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.  )

 

Filed by the Registrant  þ

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

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

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to § 240.14a-12

 

VALEANT PHARMACEUTICALS INTERNATIONAL, Inc.

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 14, 2011

 

To the Shareholders of
Valeant Pharmaceuticals International, Inc:

 

You are cordially invited to attend Valeant Pharmaceuticals International, Inc.’s 2011 Annual Meeting of Shareholders to be held at 10:00 a.m., Montréal time, on Monday, May 16, 2011 at the Loews Hôtel Vogue, 1425, rue de la Montagne, Montréal, Québec, H3G 1Z3, Canada. At the meeting, we will vote on the proposals set forth in the Notice of Annual Meeting and the accompanying management proxy circular and proxy statement (the “Proxy Statement”), as well as address any other business matters that may properly come before the meeting.

 

Enclosed with this invitation are the Notice of Annual Meeting of Shareholders, the Proxy Statement, a Proxy Card and the Company’s Annual Report for the year ended December 31, 2010. Your vote at this meeting is important. Whether or not you plan to attend the meeting, I hope you will vote as soon as possible. You will find voting instructions in the Proxy Statement and on the Proxy Card. You may vote over the Internet or telephone. Alternatively, you may mark, date, sign and mail the Proxy Card in the envelope provided.

 

Sincerely,

 

J. Michael Pearson
Chief Executive Officer and Chairman of the Board

 

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
7150 Mississauga Road
Mississauga, Ontario
Canada L5N 8M5

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 2011

 

 

To the Shareholders of

Valeant Pharmaceuticals International, Inc.:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the “Annual Meeting” or the “Meeting”) of Valeant Pharmaceuticals International, Inc., a Canadian corporation (the “Company”), will be held at the Loews Hôtel Vogue, 1425, rue de la Montagne, Montréal, Québec, H3G 1Z3, Canada, on May 16, 2011, at 10:00 a.m., Montréal time, for the following purposes:

 

1. To receive the audited comparative consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2010 and the auditors’ report thereon, a copy of which is enclosed herewith;

 

2. To elect 10 directors of the Company (each a “Director” and collectively, the “Directors”) to serve until the close of the 2012 Annual Meeting of Shareholders;

 

3. To conduct a non-binding advisory vote regarding the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis section, executive compensation tables and accompanying narrative discussions contained in this Management Proxy Circular and Proxy Statement (the “Proxy Statement”);

 

4. To conduct a non-binding advisory vote on whether an advisory vote on the compensation of the Company’s named executive officers should be held every one, two or three years;

 

5. To approve the Company’s 2011 Omnibus Incentive Plan;

 

6. To approve an amendment to the Company’s 2007 Equity Compensation Plan;

 

7. To appoint PricewaterhouseCoopers LLP as independent registered public accountant (the “auditors”) for the Company to hold office until the close of the 2012 Annual Meeting of Shareholders and to authorize the Company’s Board of Directors to fix the auditors’ remuneration; and

 

8. 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 April 4, 2011. Only record shareholders at the close of business on April 4, 2011 will be entitled to the notice of and to vote at the Annual Meeting in person or by proxy.

 

Shareholders are invited to attend the Annual Meeting. Record Shareholders who are unable to attend the Annual Meeting in person are requested to complete, date and sign the enclosed form of proxy (the “Proxy Card”) and send it in the enclosed envelope or otherwise to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717, United States or to the Company at the Company’s registered office, which is located at 7150 Mississauga Road, Mississauga, Ontario, L5N 8M5, Canada, fax number 905-286-3050, or via the Internet, by going to www.proxyvote.com and following the instructions on the website, or by calling toll free 1-800-690-6903 on a touch tone phone and following the instructions provided by “Vote Voice”. You will need to refer to the Proxy Card and to your 12 digit control number provided on the Proxy Card. Non-record shareholders who receive these materials through their broker or other intermediary should follow the instructions provided by their broker or intermediary.

 

To be effective, your Proxy Card must be received by Broadridge Financial Solutions, Inc. (“Broadridge”) not later than 11:59 p.m. (Eastern Daylight Time) on May 13, 2011, or, in the case of any adjournment of the Annual Meeting, not less than 48 hours, excluding Saturdays, Sundays and holidays, prior to the time of the adjournment. The time limit for deposit of proxies may be waived by the Board of Directors at its discretion. Completing and sending the Proxy Card will cancel any other proxy you may have previously submitted in connection with the Annual Meeting, as it is the later dated proxy that will be counted.

 

By Order of the Board of Directors,

 

Robert R. Chai-Onn
Corporate Secretary

 

Dated: April 14, 2011

 

TABLE OF CONTENTS

 

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
7150 Mississauga Road
Mississauga, Ontario
Canada L5N 8M5

 

 

 

 

2011 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 2011

 

This Management Proxy Circular and Proxy Statement (“Proxy Statement”) contains information about the 2011 Annual Meeting of Shareholders of Valeant Pharmaceuticals International, Inc., a Canadian corporation (the “Company” or “Valeant”). The Meeting will be held at the Loews Hôtel Vogue, 1425, rue de la Montagne, Montréal, Québec, H3G 1Z3, Canada, on Monday, May 16, 2011, at 10:00 a.m., Montréal Time, and any adjournments or postponements thereof (the “Annual Meeting” or “Meeting”), for the purposes set forth in this Proxy Statement and in the accompanying Notice of Annual Meeting of Shareholders. In this document, the words “Valeant,” “we,” “our,” “ours” and “us” refer only to Valeant Pharmaceuticals International, Inc. and not any other person or entity. References to “US$” or “$” are to United States dollars and references to “C$” are to Canadian dollars. Unless otherwise indicated, the statistical and financial data contained in this Proxy Statement are as of December 31, 2010.

 

We are providing you with this Proxy Statement and related materials in connection with the solicitation of proxies by our Board of Directors (the “Board”). This Proxy Statement and the accompanying form of proxy (the “Proxy Card”) are expected to be mailed to the shareholders of record as of April 4, 2011 (the “Record Date”) commencing on or about April 14, 2011.

 

All properly executed written proxies, and all properly completed proxies submitted by mail, facsimile or telephone or via the Internet, which are delivered pursuant to this solicitation will be voted at the Meeting in accordance with the directions given in the proxy, unless the proxy is revoked prior to completion of voting at the Meeting.

 

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “Annual Report”) is available on the Internet at our website at www.valeant.com, through the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com or through the Securities and Exchange Commission’s (“SEC”) electronic data system called EDGAR at www.sec.gov. To request a printed copy of our Annual Report, which we will provide to you without charge, either write to Valeant Investor Relations at Valeant Pharmaceuticals International, Inc., 7150 Mississauga Road, Mississauga, Ontario, Canada L5N 8M5, or send an email to Valeant Investor Relations at ir@valeant.com.

 

This Proxy Statement and the accompanying Annual Report are available at: www.proxyvote.com.

 

This Proxy Statement contains information regarding, among other things:

 

 

Whether or not you plan to attend the Annual Meeting, please promptly vote your proxy by telephone, by accessing the Internet site following the instructions in the Proxy Statement and related materials or by marking, dating, signing and returning the Proxy Card. Your promptness in voting your proxy will assist in the expeditious and orderly processing of the proxies and in ensuring that a quorum is present. If you vote 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 this Proxy Statement.

 

What decisions will the shareholders be making at the Meeting?

 

You will be asked to vote on each of the following proposals:

 

 

The Board recommends that you vote FOR: (i) the election of the 10 Director nominees proposed by the Company in this Proxy Statement; (ii) the approval, in an advisory vote, of the compensation of the Named Executive Officers as described in the Compensation Discussion and Analysis (“CD&A”) section, executive compensation tables and accompanying narrative discussion contained in this Proxy Statement; (iii) EVERY YEAR with respect to how frequently a non-binding advisory vote on the compensation of the Company’s Named Executive Officers should be held; (iv) the approval of the Company’s 2011 Omnibus Incentive Plan; (v) the approval of an amendment to the Company’s 2007 Equity Compensation Plan; and (vi) the appointment of PricewaterhouseCoopers LLP as our auditors and the authorization of the Board to fix the auditors’ remuneration.

 

In addition, you may be asked to vote in respect of any other matters that may properly be brought before the Meeting. As of the date of this Proxy Statement, the Board is not aware of any such other matters.

 

A simple majority of votes cast at the Meeting, whether in person, by proxy or otherwise, will constitute approval of any proposal submitted to a vote, except with respect to the advisory vote on the frequency of the advisory vote on the compensation of the Company’s Named Executive Officers, where the Board will consider the option that receives the highest number of votes to be the recommendation of the shareholders.

 

What impact does a Withhold or Abstain vote have?

 

 

 

What constitutes a quorum for the Annual Meeting?

 

Two persons, each being a holder of Common Shares issued and outstanding and entitled to vote at the Annual Meeting, present either in person or by proxy, and together holding or representing shares having not less than 25% of the outstanding votes entitled to be cast at the Meeting will constitute a quorum for the transaction of business at the Annual Meeting. Votes withheld, abstentions and broker non-votes will be counted for purposes of determining the presence of a quorum.

 

Who is entitled to vote?

 

Each shareholder is entitled to one vote for each Common Share registered in his or her name as of the close of business on April 4, 2011, the record date for the purpose of determining holders of Common Shares entitled to receive notice of and to vote at the Meeting.

 

As of April 4, 2011, 297,667,244 Common Shares were issued and outstanding and entitled to be voted at the Meeting.

 

How do I vote if I am not a record shareholder?

 

The Proxy Card provided with this Proxy Statement will indicate whether or not you are a record shareholder. Non-record shareholders hold their Common Shares through intermediaries, such as banks, trust companies, securities dealers or brokers. If you are a non-record shareholder, the intermediary holding your Common Shares should provide you with a Voting Instruction Form which you must complete by using any one of the methods outlined therein. The Voting Instruction Form will constitute voting instructions that the intermediary must follow and should be returned in accordance with the instructions to ensure it is counted for the Meeting. In order to expedite your vote, you may vote by using a touch-tone telephone or via the Internet, following the instructions outlined on the Voting Instruction Form. You should carefully follow the instructions provided by the intermediary and contact the intermediary promptly if you need help.

