mr. Zenner has devoted his considerable industry expertise and corporate-governance knowledge to small and early-stage pharmaceutical and technology companies in various capacities, including board member, chairman and interim CEO.  He qualifies as an audit committee financial expert under SEC guidelines.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

This discussion and analysis describes our executive compensation philosophy, process, plans and practices as they relate to our “named executive officers” and gives the context for understanding and evaluating the more specific compensation information contained in the tables, charts and related disclosures that follow.

Overview of Our Business Environment

We are a global manufacturer of components and systems for injectable drug delivery and plastic packaging and delivery system components for the pharmaceutical, healthcare and consumer products industries.  We compete with several companies in our pharmaceutical components product lines.  However, we supply a

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major portion of the U.S. market for pharmaceutical elastomer and metal packaging components and have a significant share of the European market for these components.  The vast majority of our business is conducted in healthcare markets.  Our customer base includes the leading global producers and distributors of pharmaceuticals, biologics, medical devices and personal-care products.  Our position in the broader healthcare and pharmaceutical supplier industries also puts us in a highly competitive talent market.

We operate our businesses in a very competitive, regulated and complex technological environment.  Our strategy of differentiating our products and services requires us to make the investments necessary to continuously improve the quality and value of our offerings and to consistently introduce new and advanced features and products.  We sell most of our new product offerings to pharmaceutical companies for use with their drug compounds.  As such, those products are subject to relatively lengthy development and approval cycles and are dependent on the success of our customers’ products.  As a supplier to major pharmaceutical and device companies, our revenues are exposed to the impact of the current global economic downturn and potential U.S. healthcare reform and other trends such as consolidation within the pharmaceutical industry.

Compensation Program Philosophy

Our compensation philosophy is to (1) provide competitive executive pay opportunities tied to our short-term and longer-term success and (2) attract, motivate and retain the type of executive leadership that will help us achieve our strategic objectives.  To reach these goals, we believe our compensation programs should embody the following values:

·                  Have a strong pay-for-performance element with a major portion of executive pay “at risk” based on achievement of financial performance goals.  Performance goals should use metrics that we believe are the best indicators of our financial success and shareholder value creation.  Total pay should be targeted at the appropriate market level with greater rewards paid for exceeding goals.

·                  Support achievement of both operating performance and strategic objectives.  Annual bonuses should reward performance against key budgeted targets, while long-term incentives should keep management focused on business growth and effective use of capital.

·                  Link management compensation with the interests of shareholders.  Executives should have an interest in enhancing shareholder value.  Incentives should facilitate stock ownership and the value of incentive awards should result from increasing stock price.

·                  Be fair and market-competitive to assure access to needed talent and encourage retention.  The program should be flexible enough to accommodate pay practices in markets in which we compete for talent.

·                  Provide compensation opportunities that are consistent with each executive’s responsibilities, experience and performance.

We design our executive compensation programs primarily to reward management for achieving financial and performance goals using metrics that we believe are the best indicators of the success of our business.  Because we believe a growing, profitable company creates shareholder value, our executive compensation program in 2009 continued to emphasize the achievement of various measures of profitability and growth as described below.

How Our Compensation Committee Sets Executive Pay

The Compensation Committee develops our overall compensation philosophy, approves our executive compensation programs, makes all decisions about the compensation of our executive officers, including the named executive officers, and oversees our cash and equity-based incentive compensation plans.  The Compensation Committee approves guidelines for grants of awards under these plans.

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In 2009, our executive compensation program continued to consist of three principal elements: (1) base salary; (2) an annual cash bonus; and (3) long-term incentives in the form of performance-vesting share units (“PVSUs”) and stock options.

The Compensation Committee sets base salaries, target bonus levels and expected long-term incentive award values by reference to a select group of industry-specific comparator companies of reasonably similar size and complexity — referred to as the “Business Segment Comparator Group.”  The Committee also considers compensation data from a broad survey of healthcare and other companies — referred to as the “Talent Market Comparator Group” — as a way of confirming that our executive pay is competitive.

