UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )

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VALEANT PHARMACEUTICALS INTERNATIONAL

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

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April 4, 2008

 

To the Stockholders of

Valeant Pharmaceuticals International:

 

You are cordially invited to attend Valeant Pharmaceuticals International’s 2007 Annual Meeting of Stockholders to be held at 9:00 a.m. on Tuesday, May 20, 2008 at Valeant Pharmaceuticals International’s offices located at One Enterprise, Aliso Viejo, California 92656. At the meeting, we will vote on the matters set forth in the accompanying notice of annual meeting and proxy statement, as well as address any other business matters that may properly come before the meeting.

 

We encourage you to vote so that your shares will be represented at the meeting. Information on how you may vote your shares appears on the enclosed proxy card.

 

Sincerely,

 

J. Michael Pearson

Chairman of the Board

VALEANT PHARMACEUTICALS INTERNATIONAL
One Enterprise
Aliso Viejo, California 92656

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 20, 2008

 

 

To the Stockholders of

Valeant Pharmaceuticals International:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Valeant Pharmaceuticals International, a Delaware corporation (our “Company”), will be held at our Company’s offices located at One Enterprise, Aliso Viejo, California 92656, on May 20, 2008, at 9:00 a.m., local time, for the following purposes:

 

1. To elect two directors to hold office until the 2011 Annual Meeting of Stockholders or until their respective successors are elected and qualified.

 

2. To approve an Amendment to our 2006 Equity Incentive Plan to increase the share reserve by 4,840,000 shares.

 

3. To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm (the “accounting firm”) for our Company for the fiscal year ending December 31, 2008.

 

4. To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

 

The record date for the meeting is March 25, 2008. Only stockholders of record at the close of business on March 25, 2008 will be entitled to notice of and to vote, in person or by proxy, at the meeting and any adjournments or postponements thereof.

 

The proxy statement that accompanies this Notice of Annual Meeting of Stockholders (the “Proxy Statement”) contains additional information regarding the proposals to be considered at the Annual Meeting, and stockholders are encouraged to read it in its entirety. Our 2007 Annual Report and Form 10-K accompany the Proxy Statement.

 

As set forth in the Proxy Statement, proxies are being solicited by and on behalf of the Board of Directors of our Company. All proposals set forth above are proposals of the Board of Directors. It is expected that these materials will be first mailed to stockholders on or about April 4, 2008.

 

All stockholders are cordially invited to attend the Annual Meeting in person. Your vote is important. Please complete, date, sign and return the accompanying proxy in the enclosed, postage-paid envelope, or vote over the telephone or the Internet as instructed by these materials, as promptly as possible, whether or not you plan to attend the Annual Meeting. Your promptness in returning the proxy will assist in the expeditious and orderly processing of the proxies and in ensuring that a quorum is present. If you return your proxy, you may nevertheless attend the Annual Meeting and vote your shares in person if you wish. Please note however that if your shares are held of record by a broker or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from the record holder. If you want to revoke your proxy at a later time for any reason, you may do so in the manner described in the Proxy Statement.

 

By Order of the Board of Directors,

 

 

Christina de Vaca

Secretary

 

Dated: April 4, 2008

TABLE OF CONTENTS

 

VALEANT PHARMACEUTICALS INTERNATIONAL
One Enterprise
Aliso Viejo, California 92656

 

 

 

 

2008 ANNUAL MEETING OF STOCKHOLDERS

 

This Proxy Statement is being mailed on or about April 4, 2008 to stockholders of record at the close of business on March 25, 2008 (the “Record Date”) of Valeant Pharmaceuticals International (our “Company” or “Valeant”) in connection with the solicitation of proxies by the Valeant Board of Directors for use at the Annual Meeting of Stockholders to be held on Tuesday, May 20, 2008, and any adjournments or postponements thereof (the “Annual Meeting”), for the purposes set forth in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders.

 

In this document, the words “Valeant,” “we,” “our,” “ours” and “us” refer only to Valeant Pharmaceuticals International and not any other person or entity.

 

We are pleased to offer to our stockholders the benefits and convenience of electronic delivery of annual meeting materials, including:

 

 

We encourage you to conserve natural resources and to reduce printing and mailing costs by signing up for electronic delivery of Valeant stockholder communications.

 

If you are a registered stockholder and you would like to sign up for electronic delivery, please visit www.proxymaterial.com/vrx and enter the information requested to enroll. If you are a beneficial owner of our shares, or a broker or other nominee holds your Valeant shares, and you would like to sign up for electronic delivery, please visit www.proxyvote.com and enter your control number where indicated. Your electronic delivery enrollment will be effective until you cancel it. If you have questions about electronic delivery, please call Valeant Investor Relations at 949-461-6002 or send an email to ir@valeant.com.

 

This Proxy Statement and the accompanying annual report are available at: www.proxyvote.com.

 

Among other things, this Proxy Statement contains information regarding:

 

 

Stockholders can vote by proxy by means of the mail, telephone or the Internet, or by attending the Annual Meeting and voting in person. A proxy card (the “Proxy”) is enclosed. If you return your signed proxy card to us before the Annual Meeting, we will vote your shares as you direct. If you vote by telephone or over the Internet, you do not need to return the Proxy. Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day, and will close at 5:00 p.m., Eastern Time, on May 19, 2008. J. Michael Pearson, Eileen C. Pruette and Christina de Vaca, together and separately, are the designated proxyholders (the “Proxyholders”). If you hold shares of our common stock in “street name,” you must either instruct your broker or nominee as to how to vote such shares or obtain a proxy, executed in your favor by the broker or nominee, to be able to vote at the Annual Meeting.

 

 

We provide Internet proxy voting to allow you to vote your shares on-line, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies.

 

When a Proxy in the form enclosed with this Proxy Statement is returned properly executed, the shares represented thereby will be voted at the Annual Meeting in accordance with the directions indicated thereon. You may either vote “For” both nominees to the Board of Directors or you may “Withhold” your vote for either nominee you specify or both. For each of the other matters to be voted on, you may vote “For” or “Against” or abstain from voting. If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “FOR” the election of the Board of Directors’ nominees, “FOR” the approval of the Company’s Amendment to our 2006 Equity Incentive Plan to increase the share reserve by 4,840,000 shares, and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP, as independent registered public accounting firm for the fiscal year ending December 31, 2008, and in accordance with the recommendations of the Board of Directors as to any other matter that may properly be brought before the Annual Meeting or any continuation, adjournment or postponement thereof.

 

If shares are held by a broker or other intermediary, you must either instruct the broker or intermediary as to how to vote such shares or obtain a proxy, executed in your favor by your broker or intermediary, to be able to vote such shares at the Annual Meeting in person or by proxy.

 

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

 

A stockholder who executes and returns the enclosed Proxy may revoke it at any time prior to its exercise by giving written notice of such revocation to the Secretary of the Company, at our address, by revoking it in person at the Annual Meeting, or by voting at the Annual Meeting. Stockholders may also revoke a prior Proxy by executing a later-dated Proxy and submitting it to the Secretary of the Company prior to commencement of the Annual Meeting. Attendance at the Annual Meeting by a stockholder who has executed and returned the enclosed Proxy does not alone revoke the Proxy. You should consult with your broker or other intermediary concerning the method of revoking their Proxy.