 

What is the effect if I do not cast my vote?

 

It is critical that all non-record shareholders vote their shares by proxy or in any other permitted fashion if they want their votes to count in the election of Directors (Proposal No. 1), the advisory vote on the compensation of the Company’s Named Executive Officers (Proposal No. 2), the advisory vote on the frequency of the advisory vote on the compensation of the Company’s Named Executive Officers (Proposal No. 3), the vote on the approval of the Company’s 2011 Omnibus Incentive Plan (Proposal No. 4) and the vote on the approval of an amendment to the Company’s 2007 Equity Compensation Plan (Proposal No. 5). If a non-record shareholder does not instruct its bank or broker how to vote in the election of Directors, on the advisory vote on the compensation of the Company’s Named Executive Officers, on the advisory vote on the frequency of the advisory vote on the compensation of the

Company’s Named Executive Officers, on the approval of the Company’s 2011 Omnibus Incentive Plan or on the approval of an amendment to the Company’s 2007 Equity Compensation Plan, no votes will be cast on behalf of such shareholder with respect to such proposal for which no instructions are given (a “broker non-vote”). The bank or broker does, however, have discretion to vote any uninstructed shares on the appointment of the Company’s auditors (Proposal No. 6). If a record shareholder does not cast its vote by proxy or in any other permitted fashion, no votes will be cast on its behalf on any of the items of business at the Annual Meeting.

 

How do I vote if I am a record shareholder?

 

Record shareholders who attend the Meeting are entitled to cast one vote for each Common Share held on each proposal put before the Meeting. Your participation in person in a vote by ballot at the Meeting will automatically revoke any proxy you have previously given. Upon arriving at the Meeting, report to the desk of the Inspector of Elections to sign in. At that time, you can revoke any proxy previously given.

 

If you are a record shareholder, whether or not you plan to attend the Meeting, you may vote your Common Shares by proxy by any one of the following methods:

 

By mail:  Sign and date your Proxy Card and send it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717, United States. Broadridge must receive your Proxy Card not later than 11:59 p.m. (Eastern Daylight Time) on May 13, 2011. If the Meeting is adjourned or postponed, Broadridge must receive your Proxy Card at least 48 hours, excluding Saturdays, Sundays and holidays, before the rescheduled Meeting.

 

By telephone:  Call toll free 1-800-690-6903. You will be prompted to provide your 12 digit control number printed below your pre-printed name and address on the Proxy Card. The telephone voting service is available until May 15, 2011 at 11:59 p.m. (Eastern Daylight Time) and you may not appoint a person as proxyholder other than the Board nominated proxies named in the Proxy Card when voting by telephone.

 

Via the Internet:  Go to www.proxyvote.com and follow the instructions on the website prior to May 15, 2011 at 11:59 p.m. (Eastern Daylight Time).

 

We provide Internet proxy voting to allow you to vote your Common Shares online, 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.

 

How do I appoint a proxyholder?

 

Your proxyholder is the person you appoint to cast your votes on your behalf. By signing the attached Proxy Card, you appoint Mr. Pearson and Mr. Chai-Onn as your proxyholders to vote your Common Shares at the Meeting. You can choose anyone you want to be your proxyholder; it does not have to be either of the persons we have designated in the Proxy Card. Just write in the name of the person you would like to appoint in the blank space provided in the Proxy Card. Please ensure that the person you have appointed will be attending the Meeting and is aware that he or she will be voting your Common Shares. Proxyholders should speak to our Inspector of Elections upon arriving at the Meeting.

 

If you sign the Proxy Card and do not write in the name of a proxyholder, you appoint Mr. Pearson and Mr. Chai-Onn as your proxyholders, either of whom will be authorized to vote and otherwise act for you at the Meeting, including any continuation after adjournment of the Meeting.

 

How will my shares be voted if I give my proxy?

 

On the Proxy Card, you can indicate how you want your proxyholder to vote your Common Shares, or you can let your proxyholder decide for you by signing and returning the Proxy Card without indicating a voting preference in one or more proposals. If you have specified on the Proxy Card how you want to vote on a particular proposal (by marking, as applicable, FOR, WITHHOLD, AGAINST, ABSTAIN or every one, two or three years), then your proxyholder must vote your Common Shares accordingly.

If you have not specified how to vote on a particular proposal, then your proxyholder can vote your Common Shares as he or she sees fit. Unless you specify voting instructions, Mr. Pearson and Mr. Chai-Onn, as your proxyholders will vote your Common Shares as follows:

 

 

If I change my mind, can I revoke my proxy once I have given it?

 

Yes. Pursuant to section 148(4) of the Canada Business Corporations Act (the “CBCA”), you may revoke any proxy that you have given up until the time of the Meeting by voting again by telephone or over the Internet as instructed above, by signing and dating a new Proxy and submitting it as instructed above, by giving written notice of such revocation to the Corporate Secretary of the Company at our address, by revoking it in person at the Annual Meeting, or by voting at the Annual Meeting. If you choose to submit a proxy multiple times whether by telephone, over the Internet or by mail, or a combination thereof, only your latest vote will be counted. Attendance at the Annual Meeting by a shareholder who has voted by proxy does not alone revoke such proxy. If you are a non-record-holder, you should consult with your broker or other intermediary concerning the method of revoking their proxy.

 

A record shareholder participating in person, in a vote by ballot at the Meeting, will automatically revoke any proxy previously given by that shareholder regarding business considered by that vote.

 

What if amendments are made to these proposals or if other matters are brought before the Meeting?

 

The Proxy Card also gives discretionary authority to proxy nominees with respect to amendments or variations to proposals identified in the Notice of Meeting or other matters that may come before the Meeting.

 

As of the date of this Proxy Statement, the Board is not aware of any such amendments, variations or other matters to come before the Meeting. However, if any such changes that are not currently known to the Board should properly come before the Meeting, the Common Shares represented by the Board nominated proxies will be voted in accordance with the best judgment of such proxies.

 

Who is soliciting my proxy?

 

The Board is soliciting your proxy for use at the Meeting. All associated costs of solicitation will be borne by the Company. It is expected that the solicitation will be primarily by mail, but proxies may also be solicited personally, by advertisement or by telephone, by Directors, officers or employees of the Company without special compensation, or by the Company’s proxy solicitor, Georgeson Inc. (“Georgeson”) for a fee of $9,000 plus reimbursement of reasonable out-of-pocket expenses. The cost of soliciting will be borne by the Company. The Company may, at its own expense, pay those entities holding Common Shares in the names of their beneficial owners for their reasonable expenses in forwarding solicitation materials to their beneficial owners. We anticipate that copies of this Proxy Statement and the accompanying Proxy Card will be distributed to shareholders on or about April 14, 2011.

How can I contact the independent Directors, the Lead Director and/or the Chairman of the Board?

 

You may contact the independent Directors, the Lead Director and/or the Chairman of the Board with the assistance of the Company’s Investor Relations Department. Shareholders or other interested persons can send a letter, email or fax to:

 

Valeant Pharmaceuticals International, Inc.

Investor Relations

7150 Mississauga Road

Mississauga, ON L5N 8M5

Canada

Phone: 905-286-3000

Fax: 905-286-3050

Email: ir@valeant.com

 

Whom should I contact if I have questions concerning the Proxy Statement or the Proxy Card?

 

If you have questions concerning the information contained in this Proxy Statement or require assistance in completing the Proxy Card, you may contact Valeant Investor Relations as provided above.

 

How can I contact the transfer agent?

 

You may contact the transfer agent by mail or by telephone (within Canada and the United States):

 

CIBC Mellon Trust Company

P.O. Box 7010

Adelaide Street Postal Station

Toronto, ON M5C 2W9

Canada

Tel: (for all security transfer inquiries): 1-800-387-0825 or 416-643-5500

Fax: 416-643-5501

 

 

The number of Director nominees to be elected at the Meeting is 10. Under the Company’s By-laws, Directors are elected annually. Directors elected at the Meeting will hold office until the close of the 2012 Annual Meeting of Shareholders of the Company or until their successors are duly elected or appointed. In an uncontested election, any nominee who receives a greater number of votes “withheld” from his or her election than votes “for” such election is required to tender his or her resignation promptly following the failure to receive the required vote. The Nominating and Corporate Governance Committee is then required to make a recommendation to the Board as to whether it should accept such resignation. Thereafter, the Board is required to decide whether to accept such resignation, and it must disclose its decision. Full details of this policy are set forth in our Corporate Governance Guidelines, available on our website at www.valeant.com (under the tab “About Valeant” and under the subtab “Corporate Governance”).

 

On September 28, 2010, Biovail Corporation (“Biovail”) completed its acquisition of Valeant Pharmaceuticals International (“VPI”) through a wholly-owned subsidiary pursuant to an Agreement and Plan of Merger, dated as of June 20, 2010, with VPI surviving as a wholly-owned subsidiary of Biovail (the “Merger”). Biovail changed its name to “Valeant Pharmaceuticals International, Inc.” upon closing of the Merger. The Company’s 10 Director nominees were continuing Directors or appointed Directors upon the consummation of the Merger and pursuant to the Agreement and Plan of Merger. All 10 Director nominees are incumbent Directors and each has established his or her eligibility and willingness to serve on the Board. Set forth below are the names of the Director nominees together with details about their backgrounds and experience. Also indicated is the number of the Company’s securities beneficially owned, controlled or directed, directly or indirectly, by each of the Director nominees as of

March 15, 2011. You will find a record of attendance for each Director nominee at meetings of the Board and Board committees on which such Director nominee served from January 1, 2010 to March 15, 2011.

 

Nine of the 10 Director nominees are independent within the meaning of all applicable securities regulatory and stock exchange requirements in Canada and the U.S. In addition, in accordance with the applicable Board committee charters, all members of the Finance and Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are independent.