To assure that executive compensation is fair and market-competitive, base salaries and targeted annual and long-term incentive opportunities are generally set at or near (i.e., +/- 15%) median pay levels of the market as represented by pay practices in the Business Segment and Talent Market Comparator Groups.  We target the 75th percentile for the combined value of cash compensation and long-term incentives, if maximum performance is achieved, which will yield above-average compensation for superior performance.  The Committee also may adjust individual components to take into account such factors as an executive’s role in overall corporate policy-making, potential for advancement and/or development, relative experience and the length of time in his position.  The Committee reviews and discusses Dr. Morel’s compensation with the independent directors in executive session before making a final decision on his salary and bonus and long-term incentive opportunities.

The Compensation Committee exercises judgment in view of the above standards, considering CEO recommendations in setting long-term award target levels for non-CEO executives and discussions with the independent directors regarding the target levels for the CEO.  The Committee also considers potential shareholder dilution of equity awards and overall business and market conditions.  Long-term grants do not affect the amount of an employee’s retirement benefits.

Consistent with our compensation philosophy, annual bonuses and long-term incentive awards generally represent a greater percentage of the total compensation of the executives who have the most influence over and responsibility for the achievement of performance objectives, thus emphasizing the pay-for-performance aspect of our compensation programs.

Each year, the Compensation Committee reviews the nature and amounts of all elements of the named executive officers’ compensation, both separately and in total, using comprehensive tally sheets that include the current value of outstanding stock option and PVSU awards (as compared to their grant-date value), deferred compensation account balances and retirement-plan benefits.  In its review of these tally sheets in 2009, the Committee noted that declining year-over-year equity values and projected equity-award values supported our pay-for-performance philosophy and accomplished the Committee’s goals of linking compensation with shareholder value.

Use of Compensation Data

The Compensation Committee determines the peer groups to be used for compensation purposes based on information and analysis provided by Towers Perrin, its independent compensation consultant.  The Committee has selected the comparator group companies based on the following guiding principles:

·                  Business Segment Comparator Group companies should reflect businesses and industries that are similar in complexity as measured by global footprint, manufacturing capabilities, revenues, materials, intellectual-property profile and customer characteristics;

·                  The overall comparator samples should reflect those companies with which we compete for business, and more broadly, those with which we compete for talent;

·                  To the extent possible, the selection process should be driven by appropriate criteria versus selection of individual companies; and

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·                  Data samples should be robust, provide decision-quality data for all executive positions and be readily available.

The composition of the Business Segment Comparator Group was proposed by Towers Perrin based on the criteria described above, and selected by the Compensation Committee and management.  It consists of the following companies:

Business Segment Comparator Group

The Committee agreed that the Talent Market Comparator Group should consist of companies that participate in Towers Perrin’s annual executive compensation database, which have revenues of $500 million to $2 billion and operate in the chemicals, electronics and scientific equipment, healthcare/medical products, industrial manufacturing or pharmaceuticals industries.  Intended to represent the marketplace where we compete for talent, the Committee uses this broader group to confirm the competitiveness of compensation paid to similar executives at the Business Segment Comparator Group companies.  The Committee also uses it when information on particular executive positions within the primary peer-group companies is unavailable.  The companies in the Talent Market Comparator Group in 2009 were:

Talent Market Comparator Group

Our Named Executive Officers for 2009

Our “named executive officers” in 2009 are: Donald E. Morel, Jr., Chief Executive Officer; William J. Federici, Vice President and Chief Financial Officer, and our three most highly compensated executive officers other than our CEO and CFO: Steven A. Ellers, President and Chief Operating Officer; John R. Gailey III, Vice President, General Counsel and Secretary; and Heino Lennartz, President, Pharmaceutical Packaging Systems Europe Region.  Last year, Mr. Lennartz served as Vice President Finance, MIS & Purchasing for Europe & Asia Pacific until July 2009, when he was promoted to President, Europe Region, Pharmaceutical Systems Division.  He received his current title in February 2010 as part of an organizational realignment that created two new reporting segments: “Pharmaceutical Packaging Systems” and “Pharmaceutical Delivery Systems.”