 

 

Only stockholders of record at the close of business on March 25, 2008 (each a “Stockholder”) will be entitled to notice of and to vote, in person or by proxy, at the Annual Meeting. As of the close of business on March 25, 2008, there were 89,286,410 shares of our common stock, par value $.01 per share (the “Common Stock”) outstanding and entitled to vote, held of record by approximately 4,676 Stockholders, each of which shares is entitled to one vote, in person or by proxy, at the Annual Meeting.

 

A majority of the shares of Common Stock issued and outstanding and entitled to vote at the Annual Meeting, present either in person or by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. Votes withheld, abstentions and “broker non-votes” (as defined below) will be counted for purposes of determining the presence of a quorum.

 

Brokers holding Common Stock in “street name” who are members of a stock exchange are required by the rules of the exchange to transmit this Proxy Statement to the beneficial owner of the Common Stock and to solicit voting instructions with respect to the matters submitted to the Stockholders. If the broker has not received instructions from the beneficial owner by the date specified in the statement accompanying such material, the broker may give or authorize the giving of a Proxy to vote the Common Stock at his discretion in the election of directors or the appointment of the independent registered public accounting firm. However, brokers or nominees do not have discretion to vote on certain non-discretionary items without specific instructions from the beneficial owner. On non-discretionary items for which you do not give your broker instructions, the shares will be treated as broker non-votes.

 

For Proposal No. 1, election of directors, each candidate is elected by the vote of the majority of the votes cast with respect to that candidate. “A majority of the votes cast” means that the number of votes cast “For” a director’s election exceeds fifty percent (50%) of the number of votes cast with respect to that director’s election (excluding abstentions). For more information, see “Proposal No. 1 — Election of Directors; Information Concerning Company Nominees and Directors.” Accordingly, only votes “For” or “Withheld” will affect the outcome. Abstentions and broker non-votes will have no effect. Our Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), and Amended and Restated Bylaws (the “Bylaws”) divide our Board of Directors into three classes, with each class to be elected for a three-year term on a staggered basis. Our Certificate of Incorporation and Bylaws do not permit cumulative voting.

 

To be approved, Proposal No. 2, the approval of the Company’s Amendment to our 2006 Equity Incentive Plan to increase the share reserve by 4,840,000 shares, requires a “For” vote from holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.

 

To be approved, Proposal No. 3 must receive a “For” vote from holders of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting. If you abstain from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.

 

The Certificate of Incorporation of our Company provides that the Board of Directors (the “Board”) be divided into three classes of directors. There are three director positions in the class whose term of office expires in 2008 and two directors have been nominated for election at the Annual Meeting, each to serve until the 2011 Annual Meeting of Stockholders or until his or her respective successor is elected and qualified. Upon the recommendation of the Corporate Governance/Nominating Committee, the Board nominated for election as directors at the Annual Meeting: Richard H. Koppes and G. Mason Morfit. Messrs. Koppes and Morfit are currently directors of our Company. Mr. Koppes was previously elected by stockholders and Mr. Morfit was elected by our Board of Directors. Each nominee has indicated his or her willingness to serve and, unless otherwise instructed, the Proxyholders will vote the Proxies received by them for the Boards’ nominees. If for any reason one or both nominees should not be available for election or be unable to serve as directors at the time of the Annual Meeting or any continuation, postponement or adjournment thereof, the accompanying Proxy will be voted for the election of such other persons, if any, as the Board may nominate. The Board has no reason to believe that either nominee will be unavailable for election or unable to serve.

 

Each director is elected by the vote of the majority of the votes cast with respect to that director. “A majority of the votes cast” means that the number of votes cast “For” a director’s election exceeds fifty percent (50%) of the number of votes cast with respect to that director’s election (excluding abstentions). In order for any incumbent director to become a nominee of the Board for further service on the Board, such person must tender an irrevocable resignation, contingent on (i) that person not receiving a majority of the votes cast, and (ii) acceptance of the resignation by the Board. Each incumbent nominee has tendered his or her contingent resignation. If a nominee for director who is an incumbent director is not elected and no successor has been elected at such meeting, the Corporate Governance/Nominating Committee shall make a recommendation to the Board as to whether to accept or reject the resignation tendered in connection therewith, or whether other action should be taken. The Board shall act on the tendered resignation, taking into account the Corporate Governance/Nominating Committee’s recommendation, and publicly disclose its decision regarding the tendered resignation and the rationale behind the decision within ninety (90) days from the date of the certification of the election results. If the incumbent director’s resignation is not accepted by the Board, such director shall continue to serve until the end of his or her term of office and until his or her successor shall have been elected and qualified or his or her earlier resignation or removal. If a director’s resignation is accepted by the Board, or if a nominee is not an incumbent director and such nominee is not elected, then the Board, in its sole discretion, may fill any resulting vacancy or may seek to decrease the authorized number of directors in accordance with the Certificate of Incorporation.

 

Apart from the two nominees recommended by the Board, no other persons have been nominated for election as directors. Procedures to be used by a stockholder submitting a nomination for the Board for next year’s annual meeting are provided under the caption “Other — Stockholder Proposals and Director Nominations for the 2009 Annual Meeting.”

 

The Board of Directors of our Company recommends that the Stockholders vote FOR the election of the two nominees for director proposed by your Board: Richard H. Koppes and G. Mason Morfit.

 

The Board presently consists of seven members with one vacancy in the class of 2008 and one vacancy in the class of 2010. Our Certificate of Incorporation and Bylaws divide the Board into three equal classes, with each class elected to a three-year term on a staggered basis. Accordingly, at each annual meeting, the terms of one-third of the Directors expire and the stockholders elect their successors. Under the Certificate of Incorporation, if a Director ceases to serve before his or her term expires, the Board will appoint a new director to serve out the remainder of the term, as a member of the class of the director he or she succeeded. The Board also has the power to appoint directors to fill vacancies created by new directorships if the Board increases in size.

Mr. Koppes has served as a director of our Company since 2002 and is standing for election for a term expiring in 2011. Mr. Morfit has served as a director of our Company since 2007 and is standing for election for a term expiring in 2011.

 

Robert A. Ingram, Lawrence N. Kugelman and Theo Melas-Kyriazi are serving until the 2009 Annual Meeting of Stockholders. J. Michael Pearson and Norma A. Provencio are serving until the 2010 Annual Meeting of Stockholders.

 

The Corporate Governance/Nominating Committee of the Board considers the qualifications of potential candidates for election as directors and recommends candidates to the Board. The members of the Corporate Governance/Nominating Committee are Messrs. Koppes, Kugelman and Morfit. The Corporate Governance/Nominating Committee reviewed the background, qualifications and performance of the two current directors standing for election. Mr. Koppes recused himself as to his own nomination and Mr. Morfit recused himself as to his own nomination.

 

The Corporate Governance/Nominating Committee made its report to the Board on February 20, 2008. Following that report, the Board determined that it would be in the best interests of our Company and our stockholders to nominate Messrs. Koppes and Morfit as directors to be elected at the Annual Meeting. It was further determined that the current vacancy in the class of 2011 will remain open while the Corporate Governance/Nominating Committee continues its process to identify qualified directors. Messrs. Koppes and Morfit each recused themselves as to their own nomination. The Corporate Governance/Nominating Committee also sought assistance from the firm of Spencer Stuart, a third-party search firm, in identifying potential candidates, for which a few was paid.