 

Unless otherwise instructed, the designated proxyholders in the enclosed Proxy Card intend to vote FOR the election of the 10 Director nominees proposed by the Board in this Proxy Statement. If, for any reason, at the time of the Meeting any of these Director nominees are unable or unwilling to serve and unless otherwise specified in the signed Proxy Card, it is intended that the proxyholders designated in the Proxy Card will vote in their discretion for a substitute nominee or nominees.

 

Whether or not you plan to attend the Meeting, we ask that you complete and return the enclosed Proxy Card.

 

The Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become Directors and recommending such individuals to the Board for nomination for election by the Company’s shareholders.

 

In making recommendations to the Board for new nominees for election or appointment, the Nominating and Corporate Governance Committee considers the selection criteria approved by the Board from time to time, including the competencies and skills that the Board considers to be necessary for the Board to possess, as a whole, and for each Director to possess.

 

The Nominating and Corporate Governance Committee will also consider recommendations for Director nominees submitted by the Company’s shareholders. Shareholders who desire to have the Nominating and Corporate Governance Committee consider their recommendations for nominees for the position of Director should submit their submission in writing to the Nominating and Corporate Governance Committee, attention: Mr. G. Mason Morfit, Chairperson. In order for a shareholder’s Director nominee to be included in the management proxy circular and proxy statement as a nominee for an annual meeting of shareholders, such shareholder’s nomination must satisfy the criteria and procedures prescribed in our By-laws. For additional information regarding the deadlines for submitting such recommendations for the 2012 Annual Meeting of Shareholders, please see the discussion below under “Shareholder Proposals and Director Nominations for the 2012 Annual Meeting of Shareholders.” Recommendations made by shareholders in such manner will undergo the same evaluation as other recommended nominees. For more detailed information on this evaluation process please refer to the charter of the Nominating and Corporate Governance Committee (the “Nominating and Corporate Governance Committee Charter”) which is available on the Company’s website at www.valeant.com (under the tab “About Valeant” and under the subtab “Corporate Governance”).

 

The Nominating and Corporate Governance Committee endeavors to recommend to the Board individuals possessing certain qualities such that the resulting Board will be comprised of a diverse membership. The Nominating and Corporate Governance Committee views diversity in a broad context and may consider factors including race, gender, geography, industry experience and personal experience. While the Board does not have a formal diversity policy, the Nominating and Corporate Governance Committee believes that it achieves an appropriate level of diversity by recommending individuals possessing a wide range of attributes, competencies, characteristics and experiences, including the following:

 

Pharmaceutical Industry Expertise:  The Board values Directors with experience in the life science and pharmaceutical industry who can draw on their functional expertise and industry relationships to assist the Board and management in executing the Company’s strategy.

 

International Business Experience:  To complement the Company’s operations in North America, Latin America, Central Europe, Australia and Barbados, the Board seeks to have Directors with a global

business perspective who can assist the Board and management in successfully navigating the business, political, legal and regulatory environments in the countries in which the Company conducts, or seeks to conduct, its business.

 

Financial Literacy:  The Board believes that it is important for its Directors to possess significant financial reporting, compliance and accounting expertise. Among other functions, the Board and the Finance and Audit Committee have oversight responsibility with respect to the quality and integrity of the Company’s financial statements, the performance of the Company’s senior executives, the internal and external audit functions, and internal and disclosure controls. It is therefore important that Directors are financially knowledgeable.

 

Corporate Governance Experience:  The Board is responsible for the stewardship of the Company and supervising its management, business and affairs, in addition to being responsible for adopting and monitoring the Company’s corporate governance guidelines and policies. In order to carry out these responsibilities, it is important that the Board be comprised of individuals who understand corporate governance issues, the various constituencies interested in such issues, and have a proven track record of sound business judgment, integrity and high ethical standards. Many of the Company’s Director nominees serve on public company boards in multiple jurisdictions, including the United States and Canada.

 

Executive Leadership:  The Board believes that it is important for its Directors to possess strong management experience at senior corporate levels. It is important that the Board be comprised of individuals who have held senior management positions with companies or business entities who have experience with mergers, acquisitions and strategic business transactions and who have a strong background in implementing, managing and overseeing strategic planning and business development initiatives. A number of the Company’s Director nominees possess extensive leadership experience and have held a number of senior management and leadership positions with global organizations.

 

Each of the persons listed below is an incumbent Director and has been nominated by the Board for re-election. If elected, an individual will hold office until the close of the 2012 Annual Meeting of Shareholders or until his or her successor is duly elected or appointed.

 

The following narrative provides details about each of the nominees’ background and experience and summarizes the specific attributes, competencies and characteristics, and the Nominating and Corporate Governance Committee’s and the Board’s determination of such individual as a Director nominee for election by the shareholders at the Meeting. In addition, the narrative lists the number of meetings of the Board or applicable committee each nominee attended between January 1, 2010 and March 15, 2011 and lists the directorships of public companies held by the nominees during the past five years other than the Company. The narrative also sets out the number of securities of the Company each nominee beneficially owned, controlled or directed, directly or indirectly, as of March 15, 2011. The number of options, as set out below, indicates options previously awarded to Directors under our stock option plans. Commencing in 2005, non-management Directors began receiving deferred share units (“DSUs”), rather than options. Information as to securities beneficially owned, controlled or directed, directly or indirectly, is not within our knowledge and therefore has been provided by each nominee.

 

 

 

 

 

 

 

 

 

 

 

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 designated to maintain alignment with shareholder interests and key governance best practices.

 

Director Independence

 

The Board believes that in order to be effective our Board must be able to operate independently of management. The charter of the Board (the “Board Charter”) requires that at least two-thirds of Directors be independent. The Board Charter defines an “independent director” as a Director who (i) is independent as defined for the purposes of Board composition under applicable regulatory and stock exchange requirements in the United States and Canada, and (ii) does not, as affirmatively determined by the Board, have a direct or indirect material relationship with the Company or a subsidiary of the Company (either directly or indirectly as a partner, shareholder or officer of an organization that has a relationship with the Company). A “material relationship” is defined as a relationship (whether financial, personal or otherwise), which could, in the reasonable view of the Board, interfere with the exercise of a Director’s independent judgment or could potentially influence a Director’s objectivity in meetings of the Board in a manner that would have a meaningful impact on a Director’s ability to satisfy requisite fiduciary standards. The Board Charter also requires that the Directors constituting at least two-thirds of Directors must be independent of all shareholders who own or control 10% or more of the Common Shares. The Board Charter is available on our website at www.valeant.com (under the tab “About Valeant” and under the subtab “Corporate Governance”).

 

As described in our Corporate Governance Guidelines available on our website at www.valeant.com (under the tab “About Valeant” and under the subtab “Corporate Governance”), the Nominating and Corporate Governance Committee, as well as the Board, reviews the relationships that each Director has with the Company in order to satisfy itself that these independence criteria have been met. On an annual basis, as part of our disclosure

procedures, all Directors complete a questionnaire pertaining to, among other things, share ownership, family and business relationships and Director independence standards. The Board must then disclose in the Company’s annual management proxy circular and proxy statement the identity of each of the independent Directors and the basis for the Board’s determination of the independence for the independent Directors.

 

The Board is currently comprised of 10 members. The Board has determined that nine of our 10 current Directors (or 90%) are “independent directors” within the meaning of applicable regulatory and stock exchange requirements in Canada and the United States and the Board Charter. The nine independent Directors are Mr. Ingram (Lead Director), Mr. Melas-Kyriazi, Mr. Morfit, Dr. Paul, Mr. Power, Ms. Provencio, Mr. Segal, Ms. Stevenson and Mr. Van Every. Mr. Pearson, as our CEO, has a material relationship with the Company and, therefore, is not independent and is not eligible to serve on the Finance and Audit Committee, the Compensation Committee or the Nominating and Corporate Governance Committee.

 

With the exception of Mr. Pearson, who has entered into an employment agreement with us as CEO, none of our Directors has entered into service or similar contracts with us.

 

The table below sets forth each current Director’s membership on the Board Committees.

 

 

 

Notes:

 

 

Board Leadership Structure

 

The Board Charter provides that the Chairman of the Board is not required to be an independent Director. The Board believes that the most effective Board leadership structure for the Company at the present time is for the CEO to serve as Chairman of the Board in conjunction with the appointment of a Lead Director as described below. Combining the positions of Chairman and CEO provides the Company with decisive and effective leadership. The Board believes that Mr. Pearson’s in-depth knowledge of the Company’s operations and vision for its development make him the best qualified person to serve as both Chairman and CEO. Because the CEO is ultimately responsible for the day-to-day operation of the Company and for executing the Company’s strategy, and because the performance of the Company is an integral part of Board deliberations, the Board believes that Mr. Pearson is the Director most qualified to act as Chairman of the Board. The Board also believes that its existing corporate governance practices achieve independent oversight and management accountability.

 

The Board Charter provides that whenever the Chairman of the Board is not independent, the independent Directors of the Board shall appoint an independent Lead Director, who will assume the responsibilities set forth in the Company’s Position Description for the Lead Director on the Company’s website. These responsibilities include: (i) fostering processes that allow the Board to function independently of management and encouraging

open and effective communication between the Board and management of the Company; (ii) providing input to the Chairman on behalf of the independent Directors with respect to Board agendas; (iii) presiding at all meetings of the Board at which the Chairman is not present as well as regularly scheduled in camera sessions of independent Directors; and (iv) having the authority to call meetings of the independent Directors. Our independent Directors have appointed Mr. Ingram as the Lead Director.

 

Meetings of Independent Directors

 

The independent Directors currently meet in camera at all regularly scheduled Board meetings. From January 1, 2010 to March 15, 2011, seven such meetings of independent Directors were held.