Matthew T. Mullarkey served as our Chief Operating Officer until he left us in November 2009.  Although he was not an executive officer on December 31, 2009, we must disclose Mr. Mullarkey’s compensation in the Summary Compensation Table and other compensation tables because under SEC rules his 2009 compensation would have qualified him as a named executive officer had he remained an executive officer on that date.  For this reason, we also include Mr. Mullarkey’s compensation in this discussion and analysis.

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Elements of Our Compensation Programs and 2009 Compensation Decisions

Base Salary

Base salary represents the only fixed component of the three main elements of our executive compensation program.  It is intended to provide a baseline, minimum amount of annual compensation for our executives that is fair and market-competitive.

The Committee, at the request of the CEO, froze salaries for the named executive officers other than Mr. Mullarkey and Mr. Lennartz.

On January 1, 2009, Mr. Mullarkey assumed full responsibilities as our Chief Operating Officer.  In recognition of his increased responsibilities, the Compensation Committee increased his base salary by $25,000, or 5.9%, to $450,000.  In determining his new salary, the Committee considered the CEO’s recommendations and comparative compensation data.  Although Mr. Mullarkey’s salary was well below the market median of the Business Comparator Group and approximately 11% below the median of the Broad Talent Market Comparator Group, the Compensation Committee believed this was an appropriate level in light of the fact that Mr. Mullarkey was new to the position and relatively new to the Company.  The Compensation Committee also increased Mr. Lennartz’s salary in connection with his promotion to President, Europe Region.  After considering comparative compensation data, the Committee decided to raise his salary to $300,989, a 19% increase over his prior salary of $252,218.  Mr. Lennartz is paid in Euros and the salary figures are converted to U.S. Dollars at the rate of 1.3941 Dollars per Euro.

Annual Incentive Plan Design and Rationale

Our Annual Incentive Plan is formula-based and designed to motivate our senior executives by rewarding them with a cash bonus when they achieve or exceed annual financial performance targets.  The Annual Incentive Plan contains multiple financial metrics, weighted according to their importance.  The targets and weighting may vary according to organization unit.  The Compensation Committee determines the annual incentive performance criteria, and weighting based on proposals from our CEO and Vice President, Human Resources.

Consistent with prior years, the Compensation Committee selected earnings per share (“EPS”) and operating cash flow on a non-GAAP basis as performance metrics for the 2009 Annual Incentive Plan for the U.S.-based named executive officers.  These metrics are appropriate for the named executive officers given their broad responsibilities and ability to significantly affect our EPS and operating cash flow.

For Mr. Lennartz, who heads our European pharmaceutical packaging systems business unit, the Committee selected regional performance as the primary metric, with a division results and a corporate-wide element (EPS) also represented.  These metrics are intended to focus Mr. Lennartz on improving revenues and operating profit in the region over which he has control, contributing to the pharmaceutical division performance and taking actions that will increase our consolidated earnings and shareholder value.  The targets for the named executive officers and their relative weighting are as follows:

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2009 Annual Incentive Plan

Performance Metrics and Weighting

(1)   The adjusted EPS and adjusted consolidated operating cash flow metrics consists of GAAP EPS and operating cash flow, adjusted to budgeted foreign-exchange rates, and may exclude the impact of certain discrete or infrequent items such as acquisitions and restructuring gains or losses.

(2)   The adjusted regional results metric consists of European regional GAAP revenue (25.0% weight), regional operating income (50.0% weight), and regional cash flow (25.0% weight)  adjusted for budgeted exchange rates.  It may exclude the impact of certain discrete or infrequent items such as acquisitions and restructuring gains or losses.

(3)   The adjusted Pharmaceutical Systems Division results metric consists of GAAP division revenue (33.5% weight) and division operating income (66.5% weight), adjusted for budgeted exchange rates, and may exclude certain discrete or infrequent items such as acquisitions and restructuring gains or losses.

