Delaware | 1-11397 | 33-0628076 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
| Retain Mr. Pearson beyond the term of his original contract to send a clear message internally to the management team at Valeant and externally to patients, customers, partners and shareholders regarding continuity of leadership. | ||
| Preserve the structure and philosophy of Mr. Pearsons original employment contract to encourage significant stock ownership and to tie most of his equity opportunity to challenging levels of TSR performance. | ||
| Definitively set Mr. Pearsons equity compensation through February 1, 2014, to prospectively base both option exercise prices and the baseline for new TSR triggers at a premium to current |
market prices, and to reduce the importance of a particular date in the future, particularly the measurement date of February 1, 2011, in setting future compensation benchmarks. | |||
| Set proper incentives for continuously driving shareholder value. | ||
| Consider the Companys five-year strategic plan as a guideline for setting the amounts awarded. | ||
| Commit Mr. Pearson to retain his equity awards and owned shares in the Company, and not sell any net shares (i.e., shares received net of shares surrendered for tax withholding) until 2014. | ||
| Set a balance of incentives between leading Valeant as an independent company vs. a sale of the Company. |
| The contract termination date was extended from February 1, 2011 to February 1, 2014. |
| Mr. Pearson will not be able to sell any net shares he receives upon PSU vesting or the exercise of vested options awarded under the 2008 Agreement until February 1, 2014, unless earlier upon a change of control, a termination due to death or disability, or one year after a termination of employment without cause or for good reason. This would mean retaining shares with respect to more than 1 million options and 1 million RSUs earned under his original employment contract. |
| Mr. Pearsons base salary will be increased to $1.5 million, from $1.0 million, effective January 1, 2010. His bonus opportunity will be set at a target level of 100% of salary and a maximum of 200% of salary. | ||
| Mr. Pearson will receive a $1 million cash bonus for amending and extending his contract. |
| In connection with Mr. Pearsons agreement not to sell net shares before February 1, 2014, Mr. Pearson will receive 200,481 time-vested RSUs ($7.5 million divided by a share price of $37.41) that will vest 1/36th per month over the 36 months between February 1, 2011 and February 1, 2014. In a change of control, his unvested RSUs would be forfeited. |
| Mr. Pearson will receive 500,000 options with an exercise price of $37.41 and vesting over four years from February 2, 2011 to February 1, 2015. In a change of control, these options would vest in full. Because these options have an exercise price of $37.41, Mr. Pearson would receive |
economic value only if the change of control price is above $37.41 and only on the difference between $37.41 and the change of control price. |
| Mr. Pearson shall receive PSUs that vest based on total shareholder return (TSR) between a price of $37.41 starting on February 2, 2011 and the average stock price for the prior 20 trading days as of three measurement dates: 25% would vest on November 1, 2013, 50% on February 1, 2014 and 25% on May 1, 2014. These measurement dates were chosen to be the 6 year anniversary date of Mr. Pearsons 2008 Agreement and the dates three months before and after that date. The target PSU amount was based on $6.5 million divided by a share price of $37.41, or 173,750 PSUs. If TSR is below 15%, Mr. Pearson would receive no PSUs, other than in a change of control as described below. Mr. Pearson will not receive any vested PSUs until February 1, 2019, unless sooner upon a change of control or termination of employment. Mr. Pearson can earn between 1x and 3x the target amount based on TSR performance between 15% and 45%, as set out in the table below. | ||
| There is an early performance trigger for each tranche of PSUs if the average stock price for the prior 20 trading days as of a date is at or above the vesting triggers for the next tranche of PSUs. |
Stock price hurdle at | Early performance | Number of PSUs at | ||||||||||
TSR | measurement dates | vesting trigger | each hurdle | |||||||||
< 15% |
< $54.94 | None | ||||||||||
15% |
$54.94, $56.90, $58.91 | $82.19 | 173,750 | |||||||||
30% |
$76.97, $82.19, $87.76 | $114.05 | 173,750 | |||||||||
45% |
$103.93, $114.05, $125.15 | $153.23 (60% compounded TSR over three years) | 173,750 |
| On a change of control on or prior to February 1, 2012, the TSR thresholds shall be calculated as if such change of control occurred on February 1, 2012. Mr. Pearson shall only receive PSUs if the change of control price is above $37.41. The amount of PSUs shall be calculated by first calculating the percentage gain from $37.41 to the change of control price and then comparing to the target TSR thresholds, as below. In a change of control, the interpolation shall range from 0% up to 45%. |
TSR | Change of control price | Cumulative number of PSUs | ||||||
0% |
$37.41 | 0 | ||||||
15% |
$43.02 | 173,750 | ||||||
30% |
$48.63 | 347,500 | ||||||
45% |
$54.24 | 521,250 |
| On a change of control after February 1, 2012, the TSR calculation shall be the TSR from February 1, 2011 (using a base stock price of $37.41) to the change of control date. |
TSR | Change of control price | Cumulative number of PSUs | ||||||
0% |
Calculated based on TSR from a base price of $37.41 on February 1, 2011 | 0 | ||||||
15% |
173,750 | |||||||
30% |
347,500 | |||||||
45% |
521,250 |
| Originally the PSUs awarded under the 2008 Agreement only vested on the measurement date of February 1, 2011 or on a change of control. Because of the extraordinary TSR performance since February 1, 2008, and to harmonize these PSUs with the new PSUs issued to cover the period February 1, 2011 through February 1, 2014, the following changes were made. Mr. Pearson may vest into each tranche of PSUs in advance of February 1, 2011 if the average stock price for the prior 20 trading days as of a date is above the measurement date threshold of the next higher tranche, or in the case of the highest tranche, at a the stock price equivalent to a 3 year TSR of 60%. |
Stock price | ||||||||||||
hurdle at | ||||||||||||
measurement | Early performance | Number of PSUs at | ||||||||||
TSR | date | vesting trigger | each hurdle | |||||||||
< 15% |
< $18.66 | None | ||||||||||
15% |
$18.66 | $26.96 | 407,498 | |||||||||
30% |
$26.96 | $37.41 | 407,498 | |||||||||
45% |
$37.41 | $50.26 (60% compounded TSR over 3 years) | 407,498 |
(d) | Exhibits. | |
10.1 | Amendment, dated November 30, 2009 to the Employment Agreement, dated February 1, 2008 between J. Michael Pearson and Valeant Pharmaceuticals International |
VALEANT PHARMACEUTICALS INTERNATIONAL |
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Date: November 30, 2009 | By: | /s/ Steve T. Min | ||
Steve T. Min | ||||
Executive Vice President and General Counsel |