 

Meetings of the Board

 

Pursuant to the Board Charter, the Board meets regularly, at least four times per year on a quarterly basis. Additional meetings can be called when necessary. The Board meets annually to review our strategic plan. From January 1, 2010 to March 15, 2011, there were seven regularly scheduled meetings (six in 2010 and one in 2011) and 21 ad hoc meetings of the Board were held to review specific matters (17 in 2010 and four in 2011). All agendas of the meetings are set by the Chairman of the Board in consultation with the Board committee Chairpersons and the Lead Director, as necessary. Four out of 10 of our Directors, Dr. Paul and Messrs. Power, Segal and Van Every, served as Directors of the Company prior to the completion of the Merger. All four Directors attended the Company’s Annual and Special Meetings of Shareholders in 2010.

 

In accordance with the Board Charter, in order to transact business at any Board meeting, at least 60% of the Directors present must be “independent” within the meaning set out in the Board Charter. In 2010, and through March 15, 2011, all of the meetings of the Board had at least 60% of independent Directors participated.

 

Absent compelling circumstances, Directors who do not attend (in person or via teleconference) at least 75% of Directors’ meetings since a Director was last elected or appointed will not be recommended for nomination the following year. All the nominees for election to the Board attended at least 75% of the Board meetings since he or she was last elected or appointed.

 

The attendance records at Board and committee meetings for each Director from January 1, 2010 to March 15, 2011 are set forth below:

 

 

 

Notes:

 

 

 

Board Charter

 

The Board is responsible for the overall stewardship of the Company and its business, including supervising the management of the Company’s business and affairs. The Board discharges this responsibility directly and through delegation of specific responsibilities to committees of the Board and our officers. As set out in the Board Charter, the Board has established four committees to assist with its responsibilities: the Finance and Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Risk and Compliance Committee. Each committee has a charter defining its responsibilities.

 

Under the Board Charter, which is reviewed at least annually, the Board is responsible for, among other things, the following:

 

 

Position Descriptions

 

The Board has developed written position descriptions for the Chairman of the Board, the Lead Director in the event that the Chairman is not independent, and for the Chairperson of each Board committee. The Board has also developed a written position description for the CEO. The position descriptions are posted on our website at www.valeant.com (under the tab “About Valeant” and under the subtab “Corporate Governance”). The position descriptions are reviewed and updated annually.

 

Orientation and Continuing Education

 

The Nominating and Corporate Governance Committee oversees the Board’s continuing education program which was developed to assist Directors in maintaining or enhancing their skills and abilities as Directors and updating their knowledge and understanding of the Company and the pharmaceutical industry. New Directors are

oriented to the roles of the Board and the Directors and the business and affairs of the Company through discussions with the Company’s management and the incumbent Directors and by periodic presentations from senior management on major business, industry and competitive issues. Management and outside advisors provide information and education sessions to the Board and its Committees as necessary to keep the Directors up-to-date with corporate governance requirements best and practices, the Company and its business and the environment in which it operates, as well as developments in the responsibilities of Directors. Directors may also attend outside conferences and seminars that are relevant to their roles at the Company’s expense, with the approval of the Chairman of the Board.

 

Ethical Business Conduct

 

Standards of Business Conduct

 

The Board has adopted a written code of business conduct and ethics entitled the Standards of Business Conduct (the “Standards”) for our Directors, officers and employees that sets out the Board’s expectations for the conduct of such persons in their dealings on behalf of the Company. Employees, officers and Directors are required to maintain an understanding of, and ensure that they comply with, the Standards. Supervisors are responsible for maintaining awareness of the Standards and for reporting any deviations to management. In addition, the Standards require the Company to conduct regular audits to test compliance with the Standards. Subject to Board approval, responsibility for the establishment and periodic update and review of the Standards falls within the mandate of the Risk and Compliance Committee.

 

Employees, officers and Directors are required to immediately report violations of the Standards to their supervisors, our human resources department, our Chief Compliance Officer or our General Counsel. The Board has established confidential reporting procedures in order to encourage employees, officers and Directors to raise concerns regarding matters addressed by the Standards on a confidential basis free from discrimination, retaliation or harassment. Employees and officers who violate the Standards may face disciplinary actions, including dismissal. The Board is not aware of any material breaches of the Standards since January 1, 2010.

 

Code of Professional Conduct

 

We also have a Code of Professional Conduct for the Senior Finance Executives (the “Code”), which is designed to deter wrongdoing and promote (i) honest and ethical conduct in the practice of financial management, (ii) full, fair, accurate, timely and understandable disclosure, and (iii) compliance with all applicable laws and regulations. Violations of the Code are reported to the Chief Compliance Officer. Failure to observe the terms of the Code may result in disciplinary action, including dismissal.

 

The Standards and the Code are available on our website at www.valeant.com (under the tab “About Valeant” and under the subtab “Corporate Governance”). These documents are also available in print to shareholders upon request. Shareholders may submit their request to Investor Relations, Valeant Pharmaceuticals International, Inc., 7150 Mississauga Road, Mississauga, Ontario, Canada, L5N 8M5.

 

We intend to satisfy any disclosure requirements regarding amendments to, or waivers from, any provision of the Standards or the Code by posting such information on the Company’s website at www.valeant.com, under the tab “About Valeant” and under the subtab “Corporate Governance.”

 

Risk Oversight

 

Our Board participates in risk management oversight, with a view of supporting the achievement of organizational objectives, including strategic objectives, improving long-term organizational performance and enhancing shareholder value. While the Board has ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibility for monitoring risk management in specific areas. For example, the Finance and Audit Committee focuses on financial risk, including internal controls, and receives an annual risk assessment report from the Company’s internal auditors. In addition, in setting compensation, the Compensation Committee strives to create incentives to implement the Company’s business strategy while considering the risks that may be presented by the structure of potential compensation programs. In addition,

the Company has a Risk and Compliance Committee to which the Board delegates the responsibility for general risk oversight.

 

Board Committees

 

The Board has six committees: the Finance and Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, the Risk and Compliance Committee, the Special Independent Committee and the Transactions Committee. No member of any committee is presently an employee of the Company or its subsidiaries. The specific responsibilities of each of the Finance and Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Risk and Compliance Committee are identified in such committee’s charter. A copy of each charter is available on our website at www.valeant.com (under the tab “About Valeant” and under the subtab “Corporate Governance”) and are also available in print to shareholders upon request submitted to Investor Relations, Valeant Pharmaceuticals International, Inc., 7150 Mississauga Road, Mississauga, Ontario, Canada, L5N 8M5. The responsibilities of the Special Independent Committee and the Transactions Committee were identified by the Board in establishing each such committee.

 

The Chairman of the Board, our Lead Director, and the Chairperson of each Committee will be available to respond to questions from shareholders at the Annual Meeting.

 

Finance and Audit Committee

 

Since the effectiveness of the Merger on September 28, 2010, the Finance and Audit Committee has been comprised of four Directors, Mr. Van Every (Chairperson), Mr. Melas-Kyriazi, Ms. Provencio and Ms. Stevenson, each of whom is an independent Director as defined by applicable regulatory and stock exchange requirements and the Board Charter. The Board has concluded that each member of the Finance and Audit Committee is “financially literate” as defined under National Instrument 52-110 and each is an “audit committee financial expert” under the regulations promulgated by the Securities and Exchange Commission.

 

The Finance and Audit Committee operates pursuant to a written charter (the “Audit Committee Charter”). Its responsibilities include, among other things, responsibility for reviewing and recommending to the Board our annual financial statements and management’s discussion and analysis of results of operation and financial condition (“MD&A”) and reviewing and approving our interim financial statements and MD&A. As contemplated in the Audit Committee Charter, the Finance and Audit Committee meets with our internal auditor and with our external auditors without management being present. The Finance and Audit Committee also recommends to the Board the external auditors to be nominated and their compensation.

 

In accordance with the Audit Committee Charter, the Finance and Audit Committee also provides assistance to the Board in fulfilling its oversight function with respect to:

 

 

The Audit Committee Charter provides that no member of the Finance and Audit Committee may serve simultaneously on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service would not impair his or her ability to serve effectively on the Finance and Audit Committee.

Compensation Committee

 

Since September 28, 2010, the Compensation Committee has been comprised of Mr. Power (Chairperson), Mr. Morfit and Ms. Provencio, all of whom are independent as defined by applicable legislation, regulation and stock exchange rules. None of the members of the Compensation Committee is currently a CEO of a publicly traded entity. The responsibilities, powers and operation of the Compensation Committee are set out in the written charter of the Compensation Committee (the “Compensation Committee Charter”). The Compensation Committee Charter requires that all members of the Compensation Committee be independent within the meaning of applicable regulatory and stock exchange requirements and the Board Charter.

 

As described in the Compensation Committee Charter, the key responsibilities of the Compensation Committee include:

 

 

Compensation

 

For details on the philosophy and approach adopted by the Compensation Committee with respect to compensation of our officers and Directors, please see “Compensation Discussion and Analysis” and “Director Compensation.”

 

The Compensation Committee has the authority to retain and compensate any consultants and advisors it considers necessary to fulfill its mandate. In addition, the Compensation Committee Charter provides that any additional work or non-Board based services conducted by any such compensation consultant retained by the Compensation Committee shall be pre-approved by the Chairperson of the Compensation Committee.