The Compensation Committee assigns a target bonus opportunity to each named executive officer, expressed as a percentage of his base salary.  The Compensation Committee establishes each target opportunity through an analysis of compensation for comparable positions in the Business Segment and Talent Market Comparator Groups.  The combination of base salary and target bonus is intended to approximate the median market if the performance targets are met, and approach the 75th percentile if targets are exceeded.  Target bonus opportunities range from 50% to 100%.  Consistent with our overall compensation design, executives with greater responsibilities for influencing financial performance have higher target bonus levels as a percentage of salary.

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An executive’s Annual Incentive Plan award is calculated by multiplying his base salary times his bonus opportunity times the applicable “payout factor” for each performance metric times the weighting for that performance metric.  The following formula illustrates the calculation of the bonus payout for each performance measure:

The “payout factor” is based on the level of performance versus the targeted performance.  If actual performance matches 100% of the performance metric target, the payout factor for that metric is 100%.  If the performance level does not meet the threshold amount — currently set at 85% of target performance — the payout factor for that metric is zero.  If actual performance exceeds 100% of targeted performance, the payout factor will be greater than 100%.  Payouts are capped at 150% of the target bonus opportunity.  No bonus is paid if actual performance falls below 85% of all metrics.  The following chart shows the payout factor for the Annual Incentive Plan.  Performance between points is straight-line interpolated.

Annual Incentive Plan Payout Factor

Executives may chose to receive up to 100% of their bonus in common stock instead of cash.  The shares are referred to as “bonus shares.”  This option increases executive stock ownership and further aligns executives with shareholder interests.  As an inducement to acquire and hold shares, we also grant one additional time-vested restricted share, referred to as an “incentive share,” for each four bonus shares received.  To encourage long-term stock ownership, promote retention and reward long-term service, incentive shares vest in full if the executive holds the bonus shares for at least four years and remains employed during that time.

We pay dividends on “incentive” (restricted) shares during the four-year vesting period.  Participants may receive dividends in cash or reinvest them in additional shares if the recipient participates in our dividend reinvestment plan.  We believe that this approach appropriately rewards and does not penalize named executive officers who choose to have a portion of their Annual Incentive Plan bonus paid in stock.  While a recipient may receive dividends on shares that ultimately do not vest, we believe this provides the proper balance between rewarding recipients for creating additional shareholder value and further aligning their interests with shareholders by choosing to have a portion of their bonus paid in stock.

2009 Annual Incentive Bonus Payments

The Compensation Committee reviewed and approved the proposed 2009 performance criteria based on our Board-approved budget because it believed the proposed goals represented appropriate “stretch” targets and were aligned with shareholder interests.  Performance targets for the corporate unit — which included Dr. Morel, Mr. Federici, Mr. Ellers, Mr. Gailey and Mr. Mullarkey — were adjusted EPS of $2.17 (weighted 35%)

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and adjusted operating cash flow of $156.6 million (weighted 65%).  Mr. Lennartz’s targets and their weighting were:

2009 European Region Performance Metrics, Weight and Targets

(In US Dollar millions, except per-share data)

The 2009 targets, their weighting and performance against target as they apply to each of the named executive officers are shown in the following charts.  The Corporate Unit applies to Dr. Morel, Mr. Federici, Mr. Ellers, Mr. Gailey and Mr. Mullarkey, and the Regional Unit applies to Mr. Lennartz.

2009 Annual Incentive Plan

Performance Targets, Weighting and Achievement

(In US $ millions, except per-share data)

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(1)   All targets and performance against the targets reflect 2009 budgeted exchange rates.  Actual exchange rates had a positive effect on reported results.  These favorable effects — $0.15 per share of EPS, $39.6 million of regional revenue, $7.0 million of regional operating income, $42.3 million of Pharmaceutical Systems Division revenue and $7.0 million of Pharmaceutical Systems Division operating income — were removed for determining achievement of targets.

(2)   Adjusted Consolidated EPS performance excludes the impact of restructuring and certain other discrete charges and credits of $0.16 per share.

(3)   Adjusted Consolidated Operating Cash Flow excludes the impact of $1.9 million of cash paid for restructuring expenses.