 

Set forth below with respect to each director or nominee is certain personal information, including such person’s present principal occupation, recent business experience and age, the year such person commenced service as a director of our Company and other public company directorships held by such person.

 

 

 

 

None of the directors or nominees for director were selected pursuant to any arrangement or understanding. None of the directors or nominees for directors are related by blood, marriage or adoption to one another or to any other executive officer of our Company.

 

The Board is committed to sound and effective corporate governance practices with the goal of ensuring the Company’s financial strength and overall business success. Our governance practices are regularly assessed against those practices suggested by recognized governance authorities and are updated to maintain alignment with stockholder interests and accepted key governance best practices.

 

Director Nomination Process

 

The Corporate Governance/Nominating Committee is responsible for the selection of director nominees to fill new or vacant positions for the Board. The Corporate Governance/Nominating Committee seeks appropriate candidates through various sources, including other non-management directors and search firms to which reasonable fees are paid for their assistance. In addition to the review and evaluation of potential new candidates, the Corporate Governance/Nominating Committee assesses the qualifications of incumbent directors based on the same factors, as well as a director’s performance prior to being considered in renomination.

 

Essential criteria for all candidates considered by the Committee include the following: integrity and ethical behavior; maturity; management experience and expertise; independence and diversity of thought; broad business or professional experience; and an understanding of business, corporate governance and financial affairs and the complexities of business organizations. In the case of director nominees, the Corporate Governance/Nominating Committee also determines whether the nominee is independent in accordance with the New York Stock Exchange listing standards and the Securities and Exchange Commission rules and regulations.

 

Additionally, the Corporate Governance/Nominating Committee considers stockholder candidates submitted to the attention of the Corporate Secretary, together with appropriate biographical information as outlined under the caption “Other — Stockholder Proposals and Director Nominations for the 2009 Annual Meeting” included in this Proxy Statement. Stockholder nominations that comply with these procedures and that meet the criteria outlined above will be considered by the Corporate Governance/Nominating Committee.

 

Communication with the Board of Directors

 

Stockholders and other interested parties may contact our Company’s Directors in writing, as a group or individually, by directing their correspondence to the attention of the Chief Governance Officer and Corporate Secretary, Valeant Pharmaceuticals International, One Enterprise, Aliso Viejo, California 92656. Stockholders and other interested parties may also contact our Company’s Directors by calling our Company’s helpline in the United States and Canada at (800) 461-9330, or internationally at (720) 514-4400 (collect calls accepted). The Corporate Secretary will log incoming information and forward appropriate messages promptly to the director(s). Communications are distributed to the Board, or to any individual director or directors as appropriate, depending on the facts and circumstances outlined in the communication.

 

Certain items that are unrelated to the duties and responsibilities of the Board will not be distributed to the Board, such as mass mailings, product complaints, product inquiries, new product suggestions, resumes and other forms of job inquiries, surveys and business solicitations or advertisements. In addition, material that is inappropriate or unsuitable will be excluded, with the provision that any communication that is excluded must be made available to any non-employee Director upon request.

 

Communications that include information better addressed by the Finance and Audit Committee will be addressed directly by that Committee.

 

This communications process has been approved by the Board and is available on our Company website referenced at the end of this section.

 

Annual Meeting of Stockholders

 

The Board considers it important for its members to be present and available to stockholders at our Company’s Annual Meeting. Directors are therefore expected to attend the Company’s Annual Meeting. All of our Board members were in attendance at the 2007 annual meeting.

Independent Chairman

 

Mr. Ingram continued in his role as Chairman of the Board throughout 2007 and until Mr. Pearson was appointed Chairman of the Board in February, 2008. In 2007, we did not have a Lead Director because Mr. Ingram served as an independent chairman. In this role, Mr. Ingram also chaired the Board’s regularly scheduled non-management executive sessions. Additionally, Mr. Ingram worked with the Chief Executive Officer to establish the Board’s meeting agendas. In February 2008, Mr. Ingram became the Board’s Lead Director due to Mr. Pearson’s appointment as a non-independent Chairman of the Board.

 

Director Independence

 

The Board has adopted certain specific categorical standards for determining whether a director has a material relationship with our Company, either directly or as a partner, stockholder or officer of an organization, its parent or a consolidated subsidiary that has a relationship with us. These guidelines are set forth in our Corporate Governance Guidelines, which are included as Annex A to this Proxy Statement. A director will be deemed independent upon affirmative determination by the Board that he or she meets the independence requirements established in the New York Stock Exchange listing standards, applicable Securities and Exchange Commission rules and our Corporate Governance Guidelines.

 

The Board has determined that the following directors are independent as defined in the New York Stock Exchange listing standards: Messrs. Ingram, Koppes, Kugelman, Melas-Kyriazi, Morfit and Ms. Provencio. Mr. Burkhardt and Ms. Ullian, who both served on the Board for all or portions of 2007, were also deemed independent consistent with the same standards. Additionally, each of the members of our Finance and Audit, Compensation and Corporate Governance/Nominating Committees has no material relationship with our Company in accordance with the categorical standards included in our Corporate Governance Guidelines and meets the New York Stock Exchange director independence standards and applicable Securities and Exchange Commission rules.

 

Code of Business Conduct and Ethics

 

The Code of Business Conduct and Ethics applies to all of our directors, officers and employees and sets forth the ethical and legal principles required to be followed in conducting business on behalf of our Company. The Board also adopted a Code of Ethics for our Chief Executive Officer and senior level financial executives as a supplement to the Code of Business Conduct and Ethics, which is intended to promote honest and ethical conduct, as well as full and accurate reporting, and compliance with applicable laws. Our Corporate Compliance Officer oversees Code- related matters and receives any report received via our Company’s helpline. Our compliance process is fully outlined on our website. Interested parties may call the helpline at (800) 461-9330 in the United States and Canada, or internationally at (720) 514-4400 (collect calls accepted).

 

Company Website

 

Key documents such as Corporate Governance Guidelines, Board Committee Charters, the Code of Business Conduct and Ethics, the Code of Ethics for our Chief Executive Officer and senior level financial executives are reviewed annually and updated by the corresponding Committees and approved by the Board of Directors. Each of these documents and information regarding stockholder communications with the Board can be found on our website at www.valeant.com. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code to any executive or director, we will promptly disclose the nature of the amendment or waiver on our website. A written copy of any of these documents will be provided to any stockholder upon request to the Chief Governance Officer and Corporate Secretary or to the Vice President of Investor Relations, Valeant Pharmaceuticals International, One Enterprise, Aliso Viejo, California 92656.

 

 

The following table describes the current members of each Committee, its Chairman, its primary responsibilities and the number of meetings held in 2007. The Committees are composed of non-employee, independent directors, as defined under the rules promulgated by the New York Stock Exchange and the Securities and Exchange Commission and adopted by the Board. All directors serve on one or more Committees of the Board, except Messrs. Pearson and Ingram.

 

The Board met twenty-four times during 2007. All of the directors attended at least 75% of the Board meetings. In addition, all committee members attended at least 75% of the committee meetings on which they serve.