 

Annually, the Compensation Committee selects and retains independent consultants to conduct comprehensive reviews and assessments of our policies, procedures and internal controls for setting compensation of the CEO and other members of senior management. The consultant prepares and submits a report to the Compensation Committee. As discussed below under “Compensation Discussion and Analysis — Peer Group and Benchmarking Competitive Pay — Compensation Consultants”, in 2010, the Compensation Committee retained Hugessen Consulting Inc. (“Hugessen”) as a third-party consultant to provide advice on compensation matters. The service provided by Hugessen to the Compensation Committee included the following: (a) reviewing our executive compensation programs, including base salary, short-term incentives, equity-based incentives, total cash compensation levels and total direct compensation of certain senior positions, against those of a comparator group of similar-sized pharmaceutical companies as measured by revenue and/or market capitalization; (b) making recommendations for the compensation package of the CEO; and (c) assisting in developing and implementing revisions to the Company’s existing equity-based incentive plan. From September 2010 to December 31, 2010, the Compensation Committee also retained ClearBridge Compensation Group (“Clearbridge”) as a third-party consultant to provide advice on compensation matters. Clearbridge provides advice and recommendations to the Compensation Committee on the amount or form of executive and Director compensation, and equity incentive awards and programs. All of the services provided by Hugessen and Clearbridge during the fiscal year 2010 were provided to the Compensation Committee and Hugessen and Clearbridge did not provide any additional services to the Company during the fiscal year 2010. Fees paid to Hugessen in 2010 were CDN$269,810.10 and fees paid to

Clearbridge in 2010 were $236,335 (which includes amounts paid in respect of services provided to VPI in September 2010 prior to the Merger).

 

The Compensation Committee considers the advice and analysis of the third party compensation consultants, together with other factors the Compensation Committee considers appropriate (including market data, knowledge of the comparator group and personal knowledge and experience of the Compensation Committee members), in reaching its decisions and making compensation recommendations to the Board.

 

Compensation Risk Determination

 

The Compensation Committee assessed of the potential risks relating to our compensation policies and practices for our employees, including those related to our executive compensation programs. It considered our compensation policies and practices, identified potential risk and considered mitigating factors. The Compensation Committee discussed the findings of its risk assessment with management. Based upon its assessment, the Compensation Committee determined that our compensation policies and practices do not encourage excessive or unnecessary risk-taking and are not reasonably likely to have a material adverse effect on the Company.

 

Nominating and Corporate Governance Committee

 

Since September 28, 2010, the Nominating and Corporate Governance Committee has been comprised of Mr. Morfit (Chairperson), Mr. Ingram, Mr. Power and Mr. Segal, each of whom is an independent Director as defined by applicable regulatory and stock exchange requirements. The responsibilities, powers and operation of the Nominating and Corporate Governance Committee are set out in the written charter (the “Nominating and Corporate Governance Committee Charter”). The Nominating and Corporate Governance Committee Charter requires that all members of the Nominating and Corporate Governance Committee be independent within the meaning of applicable regulatory and stock exchange requirements and the Board Charter.

 

As described in the Nominating and Corporate Governance Committee Charter, the key responsibilities of the Nominating and Corporate Governance Committee include:

 

 

 

Prior to September 2010, the Nominating and Corporate Governance Committee retained Levin & Company, an independent United States based board advisory firm, to assist in the annual evaluation of the performance and effectiveness of the Board and its committees. After the consummation of the Merger in September 2010, the Board retained ghSmart to assist in the annual evaluation of the performance and effectiveness of the Board and its Committees. The Board has also formalized share ownership guidelines for non-management Directors. For more information regarding the compensation of Directors, please see “Compensation of Directors” below. Levin & Company did not provide any additional services to the Company during the fiscal year 2010.

 

Risk and Compliance Committee

 

The Board has delegated, pursuant to a written charter, its responsibility for risk oversight to the Risk and Compliance Committee, which, since September 28, 2010, is comprised of Mr. Melas-Kyriazi (Chairperson), Dr. Paul, Ms. Stevenson and Mr. Van Every. The Risk and Compliance Committee assists the Board in discharging its duties in this regard by identifying, assessing, monitoring and controlling critical risks facing us, including regulatory risks and other principal risks associated with our business.

 

As described in its charter, the key responsibilities of the Risk and Compliance Committee include:

 

 

 

Special Independent Committee

 

In June 2009, the Board established a Special Independent Committee to review finalization of a civil settlement agreement including the Corporate Integrity Agreement. The Special Independent Committee has also undertaken to review reports and oversee the implementation of recommendations generated from reports submitted by an independent consultant retained by the Board pursuant to a consent of final judgment filed in the United States District Court for Southern District of New York, in the matter of the SEC and the Company, et al. Since September 2010, the Special Independent Committee has been composed of Ms. Provencio (Chairperson) and Mr. Van Every.

 

Transactions Committee

 

In September 2010, the Board established a Transactions Committee to review and, if appropriate, approve certain transactions. The Transactions Committee has been composed of Dr. Paul (Chairperson), Mr. Melas-Kyriazi, Mr. Morfit and Mr. Segal.

 

Cease Trade Orders

 

From 1995 until August 2007, Ms. Stevenson was an executive of Nortel Networks Corporation (“Nortel”) and, from 2000 until 2006, Mr. Ingram was a director of Nortel. From May 2004 until on or about June 21, 2005 and from April 10, 2006 until on or about June 9, 2006, a number of directors, senior officers and employees of Nortel, including Ms. Stevenson and Mr. Ingram, were prohibited from trading in securities of Nortel and Nortel Networks Limited pursuant to management cease-trade orders issued by certain Canadian provincial securities regulators.

 

These cease-trade orders were issued in connection with the delay in filing certain financial statements by Nortel and Nortel Networks Limited and were lifted following the filing of these financial statements.

 

The Compensation Committee is composed of Messrs. Power and Morfit and Ms. Provencio, each of whom is a non-employee Director for purposes of Rule 16b-3 of the Exchange Act, as amended. Prior to the Merger, Robert Power, Spencer Lanthier, Mark Parrish and Larry Paul served as members of the Compensation Committee. None of these directors is a current or former officer of the Company. There were no compensation committee interlocks with other companies in 2010 within the meaning of Item 407(e)(4)(iii) of Regulation S-K. See “Certain Transactions — Certain Related-Person Transactions” below for a description of related-person transactions.

 

The executive officers of the Company are as follows:

 

 

Below is a description of each executive officer who is not also a Director of the Company.

 

RAJIV DE SILVA has been the President of the Company and Chief Operating Officer of Specialty Pharmaceuticals since the consummation of the Merger. From January 2009 to September 2010, Mr. De Silva was the Chief Operating Officer of Specialty Pharmaceuticals of VPI. Prior to that, Mr. De Silva held various leadership positions with Novartis AG. He was President of Novartis Vaccines USA and Head of Vaccines of the Americas since 2007, during which time he played a key leadership role at Novartis’ Vaccines & Diagnostics Division and served as a member of the executive committee of Novartis Vaccines & Diagnostics. From 2005 to 2007, he served as President of Novartis Pharmaceuticals Canada. He originally joined Novartis as Global Head, Strategic Planning for Novartis Pharma AG, in Basel, Switzerland, in 2003. Prior to his time at Novartis, Mr. De Silva was a principal at McKinsey, where he focused his consulting practice on the pharmaceutical industry. During his nine years at McKinsey, he led multiple efforts related to pharmaceutical strategy, sales and marketing, research and development operations, organization design, and mergers and acquisitions.

 

PHILIP W. LOBERG has been our Executive Vice President and Interim Chief Financial Officer since December 2010. Mr. Loberg was appointed Senior Vice President, Group Financial Controller upon the consummation of the Merger in September 2010. From 2000 to September 2010, he held various leadership positions at VPI such as Treasurer and Chief Financial Officer of North America and Senior Vice President, Group Financial Controller. Prior to 2000, Mr. Loberg was the Vice President and Controller at Calcomp Technology, Inc., a publicly traded, majority-owned subsidiary of Lockheed Martin Corporation, and was its acting chief financial officer early in his tenure.

 

ROBERT R. CHAI-ONN has been our Executive Vice President, General Counsel and Corporate Secretary since the consummation of the Merger. From 2004 to September 2010, Mr. Chai-Onn was Vice President, Assistant General Counsel at VPI. Prior to that, he was a corporate lawyer at the law firm of Gibson, Dunn & Crutcher LLP, where he performed a variety of corporate, M&A and financial legal work.

 

MARK DURHAM has been our Senior Vice President, Human Resources since April 2008. He joined the Company in 2003 as Vice President, Corporate Human Resources. Prior to that, he served at Pharmacia Corporation as Vice-President, Human Resources for Global Marketing and North American country operations from 2000 to 2003. Previously, he spent 15 years with Pharmacia and Upjohn, and held senior Human Resources positions in the United States, Asia and Canada. In addition to Human Resources, Mr. Durham has held positions in Manufacturing and Sales Operations.

 

RICHARD K. MASTERSON was appointed President and Chief Operating Officer of Valeant International (Barbados) SRL (formerly Biovail Laboratories International SRL) (“VIBS”) and a director on its board in January 2011. VIBS is a wholly-owned subsidiary in Barbados, which is a significant operating subsidiary of the Company. From 2004 to 2010, Mr. Masterson was Executive Vice President of Business Development at VPI. Prior to that, he worked at TAP Pharmaceuticals Inc. where he was General Manager of the Lupron franchise, and Vice President of Licensing. Prior to assuming responsibility for licensing at TAP, Mr. Masterson held positions of steadily increasing responsibility in the marketing and business development departments.

 

None of the executive officers of the Company 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 the Company.

OWNERSHIP OF THE COMPANY’S SECURITIES

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

The following table sets forth certain information regarding the beneficial ownership of our Common Shares and the percentage of Common Shares owned beneficially by holders of more than 5% of our outstanding Common Shares as of March 15, 2011.

 

 

This table is based upon information supplied by the principal shareholders and Forms 13F and Schedules 13D and 13G filed with the SEC and “early warning reports” and similar regulatory filings filed on SEDAR. Unless otherwise indicated in the footnotes to this table, we believe that the shareholders named in the table have sole voting and investment power with respect to the Common Shares indicated as beneficially owned.

 

 

 

The following table sets forth, as of March 15, 2011, certain information regarding the beneficial ownership of our Common Shares and the percentage of shares beneficially owned by each Director, each Director nominee and (i) the persons serving as CEOs of the Company during 2010, (ii) the persons serving as Chief Financial Officers of the Company during 2010, (iii) the other three most highly paid executive officers of the Company who were serving as executive officers at December 31, 2010, and (iv) the two most highly paid executive officers of the Company who served during 2010 but were not serving as an executive officer at December 31, 2010 but who would have been included in our most highly paid executive officers had they been serving as executive officers on December 31, 2010 (together, the “Named Executive Officers”), and all current Directors, Director nominees and current and former executive officers of the Company as a group.