(4)   Regional and Pharmaceutical Systems Division performance excludes the impact of the acquisition of West Pharmaceutical Services Normandie SAS and related costs as follows: regional and division revenue adjusted downward $9.0 million, regional operating income adjusted upward $1.0 million, and division operating income adjusted upward $1.9 million.

The table below shows the 2009 target and actual Annual Incentive Plan awards paid to each of the named executive officers.  The total actual award is included in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.”

2009 Annual Incentive Plan Payouts

(1)   Target bonuses are based on each executive’s base salary rate in effect at December 31 of the bonus year and were set as a percentage of base salary.

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(2)   Mr. Mullarkey’s Annual Incentive Plan bonus is payable under the terms of his severance agreements with us.  We may delay payment if required by applicable tax law.

Long-Term Incentive Program Design and Rationale

We designed our long-term equity compensation program to complement the objectives of the Annual Incentive Plan by encouraging longer-term sales growth and profitable investments.  Long-term incentives also are intended to align executive and investor interests; assist in retaining key executive personnel; and give executives an opportunity to create wealth over time based on increasing stock value.  We generally use two types of long-term incentive awards: PVSUs, which entitle the recipient to receive a number of shares of our common stock dependent on achievement of multi-year financial targets; and non-qualified stock options that vest over time.  Last year, we added a supplemental long-term incentive cash-based program to provide incentives to improve profitability during a period of slower revenue growth.

PVSUs

We believe our shareholders place a premium on growing our business while carefully managing capital.  To help further these objectives, the Compensation Committee selected compound-annual-revenue-growth-rate (“CAGR”) and return-on-invested-capital (“ROIC”) performance metrics.  We believe CAGR and ROIC are equally important in creating shareholder value, and, therefore, each metric is weighted equally.  We also believe that performance should be measured over an extended period so CAGR and ROIC are measured over a three-year period.  Each PVSU award agreement contains a target payout for the recipient.  For PVSU awards to our named executive officers, the Committee generally selects a targeted payout that would deliver shares with an expected value within the 50th percentile of market (as represented by the Business or Talent Market Comparator Groups) if 100% of the performance target is achieved.

The number of shares an executive earns at the end of a performance period is calculated by multiplying the target number of PVSUs awarded at the beginning of the period times the applicable “payout factor” for each performance metric times the weighting for that performance metric.  The following formula illustrates the calculation of the PVSU payout for each performance measure:

As in our Annual Incentive Plan, our long-term incentive program includes a “payout factor” based on the actual performance versus the performance targets.  If actual performance matches 100% of the performance metric targeted level, the payout factor for that metric is 100%.  If actual performance exceeds target performance, the payout factor is greater than 100%.  The PVSU payout opportunity is capped at 200% and actual payouts may range from 0% to 200% based on actual results.  No payouts are made if actual performance falls below 70% of both the CAGR and ROIC targets.  The following table shows the payout factor for the PVSUs.  Performance between points is straight-line interpolated.

PVSU Payout Factor

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Stock Options.  Consistent with our compensation philosophy, stock options are designed to encourage a strategy that yields increases in share value and rewards our named executive officers for continued long service.  The following table describes the principal features of stock options granted to our named executive officers and how those provisions support our compensation philosophy.

Supplemental Long-Term Incentive Plan.  During 2009, lower drug utilization trends, reduced patient spending and aggressive inventory management practices by our customers amid the global economic recession affected our revenue growth expectations over the near- to mid-term.  In response to these developments, the Compensation Committee in July 2009 made supplemental cash-based incentive awards based on increasing our operating profit margin (“OPM”) through December 31, 2011.  The goal of the supplemental awards is to focus management on profit growth over the intermediate term.  Operating profit margin is defined as consolidated operating profit divided by consolidated net sales.

Under the supplemental awards our named executive officers will receive a cash payment depending on the achievement of our pre-established, objective performance goals.  The amount will depend on how well our actual OPM compares to the target OPM at the end of the performance period.  The Committee chose a cash-based award rather than an equity-based award to reduce potential shareholder dilution impact and extend the number of shares available for issuance under our shareholder-approved incentive plan.  To ensure that OPM is increasing in steps over the 2.5-year performance period, it will be measured at the end of each calendar year.  However, the award will not be paid out until OPM is calculated for 2011 and only if the award recipient is employed on the date of the payout.  The OPM for each year in the period will be calculated and compared to the target for that year and a payout amount for that period will be based on actual performance compared to target performance.  The following table shows the targeted OPM and weighting for each period.