 

The executive officers of our Company are as follows:

 

 

J. MICHAEL PEARSON has been our Chief Executive Officer and Chairman of the Board since February 2008. Prior to joining Valeant, Mr. Pearson was a Director at McKinsey & Company. Over a 23-year career, he worked with leading CEOs and was an integral driver of major turnarounds, acquisitions, and corporate strategy. Within McKinsey, Mr. Pearson held various positions, including as a member of McKinsey’s Board of Directors, head of its global pharmaceutical practice and head of its mid-Atlantic region.

 

PETER J. BLOTT has been our Executive Vice President, Chief Financial Officer since March 2007. He served as our Senior Vice President, Group Financial Controller from March 2004 to March 2007. Prior to that, he served as our Vice President, Operations Finance from July 2003 to February 2004. With 20 years of finance and accounting experience, Mr. Blott has an extensive background in accounting and operations in the pharmaceutical industry. From January 2002 to June 2003, Mr. Blott served as Head of Finance and Logistics for Otsuka Pharmaceuticals Europe. Prior to that he worked for over ten years at GlaxoSmithKline (formerly Glaxo Wellcome), where he held a number of management and financial positions within various manufacturing, commercial and head office operations. Mr. Blott is a U.K. Chartered Accountant, qualifying with Coopers & Lybrand in London, England.

 

CHARLES J. BRAMLAGE has been President of our European operations since September 2003, President of Operations for Middle East and Africa since April 2006, and President of Operations for North America since December 2007. He is responsible for our North American, European, Middle Eastern and African markets. Mr. Bramlage has more than 20 years of pharmaceutical experience with a strong background in marketing and sales. From April 2001 to September 2003, Mr. Bramlage held senior executive positions, including most recently as President and Chief Executive Officer, at BattellePharma, Inc., a specialty pharmaceutical company developing products using new inhalation technology and now known as Ventaira Pharmaceuticals, Inc. From April 1992 to April 2001, Mr. Bramlage held various marketing and sales positions at GlaxoSmithKline plc, including Vice President of Respiratory Global Commercial Development and Vice President of U.S. Respiratory and Cardiovascular Marketing. On March 26, 2008, Mr. Bramlage notified the Company that he would be resigning.

 

EILEEN C. PRUETTE has been our Executive Vice President and General Counsel since April 2003. From April 2006 to June 2007, she also served as our Executive Vice President of Human Resources. Ms. Pruette served as Vice President, U.S. Legal and Global Intellectual Property for Sony Ericsson Mobile Communications from October 2001 to March 2003. Ms. Pruette served as General Counsel at Ericsson Inc. for a number of operating groups from January 1996 to October 2001. From June 1990 to January 1995, Ms. Pruette served at GlaxoSmithKline, where she provided legal support for commercial operations while rendering regulatory, commercial and employment law counsel.

 

None of the executive officers were selected pursuant to any arrangement or understanding. None of the executive officers are related by blood, marriage or adoption to one another or to any director or nominee for director of our Company.

 

The following table sets forth certain information regarding the beneficial ownership of our Common Stock and the percentage of shares owned beneficially by those holders of our Common Stock known to us to be beneficial owners of more than 5% of the outstanding shares of our Common Stock as of March 14, 2008.

 

 

This table is based upon information supplied by the principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission. Unless otherwise indicated in the footnotes to this table, we believe that the stockholders named in the table have sole voting and investment power with respect to the shares indicated as beneficially owned.

 

 

 

 

The following table sets forth, as of March 14, 2008, certain information regarding the beneficial ownership of our Common Stock and the percentage of shares owned beneficially by each current director, each director nominee nominated by the Board of Directors and (i) the person serving as Chief Executive Officer of our Company during 2007, (ii) the persons serving as Chief Financial Officer of our Company during 2007, (iii) the other two most highly paid executive officers of our Company who were serving as executive officers at December 31, 2007, and (iv) the most highly paid executive officer of our Company who was not serving as an executive officer at December 31, 2007 (together, the “Named Executive Officers”), and all current directors, director nominees and executive officers of our Company as a group.

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE. Such executive officers, directors and stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

Based on its review of the copies of such forms it received, or written representations from certain reporting persons that no such forms were required for those persons, the Company believes that during fiscal year 2007, all filing requirements applicable to its executive officers, directors and ten percent beneficial owners were timely satisfied, except the following: Messrs. Ingram and Melas-Kyriazi each filed one late Form 4 covering awards of restricted stock units. In addition, Mr. Tyson filed a late Form 4 covering a sale of common stock.

 

Overview of Compensation Program

 

Our executive compensation and benefits program is designed to support our goal to attract, retain and motivate high-performing executives who will deliver superior stockholder value while operating with the highest level of integrity.

 

The determination of the form and amount of compensation paid to the executive officers of our Company is grounded in the Compensation Philosophy of our Company established from time to time by the Compensation Committee of the Board (for purposes of this analysis, the “Committee”). The Committee regularly monitors

current trends and best practices in executive compensation and updates the Compensation Philosophy as appropriate.

 

Serving on our Committee as of December 31, 2007 were Elaine Ullian (Chairperson), Theo Melas-Kyriazi, Norma A. Provencio and G. Mason Morfit, all of whom had been found to be independent for purposes of serving on the Committee in an assessment by the Corporate Governance/Nominating Committee of our Board. In addition, Robert Ingram and Lawrence Kugelman, who served on the Committee earlier in 2007, were also found to be independent in an assessment by the Corporate Governance/Nominating Committee.

 

Compensation Philosophy and Objectives

 

Historically, we have focused total compensation planning on competitive pay analysis where the Committee used the assistance of a compensation consultant (the “Committee Consultant”), to assess compensation levels for executive officers. The Committee Consultant used a combination of pay surveys for pharmaceutical companies similar in size and an appropriate group of industry-specific comparison companies (the “Compensation Peer Group”). Generally, each element of compensation was benchmarked against the Compensation Peer Group for that element of compensation, as well as overall. The compensation paid with respect to 2007 reflected the following guidance:

 

 

As these are only guidelines to our plans, variations occur as dictated by the experience level of the individual, geographical market factors, individual performance and prior commitments under negotiated contracts.

 

To remain consistent with our Compensation Philosophy, the Committee has engaged the Committee Consultant to conduct an annual review of its total compensation program for the Valeant Management Team (“VMT”) which included the Named Executive Officers. The Committee Consultant provided the Committee with relevant market data and alternatives to consider when making compensation decisions for the Chief Executive Officer and reviewing the recommendations made by our management for executives other than the Chief Executive Officer. The Committee Consultant provides extensive data on comparative salaries, incentive compensation (both annual cash incentives and the long-term equity incentives) and made recommendations regarding target bonus levels under the annual cash incentive program.

 

The Committee Consultant also advised the Committee regarding non-employee Director compensation, reviewing periodically with the Committee the cash and equity compensation program for non-employee Directors.

 

The Compensation Peer Group and Competitive Pay

 

The Compensation Peer Group, which was last reviewed and updated by the Committee in the fall of 2006, was based, in part, on recommendations made by the Committee Consultant, and consisted of companies against which the Committee believed our Company competes for talent and for stockholder investment. The salary, bonus and equity grant data for the officers in this peer group are combined with national survey data to establish the Company’s competitive pay guidelines for the VMT.

With its long lead time to market, complex regulatory framework and risk profile, the fundamental characteristics of the pharmaceutical industry are considered of utmost importance in determining appropriate companies to be included in the Compensation Peer Group. Among companies in the pharmaceutical industry, the Committee seeks to find companies with similar revenues. The Compensation Peer Group companies reported revenues for 2006 between $349.0 million and $2.0 billion.