 

 

 

 

 

Section 16(a) of the Exchange Act requires the Company’s executive officers and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and the New York Stock Exchange (“NYSE”). Such executive officers, Directors and shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

Based solely upon its review of the copies of such forms it received, or written representations from certain reporting persons for whom no such forms were required, the Company believes that during fiscal year 2010, the following of its executive officers, Directors and 10 percent beneficial owners failed to timely file all forms required by Section 16(a): Mr. Wells filed one late Form 4 covering awards of deferred share units and Mr. Chai-Onn filed one late Form 4 covering six transactions involving awards of stock options converted in connection with the Merger.

 

EXECUTIVE COMPENSATION AND RELATED MATTERS

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

 

This Compensation Discussion and Analysis discusses the key initiatives of the Compensation Committee in 2010 and explains the material elements of the 2010 compensation of our Named Executive Officers. The Merger

created a large increase in total shareholder return (“TSR”) for the Company’s and VPI’s respective shareholders. After the Merger, J. Michael Pearson, the former Chairman and CEO of VPI, became the CEO of the Company and we have essentially adopted the key elements of VPI’s successful compensation strategy. One critical element of VPI’s success was motivating, retaining and, ultimately, rewarding senior management through a clear pay-for-performance compensation philosophy. The post-Merger company’s approach to compensation has essentially embodied the VPI pay-for-performance philosophy.

 

Due to the Merger, the resulting changes in our business and individual considerations, there were significant changes to the composition of our Named Executive Officers in 2010. For 2010:

 

 

 

 

 

In recognition of the complexities and work involved in integrating a merger of equals and, going forward, operating a combined larger business, the Compensation Committee, together with the third party compensation consultant, conducted a comprehensive review of the Company’s executive compensation program to ensure that executives are appropriately incentivized in line with the Company’s compensation philosophy.

 

What Is Our Compensation Philosophy?

 

We have adopted a philosophy of pay for performance, aligning our executive compensation program with long-term returns to our shareholders. We want our executives and all of our employees to share in the financial risks and rewards tied to long-term shareholder return. Consistent with this overall goal, the Compensation Committee has established the following objectives for executive compensation: (a) attract, motivate and retain key personnel; (b) link executive compensation to overall corporate performance as measured primarily by TSR; and (c) motivate officers to act in the best interests of the Company and its shareholders. The Compensation Committee reviews our compensation objectives each year, and more frequently as needed, to determine if revisions are necessary in light of our performance, as measured by TSR and other metrics, industry practices and emerging trends, our corporate and strategic goals and other relevant factors.

 

Following the Merger, the Compensation Committee approved new compensation packages for our executive officers (other than Mr. Pearson, whose compensation was not reviewed until early 2011) intended to closely align the financial reward to our executive officers with long-term return to our shareholders. The Compensation Committee has implemented a compensation program for non-executive management with the same key compensation elements applied to our executives, to more closely align with the compensation programs among our management. In determining the new compensation programs, the Compensation Committee was guided by the following principles:

 

 

 

Shareholders should note that our practice of front loading equity grants can result in large reported compensation in the first year of grant. It should also be noted that these grants cover multiple years of service and the vesting of much of the grants are conditioned on achieving high levels of TSR performance.

 

Peer Group and Benchmarking Competitive Pay

 

Compensation Consultants

 

In accordance with the Compensation Committee Charter, the Compensation Committee has sole authority to retain compensation consultants and to approve such consultants’ fees and retention terms. In 2010, the Compensation Committee engaged the services of Hugessen to provide advice on compensation matters and, following the Merger, the Compensation Committee also engaged the services of ClearBridge Compensation Group. Both Hugessen and Clearbridge report directly to the Compensation Committee which has instructed Hugessen and Clearbridge to give it objective advice and without influence by management, and to provide such advice for the benefit of the Company and our shareholders. Neither Hugessen nor Clearbridge provide additional services to the Company other than the services to the Compensation Committee.

 

Peer Group

 

Our primary comparison group for assessing the competitiveness of the pay of our Named Executive Officers is our Peer Group. In determining appropriate companies to be included in the Peer Group, we focus on other companies in the pharmaceutical industry due to the complex regulatory frameworks in which pharmaceutical companies must operate and the risks and commercial constraints and opportunities that are particular to our industry. In addition, as we had several executives in Canada, our 2010 annual compensation review also included a comparative analysis against all publicly-traded Canadian companies with revenue between $500 million and $2 billion.

 

For the compensation review conducted in the 2010 pre-Merger period, the comparator group consisted of the following companies:

 

Barr Pharmaceuticals Inc.

Cephalon, Inc.

Charles River Laboratories International, Inc.

Endo Pharmaceuticals Holdings Inc.

King Pharmaceuticals, Inc.

Life Technologies Corporation

Medicis Pharmaceutical Corporation

Mylan Laboratories Inc.

Perrigo Company

Sepracor Inc.

Watson Pharmaceuticals, Inc.

Valeant Pharmaceuticals International

 

The Company significantly increased in size as a result of the Merger. On June 19, 2010, the day prior to the announcement of the Merger agreement, the Company’s market capitalization was $2.3 billion. On the date that the Merger was completed, September 28, 2010, our market capitalization was approximately $7.7 billion, representing a 231.4% increase in TSR in less than seven months. The peer group was accordingly modified to reflect the increased size of the post-Merger Company by eliminating some companies from the peer group and adding other companies. The following peer group was used as an input to setting compensation levels for the post-Merger executive team:

 

Allergan Inc

Biogen Idec Inc

Cephalon Inc

Endo Pharmaceuticals Holdings Inc.

Forest Laboratories

King Pharmaceuticals Inc

Mylan Laboratories Inc

Perrigo Co

Shire Plc

Warner Chilcott Plc

Watson Pharmaceuticals, Inc

 

Benchmarking

 

In benchmarking our total compensation for our Named Executive Officers, the Compensation Committee used the assistance of Hugessen Consulting Inc. and, following the Merger, Clearbridge Compensation Group. The Compensation Committee consultants review compensation among our peer group for executives in similar roles (e.g., CEO, CFO, General Counsel) or of similar pay rank (e.g., second highest paid executive). The Compensation Committee bases its overall benchmark on total compensation, which is comprised primarily of base salary, annual cash incentive bonus and the annualized value of long-term equity incentives, but preserves flexibility to make adjustments to general reference points to respond to, and adjust for, the evolving business environment. In addition, variations occur as dictated by the experience level of the individual, geographical market factors, individual performance and prior commitments under negotiated contracts.

 

Generally, the Compensation Committee targets approximately the 50th percentile of the peer group with respect to total compensation of executives. We seek to leverage total compensation opportunity, with significantly above market compensation for outstanding performance and significantly below market compensation for poor performance. As discussed below, because significant portions of our post-Merger long-term equity incentives are dependent on TSR performance over a multi-year period, our executives may not actually realize the levels of “total compensation” set forth above if the TSR for the relevant performance period does not meet or exceed specified thresholds. The Compensation Committee believes that the higher compensation should correspond with the achievement of high levels of longer-term TSR performance.

 

Determining Compensation

 

The Compensation Committee is responsible for establishing, implementing and monitoring the Company’s executive compensation philosophy and objectives. The Compensation Committee reviews and approves all components of executive pay, recommends or reports its decisions to the Board of Directors (the “Board”), and oversees the administration of the compensation program for senior executives. The Board of Directors, with the assistance of the Compensation Committee, reviews matters related to executive compensation on an as-needed basis.

 

Our CEO prepares a recommendation to the Compensation Committee for base salary, annual incentive and equity grants for each named executive officer, other than the CEO whose compensation is determined solely by the Compensation Committee and the Board. The Compensation Committee then makes recommendations to the Board, which determines the compensation for each named executive officer; alternatively, the Board may delegate the authority to the Compensation Committee to determine executive officer compensation. In determining the

compensation to be awarded to CEO and in reviewing the recommendations as to other Named Executive Officers, the Compensation Committee can consider, among other things:

 

 

Total Compensation

 

Multiple factors are considered in determining our total compensation opportunity, including our compensation philosophy, the executive’s role and responsibility, the executive’s past performance, expected contribution and experience in the role, and the pay practices of our peers. The components of total compensation for Named Executive Officers include: (i) base salary; (ii) incentive pay (including annual incentive cash bonus and long-term equity incentives); (iii) retirement and welfare benefits; and (iv) executive benefits and perquisites. Following the Merger, a significant portion of total compensation is weighted toward long-term equity compensation tied to TSR. In addition, following the Merger, our total compensation opportunity was designed to reflect the new characteristics of the Company and the new roles that the executive officers would serve at the Company.

 

For executive compensation following the Merger in 2010, the aggregate base salaries for the Named Executive Officers who remained employed by the Company through December 31, 2010 approximated 23.5% of the targeted total compensation package, excluding benefits and perquisites. Target annual cash bonus incentives approximated 18.1% of the aggregate target total compensation for such Named Executive Officers. Annualized long-term equity incentives represented about 58.4% of the target annualized total compensation for such Named Executive Officers as a group.

 

In determining the appropriate mix of base salary and incentive pay (including annual incentive cash bonus and long-term equity) for our Named Executive Officers, the Compensation Committee sought to balance: (i) our desire to attract and retain our executives with the stability of salary compensation; (ii) our desire to promote pay for performance or “at-risk” compensation, as we believe that incentive pay appropriately rewards executives for their contribution to our overall performance; and (iii) our desire to align compensation with corporate performance and shareholder value through the use of equity compensation awards.