July 1, 2009 – December 31, 2011

Supplemental Long-Term Incentive Award

Performance Targets and Weighting

Like PVSU awards, the payouts under the OPM plan will vary based on achievement versus the target OPM for each performance period.  Payouts are capped at 150% of the target opportunity.  Executives will receive no payout if performance is below 85% of target performance.  The OPM plan payout factor calculation is shown in the following table.  If actual OPM falls between any of the performance range percentages above in any year, the payout for that portion of the supplemental award will be determined by straight-line interpolation.

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OPM Plan Payout Factor

2009 PVSUs Awards and Stock Option Grants

The Compensation Committee made stock option grants and PVSU awards for the 2009-2011 performance period in February 2009.  In determining the award levels, the Committee noted that our share price had declined approximately 20% since the 2008 grant.  While this decrease in share price was less on average than the decline in share price between our Business Segment Comparator Group (25%) and the S&P 500 (40%) over the same period, the Committee decided to reduce the expected value of 2009 awards approximately 20% for a number of reasons.  First, using fewer shares reduced shareholder dilution and preserved shares for future awards under our shareholder-approved 2007 Omnibus Incentive Compensation Plan.  Second, the Compensation Committee felt that awarding a lower value in light of the current economic conditions more closely aligned the interests of our named executive officers with those of our shareholders.  Finally, the reduction was consistent with the practices at other companies within our Business Segment Comparator Group and the market at large.  The chart below contains information about the stock option grants and PVSU awards made to the named executive officers in 2009:

Long-Term Incentive Plan Awards Made in 2009

Awards and Expected Values

(1)   The number of PVSUs is based on achievement of 100% of target.  The number of shares that may be earned range from zero if the performance threshold is not reached to 200% of target if maximum performance is achieved.

(2)   The Committee calculated expected value by adding the value of the stock options (based on a Black-Scholes valuation method) and the value of PVSUs based on the fair-market value (closing price) of our common stock on the grant date.  Mr. Lennartz received two awards in 2009: 2,500 stock appreciation rights and 800 PVSUs in February when he was our regional Vice President Finance; and 10,000 options and 1,200 PVSUs upon his promotion to President, Europe Region on July 14, 2009.  For the February awards, the Black-Scholes value of stock options and stock appreciation rights was $6.95 per share and the fair-market value of each PVSU was $32.09.  For Mr. Lennartz’s July awards, the Black-Scholes value of his option grant was $7.39 per share and the fair-market value of each PVSU was $32.58.  Mr. Lennartz’s February grant was made before he was promoted to Regional President.  Consistent with our award practice for non-executive overseas employees, Mr. Lennartz’s February awards are payable in cash.

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(3)   Represents the 50th percentile of Business Segment Comparator Group (or where not available, the broad Talent Market Comparator Group) compensation for comparable positions as compiled by the Compensation Committee’s consultant.

(4)   Mr. Lennartz’s salary and benchmark expected value were converted at a rate of 1.3941 U.S. Dollars per Euro, the monthly average rate for 2009.

2009 Long-Term Incentive Plan Payouts

For PVSUs awarded for the three-year performance period ended December 31, 2009, the Compensation Committee set a target CAGR and ROIC goal of 10% each.  In setting the 2007-2009 CAGR and ROIC targets, the Committee considered past performance, our weighted average cost of capital and sales growth expectations in the markets in which we operate.  Management achieved 10.1% ROIC, or 101.0% of the ROIC target, and 3.5% CAGR, or 35% of CAGR target.  The following table shows the PVSU targets, performance and payouts for the three-year performance period ended December 31, 2009.

The table below shows the target and maximum PVSU award share payouts and the actual number and value of the share payouts for the three-year period ended December 31, 2009, including additional shares awarded pursuant to dividend equivalents.