 

The most recent comparison companies used by the Committee as the Compensation Peer Group were:

 

Abraxis Bioscience, Inc.; Alpharma Inc.; Barr Pharmaceuticals, Inc.; Biovail Corporation; Cephalon, Inc.; Endo Pharmaceutical Holdings, Inc.; ImClone Systems Incorporated; King Pharmaceuticals, Inc.; Medicis Pharmaceutical Corporation; Mylan Laboratories Inc.; Sepracor Inc.; Warner Chilcott Limited, and Watson Pharmaceuticals, Inc.

 

Implementation of Compensation Philosophy

 

The Committee directly monitors the implementation of the Compensation Philosophy with respect to the VMT. The Chief Executive Officer prepares a recommendation to the Committee for base salary, annual incentive and equity grants as to each member of the VMT, other than the Chief Executive Officer whose compensation is determined solely by the Committee and the Board. In determining the compensation to be awarded to the Chief Executive Officer and in reviewing the recommendations as to other members of the VMT, the Committee reviews, among other things:

 

 

The Committee exercises its discretion in modifying or rejecting any recommended aspect of compensation payable to the VMT. For all other employees, management makes aggregate recommendations to the Committee as to bonus and equity grants.

 

The Executive Compensation Mix

 

As the executive team of our Company is entrusted with both long and short-term success of our Company, particular care has been given to the balance of the major components in the executive compensation program:

 

 

 

 

For 2007, the aggregate base salaries for the Named Executive Officers, other than Mr. Bailey, approximated 27% of the targeted total direct compensation package (salary plus annualized incentives and long-term equity incentives). Target annual incentives under the Executive Annual Incentive Plan (as defined below) approximated 20% of the aggregate annualized total direct compensation for such Named Executive Officers. Long-term equity incentives represented about 53% of the target annualized total direct compensation for such Named Executive Officers as a group.

Base Salary

 

Base salary addresses performance of core duties for each executive role, providing an amount of fixed compensation. Base salary for each Named Executive Officer is determined based on:

 

 

Salary levels are typically adjusted annually as part of our performance review process, as well as upon a promotion or other change in job responsibilities. The amount of any such adjustments reflects a review of competitive market data, particularly for the Compensation Peer Group, consideration of relative levels of pay internally, and consideration of the individual performance of the executive.

 

Incentive Pay

 

The 2006 Equity Incentive Plan (the “2006 Plan”) was approved by a vote of the stockholders on May 23, 2006. The 2006 Plan restated and amended the 2003 Equity Incentive Plan, which was a continuation of other earlier equity plans. The 2006 Plan gives the Committee the latitude to design annual cash incentive programs (the Executive Annual Incentive Plan or “EAIP”) and equity-based incentive compensation programs (the Long-Term Equity Incentive Program, or “LTEIP”) to secure and retain high-performing executives, to provide incentives for such persons to exert maximum efforts for the success of our Company and to provide a means by which our executives may share in the long-term growth and profitability of our Company.

 

A significant percentage of total compensation is allocated to these two incentives programs (about 73% for the Named Executive Officers, excluding Mr. Bailey, in 2007), although there is no pre-established policy or target for the allocation between the EAIP and the LTEIP. Rather, the Committee reviews information provided by the Committee Consultant to determine the appropriate level and mix of incentive compensation. Historically, and in 2007, the Committee granted a majority of total compensation to our executive officers under the LTEIP. In determining the mix of these compensation elements for executives, we also consider the tax efficiency of the compensation program and competitive data, with a preference toward stock-based awards designed to align with stockholder interests.

 

The Executive Annual Incentive Plan

 

The EAIP is an annual cash incentive program which rewards contributions to our achievement of specific annual financial and strategic goals, assuring focus on key annual goals that lead to long-term success and motivating achievement of critical annual performance metrics.

 

The EAIP provides formulas for the calculation of annual cash incentive-based compensation, subject to Committee oversight and modification. In the first quarter of each year, the Committee reviews and approves the various incentive levels for the VMT based on the participant’s accountability and impact on our operations, with target award opportunities that are established as a percentage of base salary. An executive may earn 0% — 200% of the target award, depending on performance. In addition, regional heads can earn an EBITDA (“Earnings Before Interest, Taxes, Depreciation and Amortization”) kicker (an additional award based on 5% of their region’s EBITDA in excess of their maximum goal).

 

There are two kinds of objectives for executives in the EAIP: financial goals and strategic initiatives. Detailed goals for both sets of objectives are documented in writing through a Commitment Summary that is reviewed with each participant. In 2007, the Chief Executive Officer, the Chief Financial Officer and the General Counsel each were limited to financial goals and did not have any bonus participation assigned to strategic initiatives. The EAIP financial goal measurements, which are not necessarily calculated in accordance with Generally Accepted

Accounting Principles (“GAAP”). or reported measures but rather include adjustments that the Committee believes better reflects the executives’ impact on the Company’s performance, are:

 

 

The applicability and weighting of financial goals as to each executive was made by the Committee upon the recommendation of the Chief Executive Officer. For the Chief Executive Officer, the Chief Financial Officer, and the General Counsel, the financial goals for 2007 were overall corporate measures. For the Regional Heads, the EPS target was a corporate measure, but EBITDA, working capital and revenue reflect regional goals. The Committee also set the threshold, target and maximum levels for each component of the financial objectives portion of the EAIP, with target goal levels set based upon the approved strategic plan for 2007, and threshold and maximum levels being set based on a percentage below and above the target goal reflecting the level of difficulty of achieving the target goals. Generally, the Committee attempted to set the threshold, target and maximum levels such that the relative difficulty of achieving the target level is consistent from year to year. Under the EAIP, the occurrence of material events, including major acquisitions or dispositions, causes a re-examination of the financial goals to assure continued appropriate levels of difficulty in achieving goals; in 2007 the EPS and revenue goals were adjusted to reflect the disposition of our Infergen product.

 

The remaining portion of the EAIP award is based upon the completion of strategic initiatives of each individual executive approved by the Committee, though for the Chief Executive Officer, the Chief Financial Officer and the General Counsel, there were no strategic initiatives for 2007.

 

Upon completion of the fiscal year, the Committee assesses the performance of our Company for each corporate financial objective of the EAIP, comparing the actual fiscal year results to the established threshold, target and maximum levels for each objective, and an overall percentage amount for the corporate financial objectives is calculated.

 

Discretionary Adjustment — On an exception basis, once the formula award has been calculated under the EAIP, the Chief Executive Officer may recommend to the Committee an increase or decrease of an award to an executive officer other than the Chief Executive Officer of up to 25% to recognize special circumstances. Such recommendation may only be implemented upon the further recommendation to, and approval of, the Board.

 

For 2007, the VMT consisted only of the Chief Executive Officer, the Chief Financial Officer, the General Counsel, and Regional Heads. The target bonus for the Chief Executive Officer in 2007 was 100% of his base salary; the target bonus for all other members of the VMT was 60% of their base salary.

 

Under the 2007 EAIP, in order to receive any payment under the financial goals portion of the EAIP, an executive had to have achieved the threshold level of:

 

 

EBITDA Kicker — Regional Heads whose region exceeded the EBITDA maximum goal were eligible to earn an additional award based on 5% of their region’s EBITDA in excess of their maximum goal.

 

As reflected in the column entitled “Non-Equity Incentive Plan Compensation” of the Summary Compensation Table found under the Executive Compensation and Related Matters section, due to a finding of a material weakness in our internal control over financial reporting, there were no awards made to Named Executive Officers under the EAIP for performance in 2007.

Long-Term Equity Incentive Program

 

The Long-Term Equity Incentive Program encourages executives to focus on long-term Company performance and is designed to balance short-term goals, and align executives’ performance to stockholder interests, providing compensation more directly correlating to improved stockholder value.

 

Equity grant award levels are determined based on competitive market data. The 2006 Plan is flexible and permits a broad array of equity grants. In 2007, the Committee chose to grant a combination of stock options, restricted stock units that vest over time as long as the executive continued to provide services and restricted stock units which vest based on the achievement of certain pre-established performance goals (“Performance Vested Restricted Stock Units” or “PVRSUs”). Stock options provide value only when stockholders realize an increase in the value of their holdings. Restricted Stock Units (“RSUs”) balance stock options by providing the executives a financial stake in the Company even if the stock price falls below the price as of the date of grant. PVRSUs tie the size of the grant to our total shareholder return (“TSR”). In determining the size of the total long-term incentive grant to an executive, the Committee considers, among other things, compensation levels among our peer companies, industry survey data on practices and trends, Company performance, the executive’s individual performance and positioning relative to other of our executives, as well as the executive’s current and expected contributions to the Company. The Committee also reviews previously granted awards and amounts of awards outstanding.

 

For 2007, the Company delivered a mix of stock options, RSUs, and PVRSUs at a value of 150% the intended annualized award value by front-loading a portion of the 2008 and 2009 award value in the 2007 grant through additional RSUs and PVRSUs. The RSUs were granted to provide additional retention incentive to our executives during an uncertain time. The front-loaded Performance Vested Restricted Stock Units align with our stockholders since they are only payable if certain levels of TSR performance are achieved over a 3 year period. In 2007, the mix of stock options, RSUs, and PVRSUs granted to our Named Executive Officers was 51%, 72%, 27%, respectively, as a percentage of each executive’s annualized target long-term incentive value. The annual grant value for the 2008 and 2009 grants will be at 75% of each executive’s annual award value in order to fund the front-loading of grants in 2007.

 

Annual awards of stock options to executives are made at the Committee’s regularly scheduled Fall meeting, which is scheduled sufficiently in advance so that grants cannot be “timed” to take advantage of the release of material nonpublic information. Newly hired or promoted executives receive their equity awards on the later of (a) their first day of employment or (b) the date of approval of the grant by the Committee. All awards of stock options under the 2006 Plan are made at or above the fair market value of our common stock on the date of grant.

 

Stock options granted by the Committee vest at a rate of 25% per year over the first four years of the ten-year option term. Vesting rights cease upon termination of employment. Under the 2006 Plan, there is a limited period of post-termination exercise of three months, except in the case of death or disability where the post-termination exercise period is extended to 12 months. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. Each Incentive Plan has varying standards for the application of change in control provisions, and prior to the 2006 Plan, generally accelerated options upon a change in control. The 2006 Plan contains a so-called “double trigger” provision which provides that options are accelerated upon a change in control only if the employment of the executive is involuntarily terminated without cause (or if the participant resigns with good reason), in either case in conjunction with the change in control. However, Mr. Tyson’s employment agreement and the severance agreements of the other Named Executive Officers accelerate vesting of options upon a change in control, irrespective of loss of employment.

 

RSUs granted in 2007 to the Named Executive Officers vest entirely on the third anniversary of the grant. Vesting of these grants is also accelerated upon a change in control pursuant to Mr. Tyson’s employment agreement and the severance agreements of the Named Executive Officers.

 

PVRSUs vest according to the TSR of the Company on the third anniversary of the date of grant. If the TSR is less than 10%, no shares vest. If the TSR equals 10%, the “target” number of PVRSUs specified in the grant notice vests. If the TSR equals 20%, three times the number of “target” PVRSUs specified in the grant notice vests. If the

TSR is between 10% and 20%, the PVRSUs vest in the mathematical interpolation between the number of shares which would vest at such two percentages.

 

The combination of the aggregate Named Executive Officers’ base salaries, target bonus payments and annualized equity granted provided in 2007 approximated the 50th percentile of competitive pay and is consistent with the Company’s compensation philosophy.

 

Exercise and Hold Requirements

 

To align the interests of executives with the interests of the stockholders, we have instituted an “exercise and hold” rule for all equity grants made on or after October 31, 2006 to the Chief Executive Officer and those executives reporting directly to the Chief Executive officer as of the date of the grant. Beginning with the annual grants issued on that date, a provision has been added to the standard equity award agreements applicable to such executives prohibiting the executive from selling, disposing of, transferring, or entering into any similar transaction with the same economic effect as a sale of fifty percent (50%) of the “net shares” of common stock purchased upon the exercise of the option (or vested, in the case of RSUs or PVRSUs) until the earlier of (i) the executive’s death, (ii) the executive’s disability, (iii) the termination of the executive’s service, or (iv) the second anniversary of the date on which the executive purchased such shares. In order to enforce the foregoing, we may impose stop-transfer instructions with respect to such shares of Common Stock until the end of such period, or place legends on stock certificates issued pursuant to the 2006 Plan restricting the transfer of such shares until the end of such period. For purposes of this requirement, with respect to stock options the term “net shares” means the number of shares being exercised minus the minimum number of whole shares necessary to pay the purchase price of the option and pay for applicable withholding taxes.

 

Retirement and Welfare Benefits

 

The retirement and welfare benefit programs are a necessary element of the total compensation package to ensure a competitive position in attracting and maintaining a committed workforce. Participation in these programs is not tied to performance.

 

The specific contribution levels by our Company to these programs are evaluated annually to maintain a competitive position while considering costs.

 

 

Executive Benefits and Perquisites

 

We provided Named Executive Officers with perquisites and other personal benefits that we and the Committee believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. The Committee periodically reviews the levels of perquisites and other personal benefits provided to Named Executive Officers.

In addition to participation in the plans and programs described above, the Named Executive Officers were provided the following programs which were established in 2003:

 

 

Attributed costs of the personal benefits described above for the Named Executive Officers for the fiscal year ended December 31, 2007, are included in the column entitled “All Other Compensation” of the Summary Compensation Table.

 

The employment agreements of Mr. Tyson, the Chief Executive Officer in 2007, included a change in control provision providing for certain cash payment and other benefits in the event of a change in control. In addition, we have entered into executive severance agreements providing change in control benefits for certain key employees, including the Named Executive Officers other than the Chief Executive Officer. The executive severance agreements were designed to promote stability and continuity of senior management. The employment agreement of the Chief Executive Officer included a provision which gave him limited rights to a Section 280G “gross up” in certain circumstances; the severance agreements of the other Named Executive Officers provide for a reduction in benefits paid to the executive should a severance payment become subject to Section 280G to the extent that the reduction in benefits yields a more favorable after tax result for the executive. Information regarding applicable payments under such agreements for the Named Executive Officers is provided under the Executive Compensation and Related Matters sub-section, “Potential Payments Upon Termination or Change-in-Control”.

 

Tax and Accounting Implications

 

Deductibility of Executive Compensation

 

As part of its role, the Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, which provides that we may not deduct compensation in excess of $1,000,000 that is paid to certain individuals unless that compensation is performance based and meets other requirements. We generally develop our compensation plans such that compensation paid under the management incentive plans is fully deductible for federal income tax purposes. However, in certain situations, the Committee may approve compensation that will not meet these requirements in order to ensure competitive levels of total compensation for its executive officers. For fiscal 2007, it is expected that all compensation paid to Named Executive Officers will be fully tax deductible.

 

Accounting for Stock-Based Compensation

 

Beginning on January 1, 2006, we began accounting for stock-based payments including grants under the 2006 Plan, in accordance with the requirements of FASB Statement 123(R).

Employment Arrangements with Mr. Pearson

 

The Company entered into an employment agreement with Mr. Pearson (the “Employment Agreement”), effective as of February 1, 2008, with respect to his employment as Chief Executive Officer and election to the Board of Directors as a director and Chairman. The Employment Agreement extends until February 1, 2011. Under the Employment Agreement, Mr. Pearson receives an annual base salary of $1,000,000 and is eligible to receive a target bonus equal to 100% of annual base salary if certain pre-determined performance goals established at the discretion of the Compensation Committee (up to 200% of annual base salary if maximum levels of performance are achieved). For 2008, Mr. Pearson’s annual bonus is guaranteed to be a minimum of $1,000,000 and was paid in the form of 81,500 restricted stock units.

 

By February 1, 2009, Mr. Pearson is required to purchase shares of Company common stock with a minimum value of $3,000,000, which will be subject to transfer restrictions described in the Employment Agreement. For each share purchased Mr. Pearson will receive a restricted stock unit subject to time-based vesting restrictions. In addition, Mr. Pearson received an option to purchase at an exercise price of $12.19 per share 1,024,591 shares of Company common stock that vest 25% per year over the next four years provided that Mr. Pearson remains employed with the Company on the applicable vesting date, and a grant of 407,498 performance share units which will vest and be payable on February 1, 2011 or February 1, 2012 provided that Mr. Pearson remains employed by the Company on the applicable date and performance thresholds are met and if certain higher performance thresholds are met, the number of shares which vest may increase to as many as 1,222,494 shares. Mr. Pearson also received a grant of 163,000 restricted stock units with a value of $2,000,000 vesting on February 1, 2009. The Company does not intend to grant Mr. Pearson any further equity or equity-based awards for the remaining term of his contract.

 

The Employment Agreement provides that Mr. Pearson’s employment may be terminated by the Company upon his death or disability, or with or without cause, or by Mr. Pearson with or without good reason (as defined in the Employment Agreement). Upon termination by reason of death or disability, by us for cause, or by Mr. Pearson without good reason, Mr. Pearson receives all amounts earned or accrued through the termination date, as specified in the agreement. Upon termination by reason of death or disability, Mr. Pearson is entitled to immediate vesting of all outstanding options and restricted stock units (performance share units vest based on performance through the date of Mr. Pearson’s termination). Upon termination of Mr. Pearson’s employment by the Company without cause or by Mr. Pearson for good reason, other than during the 12 months following a change in control (as defined in the Employment Agreement), Mr. Pearson is entitled to a severance payment equal to two times the sum of (i) his base salary and (ii) his target bonus for the year of his termination. Mr. Pearson is also entitled to continuation of employee welfare benefits for 24 months. All unvested equity awards are forfeited except that (i) the restricted stock units granted to Mr. Pearson as a sign-on bonus and in connection with his purchase of Company common stock vest and (ii) a pro-rata portion of the performance shares vest based on actual performance through the date of termination.

 

Upon a change in control, the performance share units vest based on performance through the date of the change in control and, to the extent not replaced with substitute awards of the acquiring company, all outstanding options and restricted stock units vest. Upon termination of Mr. Pearson’s employment by the Company without cause or by Mr. Pearson for good reason within 12 months following a change in control, Mr. Pearson is entitled to a severance payment equal to three times the sum of (i) his base salary and (ii) target bonus for the year of his termination. Mr. Pearson is also entitled to employee benefits for 24 months and all outstanding equity awards, to the extent not vested on the change in control, will vest.

 

The following table sets forth the annual and long-term compensation awarded to or paid to the Named Executive Officers for services rendered to our Company in all capacities during the year ended December 31, 2007.

 

 

 

 

The following table sets forth information about non-equity awards and stock options granted to the current and former Named Executive Officers in 2007.

 

Grants of Plan-Based Awards

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table provides information on the current holdings of stock options and stock awards by the Named Executive Officers. This table includes unexercised and unvested option awards and unvested restricted stock units. Each equity grant is shown separately for each Named Executive Officer. The market value of the stock awards is based on the closing market price of our Common Stock as of December 31, 2007, which was $11.97.

 

 

 

 

Option Exercises and Stock Vested

 

 

 

 

Former President and Chief Executive Officer Agreement

 

We entered into an Executive Employment Agreement with Mr. Tyson on October 24, 2002, and an Amended and Restated Executive Employment Agreement with Mr. Tyson on March 21, 2005, effective as of January 1, 2005 (Mr. Tyson’s agreement, as amended and restated, is referred to herein as the “Tyson Employment Agreement”).

 

The Tyson Employment Agreement provided that Mr. Tyson’s employment may be terminated by us upon his death or disability, or with or without cause, or by Mr. Tyson with or without good reason (as defined in the agreement). Upon termination by reason of death or disability, by us for cause, or by Mr. Tyson without good reason, Mr. Tyson was entitled to receive all amounts earned or accrued through the termination date, as specified in the agreement. Upon termination by reason of death or disability, Mr. Tyson was entitled to a prorated portion of his annual bonus, health and medical coverage for two years, and immediate vesting of all outstanding awards, options and stock appreciation rights (which remain exercisable for up to two years). Upon termination of Mr. Tyson’s employment by us without cause, or by Mr. Tyson for good reason, or if we decided not to extend the term of his agreement, Mr. Tyson was entitled to the same benefits he would have received upon termination for death or disability, plus, subject to his not engaging in certain “prohibited activities,” a severance payment equal to two times the sum of (i) his base salary and (ii) the greater of (a) his average bonus for the prior two years; or (b) his target bonus for the year of his termination. Mr. Tyson was also entitled to continuation of employee welfare benefits for 24 months. All restrictions on outstanding equity awards lapse and all such awards, including stock options became immediately and fully vested and stock options became exercisable for two years following termination. If such termination had occurred within 12 months following or in contemplation of a change in control, Mr. Tyson would have been entitled to the same benefits as described above for a termination without a change in control, except that the severance payment would have been equal to three times the sum of (i) his base salary and (ii) the greater of (a) his average bonus of the prior two years; or (b) his target bonus for the year of his termination. Further in the event of a termination in connection with a change in control, the post termination exercise period for his options became three years. Mr. Tyson was also entitled to employee benefits for 24 months and a cash payment equal to the excess of the actuarial equivalent of his aggregate retirement benefits had he remained employed by us for an additional two years over the actuarial equivalent of his actual retirement benefit. In each case, Mr. Tyson was under no obligation to mitigate amounts payable under his agreement.

For purposes of the Tyson Employment Agreement, a “change in control” generally meant any of the following events:

 

 

Mr. Tyson’s agreement also provided for certain “gross-up” payments if he was subject to the excise tax imposed under Section 4999 of the Internal Revenue Code (or related interest and penalties) with respect to payments and benefits under his agreement or otherwise.

 

Tyson Separation and Release Agreements.  In connection with Timothy C. Tyson’s resignation from the Company as of February 1, 2008, the Company and Mr. Tyson entered into a separation agreement dated as of February 1, 2008 (the “Tyson Separation Agreement”) and a release agreement dated as of February 1, 2008 (the “Tyson Release Agreement”). The Tyson Separation Agreement generally provides Mr. Tyson with payments and benefits to which he was entitled under his existing employment agreement upon a termination by the Company without cause or by the executive for good reason. Under the terms of the Separation Agreement, Mr. Tyson received a pro-rata annual bonus equaling $78,198, and a severance payment equaling $3,577,600. All previously unvested outstanding equity awards held by Mr. Tyson vested, such accelerated vesting having a Black-Scholes value of $5,516,700. In addition, the Tyson Separation Agreement provided for Mr. Tyson to serve as a consultant to the Company during a three-month transition period (renewable for an additional three-month period by mutual agreement) following his termination, at a rate of $29,800 per month. Under the Tyson Release Agreement, Mr. Tyson released the Company from any and all claims, liabilities and obligations other than those set forth in the Tyson Release Agreement.

 

Former Chief Financial Officer Agreement

 

We entered into an Executive Employment Agreement with Mr. Bailey on October 22, 2002 (the “Bailey Employment Agreement”). The Bailey Employment Agreement provided that Mr. Bailey’s employment could be terminated by us upon his death or disability, or with or without cause, or by Mr. Bailey with or without good reason (as defined in the agreement). Upon termination by reason of death or disability, by us for cause, or by Mr. Bailey without good reason, Mr. Bailey was entitled to receive all amounts earned or accrued through the termination date, as specified in the agreement. Upon termination by reason of death or disability, Mr. Bailey was also entitled to a prorated portion of his annual bonus. Upon termination of Mr. Bailey’s employment by us without cause, or by Mr. Bailey for good reason, or if we decided not to extend the term of his agreement, Mr. Bailey was entitled to accrued compensation, plus, subject to his not engaging in certain “prohibited activities” for one year, an additional payment equal to the sum of (a) his base salary and (b) his average annual bonus for the prior two years. If such termination occurred within twelve months after a change in control, such payment was based on three times salary and bonus,

and Mr. Bailey was also entitled to (i) certain employee benefits for up to twenty-four months, (ii) immediate vesting of all outstanding awards, options and stock appreciation rights, and (iii) a cash payment equal to the excess of the actuarial equivalent of his aggregate retirement benefits had he remained employed by us for an additional two years over the actuarial equivalent of his actual retirement benefit.

 

For purposes of the Bailey Employment Agreement, a “change in control” generally meant the occurrence of any of the following events:

 

 

Mr. Bailey’s agreement provided that payments and benefits under his agreement and all other related arrangements will not exceed the maximum amount that may be paid to him without triggering “excess parachute payment” penalties under Section 280G of the Internal Revenue Code of 1986, but only if this would increase the net amount he would realize after payment of income and excise taxes.

 

Mr. Bailey resigned from our Company effective May 31, 2007.

 

Executive Officer Agreements

 

We have also entered into severance agreements (the “Executive Severance Agreements”) with Messrs. Blott, Bramlage and Wheeler, and Ms. Pruette (each, an “Executive”). With the exception of Mr. Wheeler’s Executive Severance Agreement which expired upon his resignation and with respect to which he waived any potential Company obligations, each Executive Severance Agreement expires on December 31, 2010 unless sooner terminated following a change in control, and shall automatically be extended for successive one-year periods unless no later than six months prior to a scheduled expiration date we notify the Executive that the agreement will not be extended. The purposes of the severance agreements are to retain key executives and provide a competitive level of severance benefits should the executive be involuntarily terminated under certain circumstances.

 

Under each Executive Severance Agreement, upon termination by reason of death or disability, by us for cause, or by the Executive without good reason, the Executive will receive all amounts earned or accrued through the termination date, as specified in the agreement. Upon termination by reason of death or disability, the Executive, in addition, will be entitled to a prorated portion of the Executive’s annual bonus.

 

If the Executive’s employment is terminated by us without cause, or by the Executive with good reason, and the Executive agrees to not to engage in certain activities that might compete with us for a period of one year after termination, the Executive will receive a payment equal to the sum of: (a) any accrued and unpaid salary, (b) any unpaid annual bonus payable for the most recently completed year, (c) the Executive’s annual base salary then in

effect and (d) the lesser of the average of the annual incentive program bonuses paid to the Executive for the five prior years (or such shorter period if the Executive has not been eligible to participate in the annual incentive program) or the Executive’s target bonus at such time. If the Executive is terminated by us, other than for cause, disability or death, or by the Executive for good reason, we will also pay up to an aggregate of $20,000 for outplacement services.

 

If in contemplation of or within twelve months after a change in control, the Executive is terminated by us without cause, or terminates his employment with good reason, and the Executive agrees not to engage in prohibited activities for a period of one year following termination, the Executive will be entitled to a payment equal to two times the sum of (a) the Executive’s annual base salary plus (b) the higher of the average of the annual incentive program bonuses paid to the Executive for the five prior years (or such shorter period if the Executive has not been eligible to participate in the annual incentive program) or the Executive’s target bonus at the time of the change in control. In addition, for one year after such termination following a change in control or such longer period as may be provided by the terms of the appropriate benefit plans, we shall provide the Executive and his or her family with medical, dental and life insurance benefits at least equal to those which would have been provided had the Executive not been terminated, in accordance with the applicable benefit plans in effect on the change in control measurement date or, if more favorable, in effect generally at any time after the change in control measurement date with respect to other peer executives of our Company and our affiliated companies. All outstanding options to purchase shares of Common Stock, each outstanding restricted stock award and any other unvested equity compensation right shall be fully vested or exercisable and each such share or equity interest shall no longer be subject to a right of repurchase by us.

 

Under each Executive Severance Agreement, a “change in control” generally means any of the following events:

 

 

Each Executive Severance Agreement provides that payments and benefits under the agreement and all other related arrangements will not exceed the maximum amount that may be paid to the Executive without triggering “excess parachute payment” penalties under Section 280G of the Internal Revenue Code of 1986, as amended, but only if this would increase the net amount the Executive would realize after payment of income and excise taxes.

 

Wheeler Separation and Release Agreement.  In connection with Wesley P. Wheeler’s resignation from the Company as of December 13, 2007, the Company and Mr. Wheeler entered into a Separation and Release Agreement, dated December 13, 2007 (the “Wheeler Separation Agreement”). Under the terms of the Wheeler Separation Agreement, the Company paid Mr. Wheeler $300,000 and Mr. Wheeler released the Company from all

claims (including all claims for compensation, bonuses and claims under any contract, including claims under his Executive Severance Agreement), liabilities and obligations other than those set forth in the Wheeler Separation Agreement.

 

Termination/Change-in-Control(1)

 

 

 

 

Termination/No Change-in-Control (1)