 

The value of our short-term incentives, in the form of an annual cash bonus, is dependent on the achievement of pre-determined corporate, divisional/functional and individual performance objectives, while the value of our equity based incentives, in the form of stock option and RSU awards (including performance-based RSUs), is derived from the value of our Common Shares. In allocating between short-term and long-term compensation, the Compensation Committee seeks to establish a balance between rewarding past performance and future potential, both of which it views as critical for our executives to exhibit. In that respect, the Compensation Committee designs cash bonuses to reward executives who achieve certain corporate, divisional/functional and individual objectives, while it bases grants of RSU awards on the demonstration of exceptional effort, critical skills and key talents, with a view to rewarding long-term performance. In reaching the optimal balance of salary, bonus and equity compensation, while the Compensation Committee considered the practices of the peer group, the emphasis is on our Company’s growth strategy and incentivizing management to achieve performance goals and longer-term TSR performance, as described in this Compensation Discussion and Analysis.

Base Salary

 

We believe competitive base salaries are necessary to attract and retain an effective management team. 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 reviewed annually as part of our performance review process, as well as upon a promotion or other change in job responsibilities; however, given the significance of other incentive pay, there is not an expectation that base salaries are adjusted annually as a matter of course. Therefore, the overall compensation is more closely tied with TSR performance. To the extent base salaries are adjusted, the amount of any such adjustments would reflect a review of competitive market data, particularly for the peer group, consideration of relative levels of pay internally, consideration of the individual performance of the executive and any other circumstances that the Compensation Committee determines are relevant. In 2010, only Ms. Mulligan received an increase in base salary prior to the Merger; her base salary was increased from $416,000 to $450,000.

 

Following the Merger, the base salaries of our Named Executive Officers (other than Mr. Pearson and Mr. Wells) were increased to reflect the new roles that they would be assuming (which, in many cases, involved significant increases in responsibilities and/or significant promotions) and market practices at the Company’s revised peer group. Mr. DeSilva’s base salary was increased from $425,000 to $750,000, Mr. Chai-Onn’s base salary increased from $278,123 to $550,000, Mr. Durham’s base salary increased from $361,179 to $400,000 (and subsequently to $445,000), and Ms. Mulligan’s base salary was increased from $450,000 to $550,000. At the time of the Merger, Mr. Loberg’s base salary was increased from $258,202 to $300,000 and, in December 2010, when Mr. Loberg assumed the role of Interim Chief Financial Officer, his base salary was increased from $300,000 to $450,000. None of these executives received any increase to their base salary during the annual salary review in March 2011.

 

Short-Term Incentive Pay

 

Because of the significant changes in the Company occurring as a result of the Merger, which closed on September 28, 2010, the post-Merger Compensation Committee elected to pay pre-Merger annual bonus awards under the legacy company incentive plans based on performance during the first three calendar quarters and to establish a bonus program for the fourth calendar quarter based on performance metrics applicable to the combined company. Of our Named Executive Officers that were employed by the Company prior to the Merger, only Mr. Durham was employed by the Company on December 31, 2010. Therefore, while the performance metrics established at the beginning of 2010 for each of our legacy Biovail Named Executive Officers are described below, only Mr. Durham received a bonus based on these metrics. The other legacy Biovail Named Executive Officers, in accordance with their severance agreements, were paid pro-rata bonuses at target levels in connection with their termination of employment.

 

Short-Term Incentive Pay Q1 through Q3

 

Prior to the Merger, our legacy Biovail Named Executive Officers participated in our Short-Term Incentive Plan (“STIP”). Awards under the STIP are calculated by taking into account the achievement of various corporate and divisional/functional objectives, and individual performance. A target bonus is established annually for each executive officer based on a percentage of the executive’s base salary. In respect of 2010, in accordance with his employment agreement, Mr. Wells’ target bonus was 100% of his base salary. In addition, in respect of 2010, our other legacy Biovail Named Executive Officers’ target cash bonuses were set at 60% of their respective base salaries, with the exception of Mr. Durham whose target cash bonus was set at 55% of base salary.

Corporate Objectives

 

For 2010, the corporate and divisional/functional components were given equal weight for the named executive officers, other than Mr. Wells, in order to make our executives sufficiently accountable both for their impact on their business group or division and for the impact of their business group or division on corporate performance. For Mr. Wells, short-term incentives were based 100% on the achievement of corporate goals, in recognition of his role and responsibility for, and impact on, the performance of the Company as a whole. For 2010, we established the following five key Company-wide corporate objectives: (i) Financial; (ii) Corporate and Product Development; (iii) Business Operations; (iv) Risk Management; and (v) Organization. Within the framework of the five corporate objectives described above, set out below are all material corporate objectives together with the related metrics used to measure the extent to which these objectives have been achieved.

 

The Compensation Committee evaluates the extent to which each objective has been achieved and assigns a payout factor to each of the five categories of objectives of up to 150% of target.

 

Divisional/Functional Objectives

 

The Compensation Committee also evaluates each executive’s divisional/functional objectives, which relate to both the business group or division over which that particular executive has responsibility and the individual’s performance as head of such business group or division. The achievement of divisional/functional objectives is based on the achievement by that business group or division of its identified goals over the performance period. The divisional/functional objectives vary from business group to business group and individual to individual based on the type of contributions which are expected of each group or head of each group, as the case may be, toward our key priorities.

 

The divisional/functional objectives each fall within the five previously identified corporate objectives: financial; corporate and product development; business operations; risk management; and organization. Within each of these divisional/functional objective subcategories, a number of specific, measurable objectives are established that reflect each executive’s position and responsibilities. The divisional/functional objectives are reviewed and updated by the Compensation Committee on an annual basis with reference to current market practices and our compensation objectives. The human resources division objectives, applicable to Mr. Durham, were as follows:

 

 

Individual Performance Multiplier

 

Once a preliminary assessment of an executive officer’s cash bonus has been determined based on the achievement of the corporate and divisional/functional performance components, a secondary assessment of overall individual performance is conducted that can either increase, decrease or eliminate entirely the bonus amount

determined by the Compensation Committee’s assessment of such individual’s two performance components. Each officer’s overall performance is reviewed and assigned an individual performance rating. Once the performance rating is assigned, the preliminary bonus amount is increased or decreased by an individual performance multiplier within the range assigned to that particular performance rating.

 

Achievement of Performance Objectives for Q1 through Q3 of 2010

 

Following its review, the Compensation Committee determined that the Company, in the aggregate, had achieved “outstanding results” with respect to its corporate performance component objectives. Because Messrs. Wells, Gubitz and Godin and Ms. Mulligan terminated their employment with the Company prior to the end of 2010, their individual level of achievement was not determined by the Compensation Committee. With respect to Mr. Durham, his level of achievement was assessed against the achievements of the human resources division and his performance as head of the human resources division with reference to the specific goals listed above. It was determined that Mr. Durham had achieved in excess of 100% of such objectives and that his individual performance multiplier would be 1.2. Mr. Durham’s bonus payout in respect of Q1 through Q3 of 2010 was $176,400, which represents 115% of his target bonus.

 

Short-Term Incentive Pay Q4

 

Our Q4 2010 annual incentive cash bonus program (the “Q4 2010 AIP”) in effect for Named Executive Officers who continued to serve as Named Executive Officers following the Merger was based on the achievement of certain financial targets and strategic initiatives. In September, 2010, the Compensation Committee approved corporate financial goals and Company-wide strategic initiatives that applied to all Named Executive Officers. For Q4 2010, the target bonus for the CEO was 100% of his base salary and the target bonus for all other Named Executive Officers was 60% of their base salary for Q4. For each of these metrics, the executive can achieve between 100% of target for base goals and 200% for stretch goals.

 

The Compensation Committee allocated the components of the Q4 2010 AIP bonus as follows:

 

 

The Compensation Committee determines whether the Q4 2010 AIP performance goals have been achieved, but retains the discretion to reduce or eliminate 2010 AIP bonuses for individual executives, even if performance targets are met. In exercising negative discretion, the Compensation Committee may consider the performance of the individual named executive officer or factors, such as level of performance, minimum financial goals or cost targets, applicable to the functional area for which the named executive officer is responsible, the division to which the named executive officer belongs, or the Company as a whole.

 

For Q4 2010, the Compensation Committee determined that each of the financial targets were achieved at a level significantly beyond the stretch levels, and therefore, Q4 bonuses were generally paid at 200% of target levels. In addition, for the Q4 2010 annual cash incentive bonus for Messrs. Loberg and Chai-Onn, the Compensation Committee considered the extraordinary circumstances relating to the Merger and subsequent integration and the substantial increase in their responsibilities associated with operating and growing a larger, more complex business and, accordingly, decided to use its discretion to award Messrs. Loberg and Chai-Onn additional bonuses of approximately $30,000 and $57,000, respectively. Though Named Executive Officers for a portion of Q4 2010, neither Mr. Wells nor Ms. Mulligan received a performance-based bonus payment in respect of Q4 2010 because they were not employed by the Company at year end. As discussed on page 35, they did receive a payment in lieu of their bonus pursuant to their severance arrangements.

Equity-Based Incentive Compensation

 

The Compensation Committee believes that equity compensation aligns our executives’ interests with that of our shareholders and promotes efforts by our executives in the long-term interest of the Company. Grants of equity-based awards are determined by the Compensation Committee. Our equity-based incentive compensation is designed to align our executives’ interests with that of our shareholders, to promote efforts by our executives in the long-term interest of the Company and to incentivize long-term planning among the Company’s executives.

 

Pre-Merger Equity Based Incentive Compensation

 

Prior to the Merger, the Company’s equity-based incentive program was composed of awards of options and RSUs that vest based on the passage of time (“Time-Based RSUs”). Options expire on the fifth anniversary of the date of grant and vest and become exercisable according to the terms of the applicable award agreements as determined by the Board. Time-Based RSUs vest on the third anniversary of the date of the grant. In 2010, prior to the Merger, the Company did not grant any RSUs that vest based on the achievement of specified performance criteria (“Performance-Based RSUs”).