2007-2009 PVSUs Award Payouts

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(1)   Target PVSU payouts are calculated based on achievement of 100% of the ROIC and CAGR targets.  Share payouts range from 0% to 200% of the target depending on actual achievement.

(2)   Based on actual payout factor achieved of 51.0%.  Includes shares credited due to dividend equivalent re-investment as follows: Dr. Morel — 627; Mr. Federici — 171; Mr. Ellers — 257; Mr. Gailey — 86; Mr. Lennartz — 17; and Mr. Mullarkey — 146.

(3)   The value of the shares earned is determined by reference to the closing stock price, $38.22, on February 19, 2010, the date the awards were earned.

(4)   Before becoming an executive officer, Mr. Lennartz, like all non-executive officer overseas employees, received PVSUs that were payable in cash and not stock.

(5)   Mr. Mullarkey’s long-term incentive plan bonus is payable under his severance agreements with us.  Payment may be delayed if required by applicable tax law.

Information about PVSUs awarded to each named executive officer in 2009 is reflected in the 2009 Grants of Plan-Based Awards Table on page 33.  The number of options or PVSUs previously granted to, or held by, a named executive officer is not a factor in determining individual grants.  Past awards were granted based on performance in prior years.  As a result, potential accumulated wealth is not viewed as relevant in arriving at the current year awards.

We credit dividend equivalents on unvested PVSUs over the three-year vesting period at a rate that assumes the participant will earn the target award.  At the time of the payout, the credited dividend equivalents are then increased or decreased based on the payout factor earned for the applicable three-year performance period.  Because the payout factor earned for the 2007-2009 performance period was 51%, the number of dividend equivalents accrued over that period was multiplied by 51% and the remaining 49% of accrued dividend equivalents was forfeited.

Awards Earned Under the 2009 Supplemental Plan

For the 2009 period, management achieved a 9.67% OPM, or 92.1% of target, resulting in a payout factor of 71.1%.  The payout factor is multiplied by the 2009 portion of the target award to determine the actual award earned for each named executive officer in 2009 as shown in the following chart.

Supplemental Long-Term Incentive Award Target and Maximum Awards

And Earned Awards for July 1, 2009 – December 31, 2009

(1)   Mr. Mullarkey forfeited the supplemental award he earned ($32,445) upon his termination.

The 2009 portion of the award is reflected in the Non-Equity Incentive Compensation column and accompanying text of the Summary Compensation Table on page 30.

Retirement Plans and Termination Payments

Dr. Morel, Mr. Federici, Mr. Ellers and Mr. Gailey participate in our defined benefit and defined contribution retirement programs for U.S.-based employees.  In addition to the standard benefits available to all eligible

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U.S.-based employees, we maintain non-qualified defined benefit plans in which these four executives participate.  All tax-qualified defined benefit plans have a maximum compensation limit and a maximum annual benefit, which restrict the benefit to participants whose compensation exceeds these limits.  The non-qualified plans provide benefits to key salaried employees, including those four named executives, using the same benefits formula used under the tax-qualified plans but without regard to the compensation limits and maximum benefit accruals for tax-qualified plans.

Mr. Mullarkey participated in these programs before his termination.  He forfeited his entire defined-benefit pension plan benefit when he left.  He will receive benefits according to the terms of our defined contribution plans.  Mr. Lennartz participates in defined contribution plans maintained for our German employees.  One of those plans is broad-based for all of our German employees and the other plan, established in 2009, is maintained for the benefit of regional senior management employees paid by our European headquarters in Eschweiler, Germany.

We also provide our named executive officers with benefits when their employment terminates in various circumstances, as described under “Estimated Payments Following Severance — Current Named Executive Officers” and “Payments On Termination in Connection With a Change in Control” sections below.  We believe that these retirement plans and agreements are an important element in ensuring that the executives remain focused on our business in the event of a threat or occurrence of a change in control; encourage executives to act in the best interests of the shareholders in assessing a transaction; and protect our value by retaining key talent.

Termination Payments to Mr. Mullarkey

Mr. Mullarkey’s employment terminated on November 18, 2009.  Under the terms of his Severance and Noncompete Agreement, we will pay his salary and continue medical, dental and life insurance for 12 months.  These benefits are payable in consideration of a release of claims in our favor and his agreement not to compete with us.  The Compensation Committee also agreed to give him the additional benefits in recognition of his contributions during his tenure.  Information about his severance payments and benefits is located under “Payments Following Severance — Mr. Mullarkey” on page 42.

The Role of Our Compensation Consultant and Executives in the Compensation Process

Towers Perrin reports directly to the Compensation Committee.  During 2009, Towers Perrin performed the following tasks for the Committee:

·                  Prepared competitive market data with respect to the compensation of the executive officer group;

·                  Provided input on the Committee’s pay recommendations for the Chief Executive Officer;

·                  Provided input on compensation program design and philosophy, incentive-pay mix and comparator groups against which executive pay is benchmarked; and

·                  Provided information on executive compensation trends.

Our CEO and our Vice President, Human Resources, together with Towers Perrin, make recommendations to the Compensation Committee on incentive-plan design and incentive-compensation targets for each named executive officer other than the CEO.  Their recommendations are influenced to a large degree by Towers Perrin’s evaluation of the median incentive compensation levels of the Business Segment Comparator Group and Talent Market Comparator Group, which is reviewed at least annually.  The CEO prepares salary recommendations for each executive officer after reviewing comparative-salary data and discusses job performance and the rationale for his recommendations with the Committee.

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Other Compensation Policies

Personal Benefits.  We provide our named executive officers with other benefits that we believe are reasonable and competitive so that we may attract and retain talented senior executives.  In total, they represent a small percentage of the named executive officers’ overall compensation.  These benefits are reflected in the “All Other Compensation” column of the 2009 Summary Compensation Table.

Stock Ownership Requirements.  First adopted in 1994, stock-ownership goals for all executive officers reflect our view that senior management should have a significant equity position in the Company.  Stock-ownership goals align executives with the interests of shareholders and encourage a longer-term focus.  These goals specify a value equal to particular multiples of the executive’s base salary, which executive officers must acquire within five to seven years of attaining their position.  The CEO’s goal is 5x base salary and the goal for all other executive officers is 2x base salary.  Our stock may be held in various forms to achieve the ownership guidelines, including shares held directly, shares held in retirement and savings plans accounts, and bonus and restricted stock awarded under our incentive plans.  The Committee reviews progress against these goals every year.  All of our named executive officers currently meet their guidelines.  We prohibit hedges of our common stock by executive officers or employees.

Equity-Awards Policy.  Under the Compensation Committee’s equity-awards policy, all equity awards (other than grants for newly hired employees and grants for promotions or for retention purposes) are made once per year at the Committee meeting in February or March, following the release of earnings for the prior fiscal year.  The policy also confirms that the grant date of any equity award is the date the award is approved at a meeting of the Compensation Committee or plan committee and that the exercise price of any stock option is determined as of the grant date in compliance with the terms of the applicable incentive plan.

Accounting Impact on Executive Compensation.  We consider the accounting implications of our compensation decisions in the design of our compensation and benefit programs.  We seek to deliver cost-effective compensation and benefit programs that meet our needs while ensuring an appropriate impact on reported earnings and other financial measures that we deem important.  We have also taken steps to ensure that all of our nonqualified deferred compensation plans and arrangements comply with the regulations under Section 409A of the Internal Revenue Code.

Deductibility of Executive Compensation.  Under Section 162(m) of the Internal Revenue Code, a publicly held corporation is denied a federal tax deduction for compensation in excess of $1,000,000, which is paid to its chief executive officer, chief financial officer and its three most-highly compensated executive officers other than those officers.  “Qualified performance-based compensation” and certain other compensation are not subject to the deduction limitation.  Our Board of Directors has taken action to cause cash bonus awards (including the annual incentive and supplemental awards) and grants of stock options, PVSUs and other stock awards under our incentive plans to be treated as qualified performance-based compensation and, therefore, not limited by Section 162(m).

COMPENSATION COMMITTEE REPORT