 

Post-Merger Equity Based Incentive Compensation

 

Many of the equity awards granted to legacy VPI Named Executive Officers vested in connection with the Merger (other than equity awards held by Mr. Pearson who waived the accelerated vesting as discussed below). Given the limited amount of unvested equity held by our senior management team following the Merger, the Compensation Committee recognized that it was critical to strengthen the alignment of the new management team with the interests of shareholders. Therefore, in order to secure, retain and incentivize our executives and to provide a means by which our executives could share in the long-term growth and profitability of the Company, shortly following the Merger, the Compensation Committee implemented a pay-for-performance compensation structure that included key elements from VPI’s compensation programs and granted options and PSUs to each of our active Named Executive Officers other than Mr. Pearson. The Compensation Committee viewed VPI’s programs as having the attributes that strongly and appropriately motivate executives and all levels of employees to achieve high levels of TSR.

 

Under this new compensation program, the Compensation Committee implemented guidelines to ensure that a significant portion of total compensation is directly related to the achievement of certain TSR thresholds through awards of long-term equity incentives. The active Named Executive Officers, other than Mr. Pearson, received their equity awards in connection with entering into their employment agreements described below. These grants were front-loaded and intended to incentivize performance over a three-year period. The Compensation Committee does not expect to grant equity awards to its Named Executive Officers annually.

 

Equity grant award levels are determined based on competitive market data, and the individual’s role, past performance and experience. The equity-based awards used to further our objectives were:

 

 

The long-term incentive equity awards granted to Named Executive Officers in connection with the employment agreements largely reflect the incentives VPI granted to Mr. Pearson and other members of the VPI executive team prior to the Merger. These incentives were closely aligned with TSR and included:

 

• Stock Options —

 

 

 

 

 

Mr. Pearson was granted PSUs and stock options in connection with entering his employment agreement and amended employment agreement, as described in the discussion of employment agreements below. In addition, Mr. Chai-Onn was granted a time-based RSU award in recognition of his promotion to General Counsel of the Company and to provide additional retention incentives.

 

Holding Requirements

 

The Company believes that it is important that the interests of the CEO and the other Named Executive Officers are aligned with the interests of our shareholders. The Company has, therefore, established a policy promoting the ownership of shares by our Named Executive Officers. As outlined on page 41, the employment agreement with Mr. Pearson generally requires that the net common shares received by Mr. Pearson be held through 2017. In addition, after the Merger, the Compensation Committee determined that all Named Executive Officers would be required to own common shares representing two times the combined amount of their base salary and target annual cash bonus. To further encourage ownership, in March 2011, the Compensation Committee approved a program whereby the named executive officer will be granted one restricted share unit, subject to a vesting schedule, for each Company share purchased by the named executive officer through June 30, 2012. A similar program, providing for the grant of one restricted share unit for every two shares purchased, has been approved for non-executive senior management.

 

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.

 

Our specific contribution levels to these programs are adjusted 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 Compensation 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 Compensation Committee

periodically reviews the levels of perquisites and other personal benefits provided to Named Executive Officers. The Compensation Committee intends to maintain only those perquisites and other benefits that it determines to be necessary components of total compensation and that are not inconsistent with shareholder interests.

 

Attributed costs of the personal benefits described above for the Named Executive Officers for the fiscal year ended December 31, 2010, are included in the column entitled “All Other Compensation” of the Summary Compensation Table.

 

Employment Agreements

 

To foster the retention of our key management team particularly in light of the Merger, in connection with or shortly following the Merger, we entered into an employment agreement with each of our active Named Executive Officers.

 

Pearson 2010 Agreement

 

Mr. Pearson’s employment agreement with the combined company was entered into in connection with the Merger and is on substantially similar terms to Mr. Pearson’s pre-Merger contract with VPI. As discussed above, under the terms of Mr. Pearson’s employment agreement with VPI, certain of Mr. Pearson’s outstanding VPI equity awards were scheduled to vest upon the Merger but in connection with the Merger, Mr. Pearson agreed to waive this accelerated vesting. Therefore, Mr. Pearson’s outstanding equity awards were equitably converted into equity awards of the combined company. In addition, the agreement, as modified after the Merger, restricts Mr. Pearson’s ability to sell, assign, transfer or otherwise dispose of shares acquired upon the settlement or exercise of any equity awards until the earliest of February 1, 2014, a change in control (excluding the Merger and any subsequent change in control where Mr. Pearson serves as the CEO of the ultimate parent company), death, disability, and involuntary termination of employment without Cause or for Good Reason. In connection with agreeing to waive accelerated vesting of equity and lengthen his share holding period, and to further incentivize Mr. Pearson, Mr. Pearson was granted a new award of 486,114 performance-based restricted share units of the combined company under the 2007 Equity Compensation, that will vest based on the achievement of compound annual TSR of the combined company between 45% and 60% through February 1, 2014, measured off a base price of $13.37 per share (which was determined based on the base price of the performance share units he was awarded by VPI in 2009 as adjusted to reflect the pre-Merger special dividend and the exchange ratio).

 

Pearson 2011 Agreement

 

Mr. Pearson’s employment agreement was further modified in March 2011 to reflect Mr. Pearson’s assumption of the role of Chairman of the Board of Directors and extension of the term of this employment. The 2011 Pearson agreement extends the term of Mr. Pearson’s employment agreement to February 1, 2017 (the term of the 2010 Pearson agreement would have expired on February 1, 2014). Beginning February 1, 2017, the term of the agreement will automatically renew for successive one year periods unless either party gives notice of non-renewal.

 

Pursuant to the 2011 Pearson agreement, Mr. Pearson’s base salary will be $1,600,000, his target bonus opportunity will remain at 100% of his base salary, and his maximum bonus opportunity will remain at 200% of his base salary. The 2011 Pearson agreement provides for the grant, subject to shareholder approval of a new incentive plan, of (i) an option to acquire 500,000 Company common shares at an exercise price equal to the greater of $54.76 and the fair market value of the Company’s common shares on the date of grant and (ii) 120,000 PSUs with a base price of $54.76 (with the potential to earn between zero and 480,000 PSUs depending on performance, as described below). The options vest ratably over a period of four years subject to Mr. Pearson’s continued employment with the Company through the applicable vesting date. The PSUs vest based on achievement of the following performance metrics (applying linear interpolation for performance between the applicable thresholds): if the TSR over the three year measurement period is less than 15% over the base price, none of the PSUs will vest; if the TSR over the three year measurement period is 15% over the base price (that is, the Company’s common shares are valued at $83.28), 120,000 of the PSUs will vest; if the TSR over the three year measurement period is 30% over the base price (that is, the Company’s common shares are valued at $120.31), 240,000 of the PSUs will vest; if the TSR over the three year measurement period is 45% over the base price (that is, the Company’s common shares are valued at $166.94),

360,000 of the PSUs will vest; and if the TSR over the three year measurement period is 60% or greater over the base price (that is, the Company’s common shares are valued at $224.30), 480,000 of the PSUs will vest. The three year TSR measurement period applicable to the vesting of the PSUs shall begin on the earlier of (i) the common stock of the Company reaching a value of $54.76 (based on a 20-trading-day average), or (ii) February 1, 2014. In the event of a change in control of the Company, the PSUs will be converted into a number of time-based units, such number to be based on the value of the Company’s shares at the time of the change in control. The options and PSUs are generally subject to other terms and conditions consistent with the terms and conditions of the option and PSU grants previously made to Mr. Pearson (including provisions governing the potential for acceleration of the PSUs based on the achievement of “stretch” performance goals prior to the end of the three year measurement period and provisions governing the treatment of Mr. Pearson’s options and PSUs on certain terminations of employment). In addition, the 2011 Pearson Agreement generally extends the period during which Mr. Pearson’s ability to sell, assign, transfer or otherwise dispose of shares acquired upon the settlement or exercise of all equity awards is restricted; these restrictions will remain in effect until the earliest of February 1, 2017, a change in control (excluding any subsequent change in control following which Mr. Pearson serves as the CEO of the ultimate parent company), death, disability, and involuntary termination of employment without Cause or for Good Reason. The Compensation Committee determined that the aspirational TSR targets reflected in the equity granted to Mr. Pearson, the extended term of his 2011 agreement and the share holding commitments undertaken by Mr. Pearson align to motivate Mr. Pearson to strive to achieve long-term TSR performance at potentially extraordinary levels.

 

Other Named Executive Officers

 

To foster the retention of our key management team particularly in light of the Merger, we entered into an employment agreement with each of our active Named Executive Officers shortly following the Merger (except for Mr. Loberg who was appointed in December 2010 and does not currently have an employment agreement with the Company). A detailed description of these employment agreements is set forth on page 50.

 

Tax and Accounting Implications

 

Deductibility of Executive Compensation

 

As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Code, 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. While historically our compensation programs were not designed with a focus on Section 162(m), because much of the compensation paid to our Named Executive Officers was deductible by non-U.S. companies, beginning in 2011 and on an ongoing bases, subject to shareholder approval of our 2011 Omnibus Incentive Plan and the amendment to our 2007 Equity Compensation Plan, we intend to develop our compensation plans such that compensation paid under management incentive plans is fully deductible for federal income tax purposes. Consistent with this intent, the Company is seeking shareholder approval of the 2011 Omnibus Incentive Plan and of an amendment to the 2007 Equity Compensation, both of which are designed to increase the deductibility of compensation paid to our Named Executive Officers. However, in certain situations, the Compensation Committee may approve compensation that will not meet these requirements in order to ensure competitive levels of total compensation for our executive officers.

 

Accounting for Stock-Based Compensation

 

We account for stock-based payments including grants under the 2007 Plan, in accordance with the requirements of FASB ASC Topic 718 (formerly, FASB Statement 123(R)).

 

The Report of the Compensation Committee of the Board of Directors shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

 

The Compensation Committee of our Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Compensation Committee

Robert N. Power, Chairperson
G. Mason Morfit

Norma A. Provencio

 

The following table sets forth the annual and long-term compensation awarded to or paid to the Named Executive Officers for services rendered to the Company in all capacities during the year ended December 31, 2010.

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards