DEF 14A
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF

THE SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.     )

 

  Filed by the Registrant      Filed by a Party other than the Registrant

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  Preliminary Proxy Statement
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  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to Section 240.14a-12

 

  Endo International plc

(Name of Registrant as Specified in Its Charter)

 

         

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LOGO

 

 

  2018     

Notice of the

2018 Annual

General Meeting

of Shareholders

and Proxy Statement

 

 

 

 

 

 

June 7, 2018 at 8:00 a.m. local time

Endo International plc

First Floor Minerva House Simmonscourt Road Ballsbridge Dublin 4 Ireland

endo.com


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LOGO

        

Endo International plc

 

First Floor

 

Minerva House

 

Simmonscourt Road

 

Ballsbridge

 

Dublin 4, Ireland

 

endo.com

 

     LOGO   

 

Endo International plc is a highly focused generics
and specialty branded pharmaceutical company,
delivering quality medicines to patients through
excellence in development, manufacturing and
commercialization.

Dear Fellow Endo International plc Shareholder:

It is my pleasure to invite you to the Annual General Meeting of Shareholders (the Annual Meeting) of Endo International plc (the Company), which will be held on June 7, 2018 at 8:00 a.m., local time, at First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

At the meeting, we will be voting:

 

(1)

To elect, by separate resolutions, eight members to our Board of Directors to serve until the next Annual General Meeting of Shareholders;

 

(2)

To approve the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2018 and to authorize the Board of Directors, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration;

 

(3)

To approve, on an advisory basis, the compensation of our named executive officers (say-on-pay);

 

(4)

To approve the Endo International plc Amended and Restated 2015 Stock Incentive Plan;

 

(5)

To renew the Board’s existing authority to issue shares under Irish law;

 

(6)

To renew the Board’s existing authority to opt-out of statutory pre-emption rights under Irish law; and

 

(7)

To act upon such other matters as may properly come before the Annual Meeting or any adjournment or postponement thereof.

During the Annual Meeting, we will also review the Company’s 2017 Irish statutory financial statements. In addition to these formal items of business, we will report on the Company’s performance.

We look forward to seeing you at the Annual Meeting should you be able to attend.

Your vote is important. Whether you plan to attend the Annual Meeting or not, we encourage you to read this Proxy Statement and vote your shares. Please vote by promptly completing and returning your proxy by internet, by mail or by attending the Annual Meeting and voting in person by ballot. You may revoke your proxy at any time before it is exercised as explained in this Proxy Statement.

Thank you for your continued interest in Endo.

Very truly yours,

 

LOGO

PAUL V. CAMPANELLI

President, Chief Executive Officer and Director

Dublin, Ireland

April 27, 2018

Endo International plc

Registered Office: First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland

Registered in Ireland: Number—534814

Directors: Roger Hartley Kimmel (USA), Paul Victor Campanelli (USA), Shane  Martin Cooke (Ireland), Nancy June Hutson (USA), Michael Hyatt (USA), Sharad Sunder Mansukani (USA),

William Patrick Montague (USA),

Todd Benjamin Sisitsky (USA), Jill Deborah Smith (USA).

 


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LOGO

        

Endo International plc

 

First Floor

 

Minerva House

 

Simmonscourt Road

 

Ballsbridge

 

Dublin 4, Ireland

 

endo.com

 

 

LOGO

TO BE HELD ON JUNE 7, 2018

8:00 a.m., Local Time

First Floor, Minerva House,

Simmonscourt Road, Ballsbridge, Dublin 4, Ireland

Notice is hereby given that the 2018 Annual General Meeting of Shareholders of Endo International plc, an Irish public limited company, will be held on June 7, 2018 at 8:00 a.m., local time, at First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

The purposes of the meeting are:

 

(1)

To elect, by separate resolutions, eight members to our Board of Directors to serve until the next Annual General Meeting of Shareholders;

 

(2)

To approve the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2018 and to authorize the Board of Directors, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration;

 

(3)

To approve, on an advisory basis, the compensation of our named executive officers (say-on-pay);

 

(4)

To approve the Endo International plc Amended and Restated 2015 Stock Incentive Plan;

 

(5)

To renew the Board’s existing authority to issue shares under Irish law;

 

(6)

To renew the Board’s existing authority to opt-out of statutory pre-emption rights under Irish law; and

 

(7)

To act upon such other matters as may properly come before the Annual Meeting or any adjournment or postponement thereof.

Proposals 1 through 5 are ordinary resolutions requiring the approval of a simple majority of the votes cast at the Annual Meeting. Proposal 6 is a special resolution requiring the approval of not less than 75% of the votes cast at the Annual Meeting. All proposals are more fully described in this Proxy Statement.

The Company’s Irish statutory financial statements for the fiscal year ended December 31, 2017, including the reports of the directors and auditors thereon, will be presented at the Annual Meeting. There is no requirement under Irish law that such statements be approved by the shareholders, and no such approval will be sought at the Annual Meeting. The Annual Meeting also will include a review by the members of the Company’s affairs.

Only shareholders of record at the close of business on April 13, 2018 are entitled to notice of and to vote at the 2018 Annual Meeting and any adjournment thereof.

This year, we have elected to furnish proxy materials to our shareholders electronically so that we can both provide our shareholders with the information they need and also reduce our costs of printing and delivery and the environmental impact of our Annual Meeting.

It is important that your shares be represented and voted at the Annual Meeting. Please vote by promptly completing and returning your proxy by internet, by mail or by attending the Annual Meeting and voting in person by ballot, so that whether you intend to be present at the Annual Meeting or not, your shares can be voted. Returning your proxy will not limit your rights to attend or vote at the Annual Meeting.


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If you are a shareholder who is entitled to attend and vote, then you are entitled to appoint a proxy or proxies to attend and vote on your behalf. A proxy is not required to be a shareholder in the Company. If you wish to appoint as proxy any person other than the individuals specified on the proxy card, please specify the name(s) and address(es) of such person(s) in the proxy card.

By Order of the Board of Directors,

 

LOGO

Orla Dunlea

Company Secretary

Dublin, Ireland

April 27, 2018

Endo International plc

Registered Office: First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland

Registered in Ireland: Number—534814

Directors: Roger Hartley Kimmel (USA), Paul Victor Campanelli (USA), Shane Martin Cooke (Ireland),

Nancy June Hutson (USA), Michael Hyatt (USA), Sharad Sunder Mansukani (USA),

William Patrick Montague (USA), Todd Benjamin Sisitsky (USA), Jill Deborah Smith (USA).


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LOGO

Proxy Statement for 2018 Annual General Meeting

of Shareholders

 

 

 

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General Information      1  
Annual General Meeting Admission      1  
Shareholders Entitled to Vote      1  
How to Vote if You Are a Shareholder of Record      1  
Electronic Access to Investor Information      2  
General Information on Voting and Required Vote      2  
Presentation of Irish Statutory Financial Statements      3  
Proposal 1: Election of Directors      4  
Proposal 2: Approval of Appointment of Independent Registered Public Accounting Firm and Authorization to Determine the Firm’s Remuneration      16  
Proposal 3: Advisory Vote on the Compensation of Our Named Executive Officers (Say-on-Pay)      18  
Proposal 4: Approval of the Endo International plc Amended and Restated 2015 Stock Incentive Plan      21  
Proposal 5: Renewal of the Board’s Existing Authority to Issue Shares under Irish Law      28  
Proposal 6: Renewal of the Board’s Existing Authority to Opt-Out of Statutory Pre-Emption Rights under Irish Law      29  
Compensation Discussion and Analysis      31  
Compensation of Executive Officers and Directors      53  
Other Information Regarding the Company      65  
No Dissenters’ Rights      67  
Other Matters      67  
Annual Report/Form 10-K      67  
Shareholder Proposals for the 2019 Annual General Meeting      67  
Annex 1      A-1  


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Proxy Statement for 2018 Annual General Meeting of Shareholders

 

 

General Information

We are providing these proxy materials in connection with the solicitation by the Board of Directors of Endo International plc, an Irish public limited company, of proxies to be voted at our 2018 Annual General Meeting of Shareholders (the Annual Meeting) to be held on June 7, 2018, beginning at 8:00 a.m., local time. The Annual Meeting will be held at First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

In accordance with the rules of the U.S. Securities and Exchange Commission (SEC), we are furnishing the Proxy Statement for Annual Meeting, 2017 Annual Report to Shareholders, 2017 Endo International plc Form 10-K and 2017 Irish Statutory Financial Statements (collectively, the proxy materials) by providing access to these materials electronically on the internet. As such, we are not mailing a printed copy of our proxy materials to each shareholder of record or beneficial owner, and our shareholders will not receive printed copies of the proxy materials unless they request this form of delivery. Printed copies will be provided upon request at no charge.

We are mailing a Notice of Meeting and Internet Availability of Proxy Materials (Notice of Internet Availability) to our shareholders on or about April 27, 2018. This Notice of Internet Availability is being mailed in lieu of the printed proxy materials and contains instructions for our shareholders on how they may: (1) access and review our proxy materials on the internet; (2) submit their proxy; and (3) receive printed proxy materials. Shareholders may request to receive printed proxy materials by mail or electronically by e-mail on an ongoing basis by following the instructions in the Notice of Internet Availability. We believe that providing future proxy materials electronically will enable us to save costs associated with printing and delivering the materials and reduce the environmental impact of our annual meetings. A request to receive proxy materials in printed form by mail or by e-mail will remain in effect until such time as the shareholder elects to terminate it.

Unless otherwise indicated or the context otherwise requires, references in this proxy statement to “Endo,” the “Company,” “we,” “us” and “our” refer to Endo International plc and its subsidiaries.

 

 

Annual General Meeting Admission

Shareholders must present a form of personal identification in order to be admitted to the Annual Meeting. For directions to the Annual Meeting, visit www.endo.com/about-us/locations.

No cameras, recording equipment or electronic devices will be permitted in the Annual Meeting.

 

 

Shareholders Entitled to Vote

Holders of ordinary shares at the close of business on April 13, 2018 (the record date), are entitled to receive this notice and to vote their shares at the Annual Meeting. As of that date, there were 223,786,744 issued ordinary shares of Endo entitled to vote.

Each ordinary share is entitled to one vote on each matter properly brought before the Annual Meeting. Your proxy indicates the number of votes you have.

 

 

How to Vote if You Are a Shareholder of Record

 

Your vote is important. Shareholders of record can vote by internet, by mail or by attending the Annual Meeting and voting in person by ballot as described below.

Vote by Internet

If you choose to vote by internet, visit www.proxyvote.com, enter the control number found on the Notice of Internet Availability and follow the steps outlined on the secure website.

Vote by Mail

You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. If you choose to vote by mail, simply complete your proxy card, date and sign it, and return it in the postage-paid envelope provided.

Deadline for Voting by Internet or by Mail

If you are a shareholder of record, you may vote by internet or by telephone until 11:59 PM U.S. Eastern Time on June 6, 2018.

If you are a beneficial owner of shares held through a bank or brokerage firm, please follow the voting instructions provided by your bank or brokerage firm.

 

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Vote at the Annual Meeting

Voting by internet or mail will not limit your right to vote at the Annual Meeting if you decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the Annual Meeting.

All shares that have been properly voted and not revoked will be voted at the Annual Meeting. If you execute your proxy but do not give voting instructions, the ordinary shares represented by that proxy will be voted as described below under the section entitled “General Information on Voting and Required Vote.”

 

 

Electronic Access to Investor Information

 

 

Endo’s Proxy Statement and other investor information are available on the Company’s website at www.endo.com, under “Investors / Media.” You can also access the Investor page of our website by scanning the QR code to the right with your smartphone.

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General Information on Voting and Required Vote

You are entitled to cast one vote for each ordinary share of Endo you own on the record date. Provided that a quorum is present, a majority of the votes cast at the Annual Meeting will be required in order for:

  (1)

a nominee to be elected as a director;

  (2)

the Company’s independent registered public accounting firm to be appointed for the year ending December 31, 2018 and the Board, acting through the Audit Committee, to be authorized to determine the independent registered public accounting firm’s remuneration;

  (3)

the compensation of the named executive officers to be approved, on a non-binding advisory basis;

  (4)

the Endo International plc Amended and Restated 2015 Stock Incentive Plan to be approved; and

  (5)

the Board’s existing authority to issue shares to be renewed.

Proposal 6, renewal of the Board’s existing authority to opt-out of statutory pre-emption rights, requires the approval of not less than 75% of the votes cast at the Annual Meeting.

The presence of the holders of a majority of the issued and outstanding ordinary shares as of the record date entitled to vote at the Annual Meeting, present in person or represented by proxy, is necessary to constitute a quorum. Shares represented by a proxy marked “abstain” on any matter will be considered present at the Annual Meeting for purposes of determining a quorum. Abstentions will not be considered votes cast at the Annual Meeting. The practical effect of this is that abstentions are not voted in respect of these proposals. Shares represented by a proxy as to which there is a “broker non-vote” (for example, where a broker does not have the discretionary authority to vote the shares) will be considered present for the Annual Meeting for purposes of determining a quorum and will not have any effect on the outcome of voting on the proposals.

All ordinary shares that have been properly voted and not revoked will be voted at the Annual Meeting in accordance with your instructions. If you execute the proxy but do not give voting instructions, the ordinary shares represented by that proxy will be voted as follows:

  (1)

FOR each of the nominees for election as director;

  (2)

FOR the approval of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018 and the authorization of the Board, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration;

  (3)

FOR the approval, on an advisory basis, of the compensation to be paid to the named executive officers;

  (4)

FOR the approval of the Endo International plc Amended and Restated 2015 Stock Incentive Plan;

  (5)

FOR the renewal of the Board’s existing authority to issue shares; and

  (6)

FOR the renewal of the Board’s existing authority to opt-out of statutory pre-emption rights.

Voting on Other Matters

If other matters are properly presented at the Annual Meeting for consideration, the persons named in the proxy will have the discretion to vote on those matters for you. At the date the Company began printing this Proxy Statement, no other matters had been raised for consideration at the Annual Meeting.

How You Can Revoke or Change Your Vote

You can revoke your proxy at any time before it is voted at the Annual Meeting by:

   

sending written notice of revocation to the Company Secretary;

   

timely delivering a valid, later-dated proxy; or

 

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attending the Annual Meeting and voting in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor from the holder of record, to be able to vote at the meeting.

List of Shareholders

The names of shareholders of record entitled to vote at the Annual Meeting will be available at the Annual Meeting and for ten days prior to the Annual Meeting for any purpose germane to the meeting, between the hours of 8:45 a.m. and 4:30 p.m. local time, at our registered office at First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

Cost of Proxy Solicitation

The Company will pay for preparing, printing and mailing this Proxy Statement and we will pay for the cost of soliciting proxies. Proxies may be solicited on our behalf by directors, officers or employees in person or by telephone, electronic transmission and facsimile transmission. The Company will reimburse banks, brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket costs of sending the proxy materials to our beneficial owners. We have also retained Innisfree M&A Inc. to assist in soliciting proxies. We will pay Innisfree M&A Inc. a base fee of approximately $15,000 plus reasonable out-of-pocket expenses for these services.

 

 

Presentation of Irish Statutory Financial Statements

The Company’s Irish Statutory Financial Statements for the fiscal year ended December 31, 2017, including the reports of the directors and auditors thereon, will be presented at the Annual Meeting. There is no requirement under Irish law that such financial statements be approved by shareholders, and no such approval will be sought at the Annual Meeting. The Company’s 2017 Irish Statutory Financial Statements are available, along with the Proxy Statement for Annual Meeting, 2017 Annual Report to Shareholders, 2017 Endo International plc Form 10-K and other proxy materials, at www.proxyvote.com.

 

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Proposal 1: Election of Directors

The Board of Directors

Under the terms of the Company’s Memorandum and Articles of Association, directors need not be shareholders of the Company or residents of Ireland. However, pursuant to the Common Stock Ownership Guidelines (the Ownership Guidelines) approved by the Board of Directors, each non-employee director eligible to own Company stock should, but is not required to, have ownership of the Company’s ordinary shares equal in value to at least five times his or her current annual cash retainer to be achieved within five years of joining the Board, as further described in the section below entitled “Common Stock Ownership Guidelines.” Directors are elected for a one-year term and shall retire from office unless re-elected by ordinary resolution at the next following Annual General Meeting. Non-employee Directors receive compensation for their services as determined by the Board of Directors, as further described in the section entitled “Compensation of Executive Officers and Directors—2017 Compensation of Non-Employee Directors.”

The Company’s Memorandum and Articles of Association provide that the number of directors of the Company shall be not less than five nor more than twelve, the exact number of which shall be fixed from time to time by resolution of the Board of Directors. A vacancy on the Board, or a newly created directorship resulting from any increase in the authorized number of directors, may be filled by a majority of the directors then in office, even though less than a quorum remains. A director appointed to fill a vacancy remains a director until the next following Annual Meeting or his or her earlier death, resignation or removal. In March 2017, the Board fixed the number of directors at nine, effective June 2017.

As of December 31, 2017, the Board of Directors consisted of nine members, including Roger H. Kimmel, Paul V. Campanelli, Shane M. Cooke, Nancy J. Hutson, Ph.D., Michael Hyatt, Sharad S. Mansukani, M.D. (who was appointed to the Board of Directors effective November 8, 2017 to replace Douglas S. Ingram, who resigned from the Board of Directors on November 6, 2017 due to his appointment as president and chief executive officer of another company), William P. Montague, Todd B. Sisitsky and Jill D. Smith. All of the current members are nominated by the Board of Directors for re-election as directors of the Company, other than Ms. Smith, who advised the Company in March 2018 that she would not be standing for re-election due to her appointment as president and chief executive officer of another company in 2017. On April 26, 2018, the Board fixed the number of directors at eight, effective June 7, 2018, the date of the Annual Meeting.

The Board annually determines the independence of directors based on a review by the Board and the Nominating & Governance Committee. No director is considered independent unless the Board of Directors has determined that he or she has no material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a material relationship with the Company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others. To evaluate the materiality of any such relationship, the Board has adopted categorical independence standards consistent with the Nasdaq’s listing rules. These standards are available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—Nominating & Governance Committee.”

Members of the Audit, Compensation, and Nominating & Governance Committees must meet applicable independence tests of the Nasdaq.

The Board of Directors has affirmatively determined that all of its current members and nominees, except for Mr. Campanelli, are independent under the Nasdaq’s listing rules. Mr. Campanelli is not independent due to his role as President and Chief Executive Officer of the Company. It was determined that neither Dr. Mansukani’s service as an advisor to nor Mr. Sisitsky’s service as an executive of TPG Capital, one of Endo’s shareholders, interferes with their independence. In determining Mr. Cooke’s independence, the Board considered that Mr. Cooke was the President of Alkermes plc (Alkermes), which has a 2002 license agreement with one of the Company’s subsidiaries with respect to Megace ES® in the ordinary course of their respective businesses. The total amount of royalty payments made to Alkermes in 2017 was less than $270,000. The Board has determined that this relationship is not material and that it does not impair Mr. Cooke’s independence.

On an annual basis and upon the nomination of any new director, the Nominating & Governance Committee and the Board review directors’ responses to a questionnaire asking about their relationships with the Company (and those of their immediate family members) and other potential conflicts of interest. The Nominating & Governance Committee has determined that the eight non-employee directors currently serving are independent and that the members of the Audit, Compensation and Nominating & Governance Committees also meet the independence tests referenced above. Specifically, the Nominating & Governance Committee and the Board have determined that, during the last three years, none of the current non-employee directors has had (i) any of the relationships listed above or (ii) any other material relationship with the Company that would compromise independence. The Nominating & Governance Committee recommended this determination to the Board of Directors and explained the basis for its decision, and this determination was adopted by the full Board.

As of the date of this Proxy Statement, the Company is not aware of any material legal proceedings to which any director or executive officer of the Company, or any associate thereof, is a party to that are adverse to the Company or any of its subsidiaries.

 

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Between January 1, 2017 and December 31, 2017, the Board of Directors of the Company as a whole met seven times and did not act by written consent. All members of the Board of Directors attended more than 75% of the aggregate number of meetings of the Board and of the Committees of the Board on which they served in 2017 (that were held during the respective periods in which they served on the Board and related Committees).

Nominees

There are eight nominees for election as directors of the Company to serve until the 2019 Annual General Meeting of Shareholders of the Company, or until earlier death, resignation or removal. All of the nominees are currently serving as directors of the Company. In addition, all of the nominees were elected to the Board at the last Annual Meeting, except for Sharad S. Mansukani, who was appointed by the Board in November 2017.

The proposed nominees for election as directors have confirmed that they are each willing to serve as directors of the Company. If, as a result of circumstances not now known or foreseen, a nominee shall be unavailable or unwilling to serve as a director, an alternate nominee may be designated by the present Board of Directors to fill the vacancy.

The Board believes that each of the Company’s directors is highly qualified to serve as a member of the Board and each has contributed to the mix of skills, core competencies and qualifications of the Board. When evaluating candidates for election to the Board, the Nominating & Governance Committee seeks candidates with certain qualities that it believes are important, including experience, skills, expertise, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, independence, those criteria and qualifications described in each director's biography belowand such other relevant factors that the Nominating & Governance Committee considers appropriate in the context of the needs of the Board of Directors. Although not specified in the charter, the Committee also considers ethnicity and gender when selecting candidates so that additional diversity may be represented on the Board. Our current directors are highly experienced and have diverse backgrounds and skills as well as extensive track records of success in what we believe are highly relevant positions. The Board believes that each director's service as the Chairman, Vice Chairman, President and Chief Executive Officer, Executive Vice President and Chief Financial Officer or Senior Executive of significant companies has provided each director with skills that are important to serving on our Board.

 

Set forth below are summaries of the background, business experience and principal occupation of each of the Company’s current director nominees:

  

 

 

 

 

ROGER H. KIMMEL, 71, is Chairman of the Board of Endo and is a member of Endo’s Nominating & Governance Committee, a member of Endo’s Audit Committee and a member of Endo’s Compensation Committee. Mr. Kimmel became Chairman of the Board upon the Company’s inception in February 2014. Mr. Kimmel has been Vice Chairman of Rothschild Inc., an investment banking firm, since January 2001. Previously, Mr. Kimmel was a partner of the law firm Latham & Watkins for more than five years. Mr. Kimmel is also a Director of PG&E Corporation, a public energy-based holding company, and its subsidiary Pacific Gas and Electric Company, a utility company. Mr. Kimmel was a Director of Schiff Nutrition International until 2012, and was a Director and Chairman of Endo Health Solutions Inc. from July 2000 until February 2014. Mr. Kimmel also served as the Chairman of the Board of Endo Health

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Solutions Inc. during part of his tenure as Director. Mr. Kimmel served as Chairman of the Board of Trustees of the University of Virginia Law School Foundation (not-for-profit) from January 2009 to June 2015. Mr. Kimmel holds a Bachelor of Arts degree from the George Washington University and a J.D. degree from the University of Virginia School of Law. He has been a public speaker on corporate governance issues and private equity transactions. Mr. Kimmel’s qualifications to serve on the Board of Endo include, among others, his extensive legal and leadership experience, significant experience as a board member of a publicly traded company, corporate governance expertise, investment banking and financial experience and in-depth knowledge about the Company.

 

 

PAUL V. CAMPANELLI, 56, was appointed President, Chief Executive Officer and a Director of Endo International plc effective September 23, 2016. Mr. Campanelli joined Endo in 2015 as the President of Par Pharmaceutical, leading Endo’s fully integrated U.S. Generics business, following Endo’s acquisition of Par Pharmaceutical. Prior to joining Endo, he had served as Chief Executive Officer of Par Pharmaceutical Companies, Inc. following the company’s September 2012 acquisition by TPG. Prior to the TPG acquisition, Mr. Campanelli served as Chief Operating Officer and President of Par Pharmaceutical, Inc. from 2011 to 2012. At Par Pharmaceutical Inc., Mr. Campanelli had also served as Senior Vice President, Business Development & Licensing; Executive Vice President and President of Par Pharmaceutical, Inc.; and was named a Corporate Officer by its board of directors. He also served

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on the board of directors of Sky Growth Holdings Corporation. Prior to joining Par Pharmaceutical Companies Inc., Mr. Campanelli served as Vice President, Business Development at Dr. Reddy’s Laboratories Ltd., where he was employed from 1992 to 2001. Mr. Campanelli earned his Bachelor of Science degree from Springfield College. Mr. Campanelli’s qualifications to serve on the Board of Endo include, among others, his experience in leadership positions at pharmaceutical companies, including the role of chief executive officer, his in-depth knowledge of the pharmaceutical industry, the Company, its businesses and management as well as his judgment and strategic vision.

 

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SHANE M. COOKE, 55, has been a member of the Board of Directors since July 2014 and is Chairman of Endo’s Audit Committee. Most recently until March 31, 2018, Mr. Cooke served as President of Alkermes plc based in Dublin, Ireland upon completion of the merger between Elan Drug Technologies (EDT) and Alkermes, Inc. in September 2011 and was appointed to the board of directors of Alkermes on March 30, 2018. Previously, he was head of EDT and Executive Vice President of Elan from 2007 through the Alkermes merger in 2011 and concurrently served as Chief Financial Officer of Elan Corporation from 2001 to May 2011. Mr. Cooke was appointed director of Elan in May 2005. Prior to joining Elan, he was Chief Executive of Pembroke Capital Limited, an aviation leasing company of which he was a founder. Mr. Cooke also previously held a number of senior positions in finance in the

banking and aviation industries. Mr. Cooke is a chartered accountant and a graduate of University College Dublin, Ireland. He currently serves on the board of directors of Prothena Corporation plc, a publicly traded biotechnology company. Mr. Cooke’s qualifications to serve on the Board of Endo include, among others, his extensive knowledge of the pharmaceutical industry, significant executive- and board-level experience at a publicly traded company and financial expertise and experience, including service as a chief financial officer of a public company.

 

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NANCY J. HUTSON, Ph.D., 68, has been a member of the Board of Directors since the Company’s inception in February 2014 and is Chairman of Endo’s Compliance Committee and a member of Endo’s Nominating & Governance Committee. Dr. Hutson retired from Pfizer, Inc. (Pfizer) in 2006 after spending 25 years in various research and leadership positions, most recently serving as Senior Vice President, Pfizer Global Research and Development and Director of Pfizer’s pharmaceutical R&D site, known as Groton/New London Laboratories, the largest R&D site of any pharmaceutical company. At Pfizer, she led 4,500 colleagues (primarily scientists) and managed a budget in excess of $1 billion. She currently is a Director of BioCryst Pharmaceuticals, Inc. Dr. Huston previously served as Director of Cubist Pharmaceuticals until January 2015, and from March 2009 until February 2014, was a Director of Endo Health Solutions Inc. Dr. Hutson owns and operates Standing Stones

Farm in Ledyard, CT, which is dedicated to supporting the equestrian sport of dressage. Dr. Hutson’s qualifications to serve on the Board of Endo include, among others, her in-depth knowledge and understanding of the complex research, drug development and business issues facing pharmaceutical companies.

 

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MICHAEL HYATT, 72, has been a member of the Board of Directors since the Company’s inception in February 2014 and is Chairman of Endo’s Nominating & Governance Committee and a member of Endo’s Compensation Committee. Mr. Hyatt is currently a Senior Advisor to Irving Place Capital, a leading institutional private equity firm focused on making equity investments in middle-market companies. Until 2008, Mr. Hyatt was a Senior Managing Director of Bear Stearns & Co., Inc. Mr. Hyatt previously served as a Director of Schiff Nutrition International until 2012. From July 2000 until February 2014, Mr. Hyatt was a Director of Endo Health Solutions Inc. Mr. Hyatt’s qualifications to serve on the Board of Endo include, among others, his leadership experience in the banking industries, in-depth knowledge of the Company and experience as a board member of a publicly traded company.

 

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SHARAD S. MANSUKANI, M.D., CPE, CMCE, 49, was appointed to the Board of Directors in November 2017 and to the position of Senior Independent Director in April 2018 and is a member of Endo’s Compensation Committee and a member of the Compliance Committee. Dr. Mansukani currently serves as a senior advisor of TPG Capital LP and on the board of directors of Kindred Healthcare Inc. From 2012 to 2015, Dr. Mansukani served as a strategic advisor to the board of directors of Cigna Corp. Prior to his position at Cigna Corp., Dr. Mansukani was appointed to Medicare’s Program Advisory and Oversight Committee by the Secretary of the Department of Health and Human Services from 2009 to 2012. Dr. Mansukani also served as a senior advisor to the Administrator of the Centers for Medicare and Medicaid Services (CMS) from 2003 to 2005, where he advised on design

and implementation of the Medicare prescription drug benefit, also known as Medicare Part D. Prior to CMS, Dr. Mansukani was a senior vice president and chief medical officer at Health Partners from 1999 to 2003. Previously, Dr. Mansukani served as the vice chairman of the board of directors of Health Spring Inc. from 2007 to 2012 and as chairman of the board of directors of Envision Rx Options from 2013 to 2016. Dr. Mansukani also served on the board of directors of Surgical Care Affiliates, Inc. from 2007 to 2017, IASIS Healthcare Corporation from 2005 to 2017, IMS Health Holdings, Inc. from 2009 to 2016 and Par Pharmaceutical Holdings, Inc. from 2012 to 2015, prior to the Company’s acquisition of Par Pharmaceutical Holdings, Inc. in 2015. Dr. Mansukani currently serves on the board of directors of the Children’s Hospital of Philadelphia and serves on the editorial boards of the American Journal of Medical Quality, Managed Care, Biotechnology Healthcare and American Health & Drug Benefits. Dr. Mansukani is qualified to serve on the Board of the Company based on his extensive knowledge of the pharmaceutical industry and service as a board member of publicly traded and private companies in the industry and based on his in-depth knowledge and understanding of the complex U.S. healthcare system. Dr. Mansukani was identified as a potential candidate by our Chief Executive Officer and by a non-management director, and following an independent third party review process, recommended to the Nominating & Governance Committee and later approved by the Board.

 

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WILLIAM P. MONTAGUE, 71, has been a member of the Board of Directors since the Company’s inception in February 2014 and is Chairman of Endo’s Compensation Committee and a member of Endo’s Audit Committee. Mr. Montague served as Chief Executive Officer of Mark IV Industries, Inc., a leading global diversified manufacturer of highly engineered systems and components for transportation infrastructure, vehicles and equipment, from November 2004 until his retirement in July 2008 and as Director from March 1996. He joined Mark IV Industries in April 1972 as Treasurer/Controller, serving as Vice President of Finance from May 1974 to February 1986, then Executive Vice President and Chief Financial Officer from February 1986 to March 1996 and then as President from March 1996 to November 2004. Mr. Montague is also a Director of Gibraltar Industries, Inc., a publicly

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traded manufacturer and distributor of products for the building and industrial markets since 1993, and has served as Chairman of Gibraltar’s Board of Directors since June 2015. From February 2013 until May 2014, Mr. Montague served as a Director of Allied Motion Technologies Inc., a publicly traded company focused exclusively on serving the motion control market. From February 2009 until February 2014, Mr. Montague was a Director of Endo Health Solutions Inc. Mr. Montague is a Certified Public Accountant; he holds a Bachelor of Science degree in accounting and an M.B.A. from Wilkes University. Mr. Montague’s qualifications to serve on the Board of Endo include, among others, his significant executive and leadership experience at manufacturing companies, including service as chief executive officer and membership on the board of directors of such companies, and financial expertise and experience, including service as a company’s chief financial officer.

 

 

TODD B. SISITSKY, 46, was appointed to the Board of Directors in May 2016 and is a member of Endo’s Nominating & Governance Committee and a member of Endo’s Compensation Committee. Mr. Sisitsky is a Partner of TPG, the global alternative asset management firm. He is the Managing Partner of TPG Capital, co-head of the firm’s global healthcare investing platform, and a member of the firm’s Executive Committee. Mr. Sisitsky serves on the boards of directors of Adare Pharmaceuticals, Inc. (formerly Aptalis Pharma, Inc.), Immucor Inc., and IQVIA Holdings Inc. He previously served on the boards of directors of IASIS Healthcare LLC, Quintiles IMS Holdings, Inc., Surgical Care Affiliates, Inc., IMS Health Holdings, Inc. and Par Pharmaceuticals Companies, Inc. Mr. Sisitsky also serves on the board of directors of the global not-for-profit organization the Campaign for Tobacco Free Kids, as well

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as on the Board of Overseers of the Dartmouth Medical School. Prior to joining TPG in 2003, Mr. Sisitsky worked at Forstmann Little & Company and Oak Hill Capital Partners. He received an M.B.A. from the Stanford Graduate School of Business, where he was an Arjay Miller Scholar, and earned his undergraduate degree from Dartmouth College, where he graduated summa cum laude. Mr. Sisitsky’s qualifications to serve on the Board of Endo include, among others, his extensive knowledge of the pharmaceutical industry, service as a board member of publicly traded and private companies in the industry, and leadership and financial expertise.

 

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Vote Required

Each nominee for director receiving a majority of the votes cast at the Annual Meeting will be elected.

 

The Board of Directors recommends a vote FOR the election of each of these nominees for election as director.

Shareholder Communications with Directors

The Board has established a process to receive communications from shareholders. Shareholders may contact any member or all members of the Board, any Board committee or any chair of any such committee by mail. To communicate with the Board of Directors, any individual director or any group or committee of directors, correspondence should be addressed to the Board of Directors or any such individual director or group or committee of directors by either name or title. All such correspondence should be sent “c/o Company Secretary” to Endo International plc, First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

All communications received as set forth in the preceding paragraph will be opened by the office of our Company Secretary for the sole purpose of determining whether the contents represent a message to our directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee. In the case of communications to the Board or any group or committee of directors, the Company Secretary’s office will make sufficient copies of the contents to send to each director who is a member of the group or committee to which the envelope or e-mail is addressed.

The Company does not have a policy on director attendance at Annual Meetings. Messrs. Kimmel and Cooke and Dr. Hutson attended the 2017 Annual General Meeting of Shareholders.

Corporate Governance — Board Leadership Structure and Risk Oversight

Board Leadership Structure

We have a board leadership structure under which Mr. Kimmel serves as non-executive independent Chairman of the Board and Dr. Mansukani serves as Senior Independent Director of the Board. In April 2018, the Board appointed Dr. Mansukani to the newly created position of Senior Independent Director upon the recommendation of the Nominating & Governance Committee, as part of Board’s succession planning process, to support the Chairman and to provide management and shareholders with additional means of access to the Board. This position was created to align the Company’s board leadership structure with those of other Irish-domiciled companies. All of our directors are independent, with the exception of our President and Chief Executive Officer, Mr. Campanelli. During 2017, our Board had five standing committees, including the Transactions Committee, which the Board of Directors determined to discontinue effective March 20, 2017. Each committee has a committee chair and each committee consists solely of independent directors. In addition, the Board appoints other committees as the Board considers necessary from time to time.

The Board believes that the Chairman and the role of President and Chief Executive Officer should be separate and that the Chairman should not be an employee of the Company. Further, the Board believes this separation serves the Company’s shareholders best for setting our strategic priorities and executing our business strategy. We believe that our Board consists of directors with significant leadership, organizational and strategic skills, as discussed above. All of our independent directors have served as the Chairman, Vice Chairman, Chief Executive Officer, Chief Financial Officer or Senior Executive of other companies. Accordingly, we believe that our independent directors have demonstrated leadership in large enterprises, many with relevant industry experience, and are well-versed in board processes and corporate governance. We believe that having directors with such significant leadership skills benefits our company and our shareholders.

In addition to the general duties and responsibilities of a director, in accordance with the Company’s Memorandum and Articles of Association and our corporate governance guidelines, the Chairman is responsible for setting Board meeting agendas, dates and locations, presiding over all Board and shareholder meetings, presiding over all executive sessions of the Board, meeting regularly with the Chief Executive Officer between Board meetings and facilitating full and candid communication among directors and between the Board and the Chief Executive Officer. In addition to the general duties and responsibilities of a director, in accordance with our corporate governance guidelines, if a Senior Independent Director is appointed, he will be responsible for fulfilling the Chairman’s duties, as described above, in the event that the Chairman is unavailable, together with assisting the Chairman and the chair of the Nominating & Governance Committee with board evaluation, acting as a liaison with specified industry groups designated by the Board or the Chief Executive Officer at their direction, supporting the Chairman and providing management and shareholders with additional means of access to the Board and acting as an intermediary for other directors, if necessary or appropriate. Each director also may suggest items for inclusion on the agenda and may, at any Board meeting, raise subjects that are not on the agenda for that meeting. As required by our corporate governance guidelines, our independent directors meet separately, without management present, at each meeting of the Board. In addition, our Board committees regularly meet without members of management present.

 

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As part of its annual self-evaluation process, the Board evaluates the Company’s governance structure. We believe that having a President and Chief Executive Officer with oversight of company operations, coupled with an experienced independent Board Chairman and experienced independent directors, with separate independent committee chairs, is the appropriate leadership structure for Endo.

On a regular basis, the Company’s officers responsible for monitoring and managing risks across the Company’s various functions and business segments make reports to the Audit Committee. The Audit Committee, in turn, reports to the full Board of Directors. While the Audit Committee has primary responsibility for overseeing risk management, our entire Board is actively involved in overseeing risk management for the Company by engaging in periodic discussions with Company officers as the Board may deem appropriate. In addition, each of our Board committees considers the risks within its respective areas of responsibility.

Risk Oversight

The Board of Directors believes that one of its most important responsibilities is to oversee how management manages the various risks the Company faces and has delegated primary responsibility for overseeing the Company’s Enterprise Risk Management (ERM) program to the Audit Committee. It is management’s responsibility to manage risk and bring the most material risks to the Company to the attention of the Audit Committee and the Board of Directors. The Company’s head of internal audit, who reports functionally to the Audit Committee, facilitates the ERM program under the sponsorship of our Executive Leadership Team, which includes our current named executive officers (NEOs) and other senior leaders overseeing the Company’s various key functions and business segments. Enterprise risks are identified and prioritized by management, and each risk is assigned by the Board to a Board committee or the full Board for oversight based on the nature of the risk area and the committee’s charter. The committee or full Board agendas include discussions of individual risk areas throughout the year. Additionally, the Audit Committee agendas include periodic updates on the ERM process.

The Audit Committee regularly reviews treasury risks (liquidity and debt), financial and accounting, legal, tax and compliance risks, information technology security risks and other risk management activities. In addition, the Compensation Committee considers risks related to succession planning and the attraction and retention of talent as well as risks relating to the design of compensation programs and arrangements. The Compensation Committee also reviews compensation and benefit plans affecting Endo employees in addition to those applicable to our executive officers. The full Board considers strategic risks and opportunities and regularly receives detailed reports from the committees regarding risk oversight in their respective areas of responsibility.

Code of Conduct

The Board of Directors has adopted a Code of Conduct that applies to the Company’s directors, executive officers (including its President and Chief Executive Officer and Executive Vice President and Chief Financial Officer) and other employees (Endo Code). The Board has also adopted a Code of Conduct for the Board of Directors (Director Code). These Codes are posted on the Company’s website at www.endo.com. The Endo Code is available under “Our Responsibility—Corporate Compliance—Code of Conduct,” and the Director Code is available under “Investors/Media—Corporate Governance—Code of Conduct.” Any waiver of either Code for a director or executive officer of the Company, as applicable, may be made only by the Board of Directors or a Committee of the Board. Such waivers and any amendments to either Code will be disclosed on the Company’s website if required by law or stock exchange rules.

Insider Trading Policy

The Board of Directors has adopted an Insider Trading Policy, which applies to all personnel, including non-employee directors and officers, arising from our legal and ethical responsibilities as a public company. Among other restrictions, the Insider Trading Policy contains hedging restrictions prohibiting non-employee directors, the Company’s executive officers and all other employees from purchasing any financial instrument that is designed to hedge or offset any decrease in the market value of the Company’s shares, including, but not limited to, puts, calls or other derivative transactions. Non-employee directors, the Company’s executive officers and all other employees are also restricted from engaging in short sales related to the Company’s ordinary shares, and pledging the Company’s shares as collateral for a loan, including holding shares in a margin account.

Common Stock Ownership Guidelines

The Board of Directors has adopted the Ownership Guidelines both for non-employee directors and for executive officers and senior management of the Company. The Board believes that non-employee directors and senior management should have a significant equity position in the Company and that the Ownership Guidelines serve to further the Board’s interest in encouraging a longer-term focus in managing the Company. The Board also believes that the Ownership Guidelines align the interests of its directors and senior management with the interests of shareholders and further promote Endo’s commitment to sound corporate governance. The Ownership Guidelines are posted on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—Nominating & Governance Committee.” The current Ownership Guidelines provide that each non-employee director eligible to own Company stock should, but is not required to, have ownership of the Company’s ordinary shares equal in value to at least five times his or her current annual cash retainer to be achieved within five years of joining the Board.

 

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On August 1, 2017, the Nominating & Governance Committee approved an amendment to the Company’s Ownership Guidelines. The amendment waives the applicability of the Ownership Guidelines to any non-employee director who is a representative or employee of a significant shareholder of the Company or an investment firm if such non-employee director is prohibited from personally owning Company shares of common stock by the internal policies of such significant shareholder or investment firm. The waiver covered by this amendment applies to Todd B. Sisitsky, who serves as a representative of TPG Capital, a significant shareholder of the Company. TPG Capital’s policies prohibit personal ownership of Company stock by its representatives and, accordingly, Mr. Sisitsky has waived all rights to receive any annual cash retainer fees, meeting fees, share-based awards or other compensation of any kind (other than certain rights to indemnification, directors and officers insurance and expense reimbursement) in connection with his service as a director of the Company.

Review and Approval of Transactions with Related Persons

The Board of Directors has adopted written policies and procedures for review, approval and monitoring of transactions involving the Company and “related persons” (directors and executive officers or their immediate family members, or beneficial owners of greater than five percent of the Company’s outstanding ordinary shares). The policy covers any related person transaction that meets the minimum threshold for disclosure in the Proxy Statement under relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). Such transactions are subject to review and approval by the Audit Committee.

Robert Campanelli is the Executive Director, Supply Chain at Par Pharmaceutical, Inc., a subsidiary of the Company. Mr. Campanelli joined Par Pharmaceutical Inc. in 2003 as a senior product manager and has worked in ascending areas of responsibility since that time. He is the brother of Paul Campanelli, President, Chief Executive Officer and Director of Endo. In 2017, Robert Campanelli received $421,983 in total compensation, of which $208,996 was salary, $88,646 was annual and other bonuses and $124,341 was a grant in the Company’s long-term incentive equity plan. In addition, Robert Campanelli is also eligible to participate in the retirement plans, insurance programs, health benefits and other similar employee welfare benefit arrangements available to other employees of comparable level and on substantially similar terms and conditions.

Committees of the Board of Directors

The Board of Directors has a standing Audit Committee, Compensation Committee, Nominating & Governance Committee and Compliance Committee (in April 2018, the Board changed the name of the Operations Committee to the Compliance Committee). During 2017, the Board also had a Transactions Committee, which it determined to discontinue, effective March 20, 2017. The Board has determined that each committee’s chairman and members, both current and expected, are “independent” in accordance with the criteria established by the SEC and Nasdaq.

Audit Committee

The Audit Committee is responsible for overseeing the Company’s financial reporting process on behalf of the Board of Directors. In addition, the Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the selection of the Company’s independent registered public accounting firm, the scope of the annual audits, fees to be paid to the independent registered public accounting firm, the performance of the Company’s independent registered public accounting firm, the accounting practices of the Company and the Company’s internal controls and legal compliance functions. The Audit Committee operates pursuant to a written charter adopted by the Board of Directors, which is available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—Audit Committee.” The charter describes the nature and scope of responsibilities of the Audit Committee.

Management of the Company has the primary responsibility for the Company’s financial reporting process, principles and internal controls as well as preparation of its financial statements. The Company’s independent registered public accounting firm is responsible for performing an independent audit of, and expressing an opinion on, the conformity of the Company’s financial statements with accounting principles generally accepted in the United States and the effectiveness of the Company’s internal controls over financial reporting.

Between January 1, 2017 and December 31, 2017, the Audit Committee met five times, in each case including periodic meetings held separately with management, the Company’s internal auditors and the independent registered public accounting firm.

Compensation Committee

The Compensation Committee of the Board of Directors determines the salaries and incentive compensation of the President and Chief Executive Officer of the Company, reviews and approves the compensation levels of Endo’s NEOs and provides broad guidance regarding the remuneration and incentive compensation of the other employees of the Company. The Compensation Committee also reviews and acts on any recommendations of the Company’s management for awards granted under the Endo International plc Amended and Restated 2015 Stock Incentive Plan. The Compensation Committee operates pursuant to a written charter adopted by the Board of Directors, which is available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—Compensation Committee.” The charter describes the nature and scope of responsibilities of the Compensation Committee.

 

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The primary function of the Compensation Committee is to conduct reviews of the Company’s general executive compensation policies and strategies and oversee and evaluate the Company’s overall compensation structure and programs. The Compensation Committee confirms that total compensation paid to the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and those other individuals included in the Summary Compensation Table is competitive and performance-based. All of these individuals are referred to as the named executive officers, or NEOs. Responsibilities of the Compensation Committee include, but are not limited to:

   

setting and reviewing, at least annually, the goals and objectives of the Company’s executive compensation plans and evaluating annually the performances of the Company’s NEOs (and certain other employees) in light of those goals and objectives, and determining and approving their compensation level based on this evaluation;

   

interpreting, implementing, administering, reviewing and approving all aspects of remuneration to the Company’s NEOs (and certain other employees), including their employment agreements, severance arrangements and change in control agreements or provisions;

   

establishing or reviewing performance-based and equity-based incentive plans for the NEOs (and certain other employees), as well as reviewing and approving other supplemental benefits and perquisites for such NEOs (and certain other employees);

   

developing, approving, administering and recommending to the Board and the Company’s shareholders for their approval (to the extent such approval is required by any applicable law, regulation or Nasdaq rule) all stock option and other equity-based compensation plans of the Company and all related policies and programs;

   

approving individual recommendations and granting any shares, stock options or other equity-based awards under all equity-based long-term incentive stock plans that are outside the approved guidelines for such grants, and exercising such power and authority as may be required or permitted under such plans;

   

reviewing and approving the Company’s management succession plan for senior management; and

   

reviewing and approving compensation policies for the Company’s non-employee directors.

Endo management is required to provide reviews and recommendations for the Compensation Committee’s consideration, and to manage the Company’s executive compensation programs, policies and governance. Direct responsibilities in this regard include, but are not limited to:

   

providing an ongoing review of the effectiveness of the compensation programs for all employees, including competitiveness, and alignment with the Company’s objectives;

   

recommending changes, if necessary, to achieve all program objectives; and

   

recommending pay levels, payout and/or awards for NEOs and certain other employees other than the President and Chief Executive Officer.

The Compensation Committee can exercise its discretion in modifying any recommended adjustments or awards to the NEOs, taking into consideration the requirements related to performance-based compensation under Section 162(m) of the Internal Revenue Code (the Code).

Between January 1, 2017 and December 31, 2017, the Compensation Committee met six times.

Use of Compensation Consultants

The Compensation Committee retains Korn Ferry Hay Group, a division of Korn Ferry International, as its consultant to provide objective, independent analysis, advice and recommendations with regard to executive compensation including, but not limited to, competitive market data, compensation analysis and recommendations related to our President and Chief Executive Officer, Board and our other senior executives. Korn Ferry Hay Group served as the independent executive compensation consultant to the Compensation Committee for the Company’s entire 2017 fiscal year. The consultant reports to the Chairman of the Compensation Committee and has direct access to the other members of the Compensation Committee. The Compensation Committee also authorizes the consultant to interact with management in certain respects in order to prepare for meetings with, and respond to requests from, the Compensation Committee. The Compensation Committee may retain other consultants and advisors from time to time.

A representative of Korn Ferry Hay Group attends meetings of the Compensation Committee, is available to participate in executive sessions and communicates directly with the Compensation Committee.

In determining the independence and lack of any conflict of interest regarding Korn Ferry Hay Group and Korn Ferry Hay Group’s lead advisor to the Compensation Committee, the Compensation Committee considered, among other things, the following factors:

   

the amount of Korn Ferry Hay Group’s fees for executive compensation consulting services, noting in particular that such fees are nominal when considered in the context of Korn Ferry International and Korn Ferry Hay Group’s total revenues for the period;

   

Korn Ferry Hay Group’s policies and procedures concerning conflicts of interest (copies of which were made available to the Compensation Committee);

   

that there are no conflicts of interest resulting from other business or personal relationships between Korn Ferry Hay Group’s lead advisor to the Compensation Committee and any members of the Compensation Committee or the Company’s executive team;

 

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the lead Korn Ferry Hay Group advisor who provides executive compensation consulting services to the Company does not directly own any shares of the Company, and has agreed not to purchase any such shares so long as Korn Ferry Hay Group and the lead advisor are engaged to provide executive compensation advisory services to the Compensation Committee; and

   

any other factors relevant to the independence of Korn Ferry Hay Group.

In addition, Korn Ferry Hay Group’s Policy on Avoiding Conflicts of Interest confirms that Korn Ferry Hay Group’s compensation consultants will continue to provide clients with independent, unbiased advice. Endo’s Board determined that the policy sufficiently allows Korn Ferry Hay Group Compensation Committee consultants to maintain independence.

In 2017, Korn Ferry Hay Group assisted the Compensation Committee with, among other things, (i) performing a review of the Company’s executive and Board compensation programs, including competitive market analyses, assessment of potential risks associated with compensation arrangements, policies and plans and considerations related to Endo’s President and Chief Executive Officer and other senior executives, (ii) determining the appropriate allocation among short-term and long-term compensation, cash and non-cash compensation and the different forms of non-cash compensation, (iii) identifying appropriate Pay Comparator Companies (as defined below in the section entitled “Compensation Discussion and Analysis” (CD&A)) for purposes of benchmarking the Company’s executive compensation in the industry sectors in which Endo competes for talent and (iv) providing competitive market information and an overview of critical issues and trends affecting the executive compensation landscape.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee, during 2017 or as of the date of this Proxy Statement, is or has been an officer or employee of the Company, or had any relationship requiring disclosure under Item 404(a) of Regulation S-K, and no executive officer of the Company served on the compensation committee or board of any company that employed any member of the Company’s Compensation Committee or Board of Directors.

Nominating & Governance Committee

The Nominating & Governance Committee of the Board of Directors, which consists of independent directors, identifies and recommends to the Board individuals qualified to serve as directors of the Company, recommends to the Board directors to serve on committees of the Board and advises the Board with respect to matters of Board composition and procedures. The Nominating & Governance Committee also oversees the Company’s corporate governance. The Nominating & Governance Committee operates pursuant to a written charter adopted by the Board of Directors, which is available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—Nominating & Governance Committee.”

The Nominating & Governance Committee will consider director candidates recommended by shareholders. In considering candidates submitted by shareholders, the Nominating & Governance Committee will take into consideration the needs of the Board and the qualifications of the candidate. The Nominating & Governance Committee may also take into consideration the number of shares held by the recommending shareholder and the length of time that such shares have been held. To have a candidate considered by the Nominating & Governance Committee, a shareholder must submit the recommendation in writing and must include the following information:

   

Shareholder Information: name of the shareholder and evidence of share ownership in the Company, including the quantity owned and the length of time of ownership.

   

Candidate Information: name of the candidate, his or her resume or a listing of qualifications to be a director of the Company and his or her consent to be named as a director if selected by the Nominating & Governance Committee and nominated by the Board.

The shareholder recommendation and information described above must be sent to the Company Secretary at Endo International plc, First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland, and must be received by the Company Secretary not less than 120 days prior to the anniversary date of the Company’s most recent Annual General Meeting.

While the Board does not have a formal policy with respect to diversity, the Board of Directors and the Nominating & Governance Committee advocate diversity in the broadest sense. We believe that it is important that nominees for the Board represent diverse viewpoints and backgrounds. The Nominating & Governance Committee looks at a broad array of qualifications and attributes including: experience, skills, expertise, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, independence and such other relevant factors that the Nominating & Governance Committee considers appropriate in the context of the needs of the Board of Directors. Although not specified in its charter, the Nominating & Governance Committee actively considers diversity, such as ethnicity and gender, when selecting candidates so that additional diversity may be represented on the Board.

The Nominating & Governance Committee engages national search firms that specialize in identifying and evaluating director candidates. As described above, the Nominating & Governance Committee will also consider candidates recommended by shareholders for inclusion in the search process.

Once a person has been identified by the Nominating & Governance Committee as a potential candidate, the Nominating & Governance Committee may collect and review publicly available information regarding the person to assess whether the

 

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person should be considered further. If the Nominating & Governance Committee determines that the candidate warrants further consideration, the Chairman or a member of the Nominating & Governance Committee utilizes a recognized search firm to review the candidate’s qualifications and background. Generally, if the person expresses a willingness to be considered and to serve on the Board, the Nominating & Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of any other candidates that the Nominating & Governance Committee might be considering, and conducts one or more interviews with the candidate. Generally, Nominating & Governance Committee members may conduct additional due diligence on the candidate. The Nominating & Governance Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a shareholder, although the number of shares held by the recommending shareholder and the length of time that such shares have been held may be taken into consideration.

The Nominating & Governance Committee has established procedures under which any director who is not elected shall, if requested by the Board upon the Nominating & Governance Committee’s recommendation, tender his or her resignation to the Board of Directors. The Board of Directors will publicly disclose its decisions of whether or not to request any director to tender his or her resignation, whether or not to accept any such tendered resignation and the rationale behind such decisions within 90 days from the date of the certification of the election results.

Between January 1, 2017 and December 31, 2017, the Nominating & Governance Committee met five times.

Compliance Committee (formerly, Operations Committee)

In April 2018, the Board of Directors changed the name of the Operations Committee to the Compliance Committee and amended its charter to focus on assisting the Board by providing oversight of regulatory, compliance, quality and legal matters. The Compliance Committee operates pursuant to a written charter adopted by the Board of Directors, which is available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—Compliance Committee.”

Between January 1, 2017 and December 31, 2017, the Operations Committee met five times.

Transactions Committee

The Board of Directors determined to discontinue the Transactions Committee, effective March 20, 2017. The Transactions Committee of the Board of Directors was responsible for providing advice and guidance to the Company’s management in connection with the exploration of strategic acquisition and licensing opportunities as well as any overture for merger with the Company, or sale of the Company or other similar event.

Messrs. Kimmel, Cooke, Hyatt and Sisitsky served as members of the Transactions Committee, with Mr. Hyatt serving as its chairman. Between January 1, 2017 and March 20, 2017 when the Transaction Committee was discontinued, the Transactions Committee met one time.

Composition of Committees of the Board of Directors

The following table shows the directors who currently serve on and/or chair each of the current committees.

 

Name   Audit Committee  

Compensation

Committee

  Nominating &
Governance
Committee
  Compliance
(formerly,
Operations)
Committee (2)

Roger H. Kimmel

  Member   Member   Member   -

Paul V. Campanelli

  -   -   -   -

Shane M. Cooke

  Chairman   -   -   -

Nancy J. Hutson, Ph.D.

  -   -   Member   Chairman

Michael Hyatt

  -   Member   Chairman   -

Sharad S. Mansukani, M.D. (1)

  -   Member   -   Member

William P. Montague

  Member   Chairman   -   -

Todd B. Sisitsky

  -   Member   Member   -

Jill D. Smith

  Member   -   -   Member

 

(1)

Appointed as a member of the Board in November 2017.

(2)

As discussed above, Ms. Smith will not be standing for re-election at the June 7, 2018 Annual Meeting due to her appointment as president and chief executive officer of another company in 2017. Mr. Kimmel will become a member of the Compliance Committee upon Ms. Smith’s departure.

 

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Subject to the re-election of each of the director nominees at the 2018 Annual Meeting, the expected composition of the committees will be as follows:

 

Name   Audit Committee  

Compensation

Committee

  Nominating &
Governance
Committee
  Compliance
(formerly,
Operations)
Committee

Roger H. Kimmel

  Member   -   Member   Member

Paul V. Campanelli

  -   -   -   -

Shane M. Cooke

  Chairman   -   -   -

Nancy J. Hutson, Ph.D.

  -   -   Member   Chairman

Michael Hyatt

  -   Member   Chairman   -

Sharad S. Mansukani, M.D.

  -   Member   -   Member

William P. Montague

  Member   Chairman   -   -

Todd B. Sisitsky

  -   Member   Member   -

With respect to the Audit Committee, the Board has determined that: (1) Messrs. Cooke and Montague are “audit committee financial experts,” as defined by the SEC regulations, and each has the related financial management expertise within the meaning of the Nasdaq listing rules and (2) the current and expected chairman and members are financially literate in accordance with the criteria established by the SEC and the Nasdaq.

 

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Audit Committee Report

The Audit Committee has reviewed and discussed the Company’s audited consolidated financial statements as of and for the year ended December 31, 2017 with the management of the Company and PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm. Further, the Audit Committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by the Public Company Accounting and Oversight Board’s (PCAOB) Auditing Standard No. 1301, Communications with Audit Committees, other standards of the PCAOB (United States), rules of the SEC, and other applicable regulations, relating to the firm’s judgment about the quality, not just the acceptability, of the Company’s accounting principles, the reasonableness of significant judgments and estimates, and the clarity of disclosures in the audited consolidated financial statements as of and for the year ended December 31, 2017.

The Audit Committee also has received the written disclosures and the letter from PricewaterhouseCoopers LLP required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, which relate to PricewaterhouseCoopers LLP’s independence from the Company, and has discussed with PricewaterhouseCoopers LLP their independence from the Company. The Audit Committee has also considered whether the independent registered public accounting firm’s provision of non-audit services to the Company is compatible with maintaining the firm’s independence. The Audit Committee has concluded that the independent registered public accounting firm is independent from the Company and its management. The Audit Committee has also discussed with management of the Company and PricewaterhouseCoopers LLP such other matters and received such assurances from them as it has deemed appropriate.

The Committee also reviewed management’s report on its assessment of the effectiveness of the Company’s internal control over financial reporting and the independent registered public accounting firm’s report on the effectiveness of the Company’s internal control over financial reporting. In addition, the Audit Committee reviewed key initiatives and programs aimed at strengthening the effectiveness of the Company’s internal and disclosure control structure. As part of this process, the Audit Committee continued to monitor the scope and adequacy of the Company’s internal auditing program.

Based on the reviews, reports and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board approved, that the Company’s audited consolidated financial statements for the year ended December 31, 2017 and management’s assessment of the effectiveness of Endo International plc’s internal control over financial reporting be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, for filing with the SEC. The Audit Committee has selected, and the Board of Directors has approved, subject to shareholder approval, the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018.

Submitted by the Audit Committee of the Company’s Board of Directors.

Members of the Audit Committee:

Shane M. Cooke (Chairman)

Roger H. Kimmel (Member)

William P. Montague (Member)

Jill D. Smith (Member)

The above Audit Committee Report does not constitute soliciting material, and shall not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent that the Company specifically incorporates the Audit Committee Report by reference therein.

 

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Proposal 2: Approval of Appointment of Independent Registered Public Accounting Firm and Authorization to Determine the Firm’s Remuneration

The Audit Committee of the Board of Directors has selected PricewaterhouseCoopers LLP (PwC), an independent registered accounting firm, to audit the books, financial records and internal controls of the Company for the year ending December 31, 2018.

In accordance with SEC rules and PwC policies, audit partners are subject to rotation requirements to limit the number of consecutive years an individual partner may provide audit service to a company. For lead and concurring review audit partners, the maximum number of consecutive years of service in that capacity is five years. The Audit Committee is involved in the selection of the lead audit partner under this rotation policy.

The Company is asking its shareholders to approve the appointment of PwC as the Company’s independent registered public accounting firm for 2018 and to authorize the Board of Directors, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration.

A representative of PwC is expected to be present at the Annual Meeting and available to respond to appropriate questions, and will have the opportunity to make a statement if he or she desires to do so.

Fees Paid to the Independent Registered Public Accounting Firm

PwC has served as the Company’s independent registered public accounting firm since the year ended December 31, 2014. The table below summarizes the aggregate fees for services PwC provided during 2017 and 2016:

 

a      Fees

for audit services in 2017 and 2016 consisted of:

     Audit of the Company’s annual financial statements;

     Evaluation and reporting on the effectiveness of the Company’s internal controls over financial reporting;

     Reviews of the Company’s quarterly financial statements;

     Statutory audits for the Company and certain of its subsidiaries; and

     2017     2016  

Audit Fees(a)

  $ 9,128,378     $ 11,258,000  

Audit-Related Fees(b)

    632,032       10,000  

Tax-Fees(c)

    1,292,134       2,346,904  

All Other Fees(d)

    6,840       6,662  
               

Total

  $ 11,059,384     $ 13,621,566  
               
 

 

     Comfort letters, consents and other services related to debt issuances and other SEC matters.

b      Feesfor audit-related services in 2017 and 2016 consisted of:

     Attestation services requested by management;

     Due diligence services; and

     Pre- or post- implementation reviews of processes or systems.

c      Feesfor tax services in 2017 and 2016 consisted of:

     Tax compliance;

     Statutory tax return preparation and review; and

     Tax planning and advice, including advice related to the impact of changes in tax laws.

d      Allother fees principally includes subscriptions to knowledge tools and other advisory services.

In considering the nature of the services provided by PwC, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with PwC and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the standards adopted by the PCAOB.

Pre-Approval Policy

Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation for and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm.

Prior to the engagement of the independent registered public accounting firm for the next year’s audit, management will submit to the Audit Committee for approval a list of services and related fees expected to be rendered during that year within each of the following four categories of services:

 

  1.

Audit services include audit work performed on the financial statements and related to the evaluation and reporting on the effectiveness of the Company’s internal control over financial reporting. Also included in this category is work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort letters, consents and other services related to SEC matters, and discussion surrounding the proper application of financial accounting and/or reporting standards.

 

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  2.

Audit-related services are for assurance and related matters that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, carve-out audits and employee benefit plan audits.

  3.

Tax services include all services, except those services specifically related to the audit of the financial statements, performed by the independent registered public accounting firm’s tax personnel, including tax analysis; assisting with the coordination of execution of tax related activities, primarily in the area of mergers and acquisitions; supporting other tax related regulatory requirements; and tax compliance and reporting.

  4.

Other fees are those associated with services not captured in the other categories.

Prior to engagement, the Audit Committee pre-approves the independent registered public accounting firm’s services within each category. The fees are budgeted and the Audit Committee requires the independent registered public accounting firm to report actual fees versus budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm.

The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

Vote Required

A majority of the votes cast at the Annual Meeting will be required to approve the appointment of the Company’s independent registered public accounting firm and the authorization of the Board, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration.

 

The Audit Committee and the Board of Directors recommend a vote FOR the approval of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018 and the authorization of the Board, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration.

 

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Proposal 3: Advisory Vote on the Compensation of Our Named Executive Officers (Say-on-Pay)

Compensation Philosophy

Pay-for-performance, alignment with shareholder interests and offering competitive pay are fundamental to Endo’s compensation philosophy.

 

 

A significant portion of executive compensation is linked directly with Endo’s short- and long-term strategic and operating performance, without encouraging excessive risk;

 
 

Endo’s executive pay programs incorporate significant amounts of variable incentive-based compensation that directly aligns with Endo’s financial, strategic, operating and share price performance objectives; and

 
 

Total Direct Compensation is competitive within the Endo Pay Comparator Companies, enabling the Company to attract and motivate highly-talented individuals and key contributors to achieve high level performance, while embracing the Company’s key values and behaviors.

 

Endo’s executive compensation package supports this philosophy by offering annual and long-term incentive compensation opportunities that are performance based. Incentive-based cash compensation awarded is subject to the Company achieving its annual performance objectives, and realizing value in long-term equity is largely dependent upon Endo’s financial performance and the delivery of shareholder value.

The Company’s commitment to its pay-for-performance philosophy was demonstrated again in connection with the 2017 performance year. In the context of the Company’s solid financial, strategic, operating and compliance performance, as well as external dynamics negatively impacting Endo’s stock price performance this past year, the Compensation Committee remained committed to the Company’s pay-for-performance philosophy, which is reflected in the awarded and realized pay levels for all NEOs. The following was considered by the Compensation Committee as part of the decision process for the 2017 performance year:

   

Since his appointment to the position of President and Chief Executive Officer on September 23, 2016, Mr. Campanelli entered the 2017 performance year confronted with numerous legacy issues, as well as litigation matters and debt obligations. Despite these challenges, Mr. Campanelli’s strong leadership and ability to remain focused on the execution of the Company’s key priorities confirms the Board’s confidence in Mr. Campanelli and the Executive Leadership Team, and their ability to lead the organization.

   

Under Mr. Campanelli’s leadership, the members of the Executive Leadership Team focused on priorities within their direct control, resulting in solid financial and operational performance throughout 2017. These achievements were driven primarily by key initiatives focused on strategic portfolio optimization, selective investments in product development, improved operating efficiency and mitigation of legal liabilities, leading to enhanced cash flow management and margin expansion (discussed in greater detail in the CD&A section). Mr. Campanelli and select members of the Executive Leadership Team worked with the FDA to voluntarily execute the cessation of shipments of OPANA® ER. In managing Endo’s debt obligations, the Company’s credit agreement was also refinanced, significantly enhancing the Company’s operational flexibility.

   

Despite the challenges facing the Company, Endo delivered solid operating results in 2017, including strong Adjusted EBITDA generation. Nevertheless, various external pressures and the challenges in the U.S. generics industry impacted Endo’s stock price, negatively affecting the realized value associated with the Company’s equity-based long-term incentive program.

 

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Please see the below example for Mr. Campanelli, which compares expected target compensation values with realized values based on actual results through the record date of April 13, 2018. As demonstrated by this example, equity compensation levels reflect a reduction of approximately 67%, with overall compensation levels reduced by approximately 52%. See Summary Compensation Table’s footnote (1) on page 53 for details regarding LTI valuations under ASC 718 for accounting and proxy reporting purposes.

 

 

LOGO

The information disclosed in the CD&A section details the actions approved by the Compensation Committee and explains the steps taken to support the Company’s executive management team charged with advancing Endo’s strategic imperatives, financial performance and operating objectives.

Pay-for-performance Incentive Plan Design

The Company’s compensation programs consist of elements designed to complement each other and reward achievement of short-term and long-term objectives. This is achieved by tying the Company’s compensation programs to its performance through the establishment and achievement of strategic operating metrics, or as a function of the Company’s Total Shareholder Return (TSR). We have chosen the selected metrics to align employee compensation, including compensation for the NEOs as disclosed in the Summary Compensation Table located under the section entitled “Compensation of Executive Officers and Directors,” to the Company’s strategic operating results and business strategy in an effort to enhance shareholder value. The summary below reflects the incentive program enhancements implemented and maintained by Endo in an effort to optimize pay-for-performance:

 

Pay-for-performance Incentive Plan Design

High concentration on variable short- and long-term incentive compensation

Incentive-based compensation accounts for a majority of the compensation provided to Endo’s NEOs; over 90% for Mr. Campanelli, with all other NEOs averaging over 75%

PSU design with measurement based on relative TSR and free cash flow performance over a three-year performance period

LTI awards granted to employees are generally required to vest, at a minimum, over a three-year period

Equity plans prohibit the re-pricing of equity awards without shareholder approval

“Double trigger” change in control provision

Equity plans do not allow for cash buyouts of underwater options

As the Company’s shareholders consider the evolution of Endo’s pay-for-performance practices, consideration should be given to the significant progress made in recent years (see “Compensation Discussion and Analysis”). Based on the Company’s performance and competitive positioning of pay, CEO pay-for-performance has demonstrated a high degree of alignment with Endo’s Pay Comparator Companies across multiple quantitative screens.

 

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Compensation Committee Governance

The Compensation Committee regularly reviews industry compensation practices to align the Company’s compensation philosophy with the Company’s business strategy, while focusing on the enhancement of long-term shareholder value and management of risk. The summary below reflects the leading governance practices implemented and maintained by Endo’s Compensation Committee:

 

Governance

Utilize “Pay Comparator Companies” for NEO total compensation comparison purposes

Conduct annual assessments of NEO pay positioning against Pay Comparator Companies

Perform independent annual reviews of risks associated with compensation arrangements, policies and practices

Expanded the Company’s compensation recovery policy (clawback) in the event of a restatement of Company financial results

Prohibit hedging and pledging of Company shares

Prohibit Change in Control gross-up payments

Employment agreements do not have automatic renewal provisions

Non-employee Directors and executive management subject to ownership guidelines

Ownership guidelines require non-employee Directors not to sell shares until guidelines are attained

Plan has individual share limitations for non-employee Directors

The Compensation Committee retained and is advised by an independent compensation consultant

The Compensation Committee has taken and will continue to take action to structure our executive compensation practices in a manner that is performance-based with a view towards rewarding outstanding operating performance and maximizing shareholder value creation. The Board believes that the executive compensation as disclosed in the CD&A section, tabular disclosures and other narrative executive compensation disclosures in this Proxy Statement corresponds directly with the Company’s compensation philosophy and aligns, where appropriate, with our Pay Comparator Companies’ pay practices.

Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires that we regularly seek a non-binding advisory vote from our shareholders to approve the compensation of our named executive officers, or NEOs, as disclosed in the CD&A section and tabular disclosures of this Proxy Statement. Since the required vote is advisory, the result of the vote is not binding upon the Board.

Vote Required

A majority of the votes cast at the Annual Meeting will be required to approve, on an advisory basis, the compensation of Endo’s named executive officers.

 

The Compensation Committee and the Board of Directors recommends a vote FOR the approval, on an advisory basis, of the compensation of Endo’s named executive officers as described in the CD&A section, tabular disclosures, and other narrative executive compensation disclosures in this Proxy Statement required by the SEC.

Effect of Proposal

The above say-on-pay resolution is non-binding. The approval or disapproval of this proposal by shareholders will not require the Board or the Compensation Committee to take any action regarding the Company’s executive compensation practices.

The Board values the opinions of the Company’s shareholders as expressed through their votes and other communications. Although the resolution is non-binding, the Board will consider the outcome of the advisory vote on executive compensation when making future compensation decisions.

 

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Proposal 4: Approval of the Endo International plc Amended and Restated 2015 Stock Incentive Plan

Summary

On June 9, 2015, shareholders approved the Endo International plc 2015 Stock Incentive Plan (as amended, the Plan). On June 9, 2016, shareholders approved an amendment that imposed a limit on the value of equity grants that may be made to each non-employee director and provided technical updates to reflect changes in accounting rules. On June 8, 2017, shareholders approved an amendment that increased the authorized number of shares of Company stock that may be issued with respect to awards under the Plan, established parameters applicable to certain awards granted under the Plan intended to qualify as “performance-based compensation” under Section 162(m) of the Code and updated Irish statutory references in the Plan to ensure consistency with the Companies Act 2014. On April 26, 2018, our Board of Directors approved, subject to shareholder approval at the Annual Meeting, an amendment and restatement of the Plan that increases the authorized number of shares of Company stock that may be issued with respect to awards under the Plan by five million (5,000,000) shares, provides that those shares may be used for any type of award issuable under the Plan and updates certain provisions in connection with the Tax Cuts and Jobs Act of 2017 (the Tax Act). In other regards, the Plan, as proposed, generally restates the terms and conditions of the current Plan. A summary of the material provisions of the Plan is set forth below.

Long-term equity awards are a key element of our compensation programs and accomplish the following objectives:

   

Align the interest of key employees with those of our shareholders through increased employee ownership of the Company;

   

Attract, motivate and retain key employees who will contribute to our long-term financial success;

   

Provide incentive compensation opportunities in a highly competitive industry to encourage top talent to remain dedicated to our long-term objectives; and

   

Attract and retain members of our Board of Directors that are highly competent individuals upon whose judgment, initiative, leadership and continued efforts our success depends.

In the context of a challenging external environment, it is critical that we maintain the ability to attract and motivate key individuals who are essential to the long-term success of the Company. This proposal will allow the Plan to maintain a sufficient number of shares to help achieve our goals and enable us to continue making long-term equity awards to employees to incentivize them to support the Company’s strategic objectives. If the shareholders do not approve the Plan, as amended and restated in 2018, then the terms, conditions and current share reserve of the current Plan will continue in effect, but we will not have a sufficient number of shares available for future grants.

In determining the number of shares of Company stock to reserve under the Plan, our management and the Compensation Committee, in consultation with our compensation consultant, evaluated the dilution, historic share usage, burn rate and the existing terms of outstanding equity awards. We believe the increased dilution resulting from the approval of the Plan, as amended and restated in 2018, remains consistent with shareholder interests. For additional information on our dilution, historic share usage and burn rate, see the section entitled “Dilution and Historical Share Usage” below.

Vote Required

A majority of the votes cast at the Annual Meeting will be required to approve the Plan.

 

The Compensation Committee and the Board of Directors recommends a vote FOR the approval of the Endo International plc Amended and Restated 2015 Stock Incentive Plan.

Dilution and Historical Share Usage

Dilution. Subject to shareholder approval of the Plan, as amended and restated in 2018, an estimated 9,542,291 shares of Company stock will be reserved for issuance under the Plan (comprised of 5,000,000 new shares available for awards under the Plan and 4,542,291 shares available for future awards under the Plan as of April 13, 2018, all of which may be used for any type of award issuable under the Plan), which represents approximately 4.3% of our issued and outstanding shares. The Board of Directors believes that this number of shares constitutes reasonable potential equity dilution and provides a significant incentive for employees to increase the value of the Company for all shareholders. The closing trading price of each share of Company stock as of the record date was $5.48.

As of April 13, 2018, Endo had:

   

4,542,291 shares remaining available for future awards under the current Plan (no shares remain available for future awards under any other plan).

   

16,675,416 shares of Company stock underlying outstanding awards, comprised of:

   

7,669,974 stock options outstanding (vested and unvested), with a weighted average exercise price of $22.49 and a weighted average remaining contractual term of 7.6 years. The outstanding stock options all had exercise prices greater than the Company’s stock price as of the record date.

 

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9,005,442 shares of full value awards outstanding, consisting of 6,826,950 shares of unvested restricted stock units and 2,178,492 unvested and unearned performance-contingent awards.

   

223,786,744 shares of Company stock outstanding.

The new shares available under the Plan, as amended and restated in 2018, would represent an additional potential equity dilution of approximately 2.2%. Including the shares under the Plan, as amended and restated in 2018, the potential equity dilution from all equity incentive awards outstanding and available for grant under all of our equity plans would result in a maximum potential equity dilution of approximately 11.7%. The following summarizes current and proposed share reserves and resulting dilution levels as of April 13, 2018:

 

          # Shares     Dilution  
A.    Shares Available for Grant Under the Current Plan     4,542,291       2.0%  
B.    New Shares Available for Grant Under the Proposed Plan     5,000,000       2.2%  
C.    Total Shares Available for Grant Under the Proposed Plan (A+B)     9,542,291       4.3%  
D.    Current Shares Outstanding     16,675,416       7.5%  
E.    Total Shares Authorized Under the Proposed Plan (C+D)     26,217,707       11.7%  

The shares reserved for issuance under the Plan may be authorized but unissued Company stock or authorized and issued Company stock held in the Company’s treasury. If any shares subject to an award are forfeited, cancelled, exchanged or surrendered or if an award terminates or expires without a distribution of shares to the participant, the shares of Company stock with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, withholding, termination or expiration, again be available for awards under the Plan except that any shares of Company stock surrendered or withheld as payment of either the exercise price of an award and/or withholding taxes in respect of an award will not again be available for awards under the Plan.

The quantity of shares available for issuance under the Plan is required to provide the Company with the ability to support our pay-for-performance compensation philosophy by offering the appropriate level of incentives and equity ownership stake to effectively attract, motivate and retain highly-talented individuals, while supporting our strategic growth objectives focused on the creation of shareholder value. As demonstrated by the Company’s responsible use of equity over the past several years and good corporate governance practices associated with equity and executive compensation practices in general, the stock reserved under the Plan will allow the Company to remain focused on business continuity and strategic growth priorities, while managing program costs and share utilization levels within acceptable industry standards.

Share Usage. In determining the number of shares to reserve under the Plan, we evaluated the dilution and historic share usage (as described above), burn rate and the existing terms of outstanding awards under our equity plans. The annual share usage under our equity plans for the last three fiscal years was as follows:

 

          Fiscal Year
2017
     Fiscal Year
2016
     Fiscal Year
2015
     Average  
A    Total Shares Granted During Fiscal Year (1)      11,541,391        4,951,749        2,185,578        6,226,239  
B    Basic Weighted Average Common stock Outstanding      223,198,000        222,651,000        197,100,000        214,316,333  
C    Burn Rate (A/B)      5.17      2.22      1.11      2.83

 

(1)

Includes the number of options and full value awards (restricted shares and restricted stock units) granted for such year. PSUs granted are also included as full value awards. The number of full value awards granted for each year is multiplied by a multiplier of 1.5 based on the volatility in the Company’s stock price over the preceding three years.

Description of Material Features of the Plan

Terms and Provisions. The material terms and provisions of the Plan, assuming this Proposal 4 is approved, are summarized below. This description is not intended to be complete and is qualified in its entirety by reference to the Plan, a copy of which is attached as Annex 1 to this Proxy Statement.

Administration. The Plan is administered by the Compensation Committee, which was appointed by our Board of Directors. The Compensation Committee has the authority, in its sole discretion, subject to and not inconsistent with the express terms and provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or as necessary or advisable. The Compensation Committee may delegate all or any part of its authority under the Plan to an employee, employees or committee of employees. All decisions, determinations and interpretations of the Compensation Committee are final and binding, and no member of the Compensation Committee will be liable for any action taken or determination made in good faith with respect to the Plan or any award.

Eligibility. Awards pursuant to the Plan may be granted to the following classes of persons: (1) employees of the Company, including officers and directors who are employees, (2) non-employee directors and (3) consultants of the Company. Incentive

 

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stock options may only be granted to Company employees (including officers and directors who are also employees). As of April 13, 2018, we had eight non-employee directors, seven of whom are currently eligible to participate in the Plan. As of April 13, 2018, we had approximately 2,960 employees (which includes all of the full-time and part-time employees of the Company and its subsidiaries and approximately six officers of the Company and its subsidiaries), all of whom are eligible to participate in the Plan, although awards will typically be limited to approximately 570 employees of the Company. While consultants are eligible to participate in the Plan, it is not the Company’s practice to grant awards under the Plan to these individuals.

Shares Available. The number of shares of Company stock reserved for issuance under the Plan, as amended and restated in 2018, will be 5,000,000 plus the number of shares reserved but unissued under the Plan as of the date the Plan, as amended and restated in 2018, is approved by shareholders, or that become available for reuse in accordance with the terms of the Plan, following the date the Plan, as amended and restated in 2018, is approved by shareholders, subject to adjustment for a change in capitalization. The shares may be authorized but unissued Company stock or authorized and issued Company stock held in the Company’s treasury. If any shares subject to an award are forfeited, cancelled, exchanged or surrendered or if an award terminates or expires without a distribution of shares to the participant, the shares of stock with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, withholding, termination or expiration, again be available for awards under the Plan except that any shares of Company stock surrendered or withheld as payment of either the exercise price of an award and/or withholding taxes in respect of an award will not again be available for awards under the Plan. The shares available under the Plan, as amended and restated in 2018, may be used to grant any type of award issuable under the Plan.

Section 162(m) Limitations. We are asking shareholders to approve individual award limitations and performance goals in order to allow certain “Grandfathered Awards” granted under the Plan to qualify as “performance-based compensation” under Section 162(m) of the Code. “Grandfathered Awards” means remuneration which the Company intended to qualify as “performance-based compensation” under Section 162(m) of the Code and which is provided pursuant to a written binding contract that was in effect on November 2, 2017, and that was not modified in any material respect on or after such date, within the meaning of Section 13601(e)(2) of P.L. 115-97 (the Tax Cuts and Jobs Act) as may be amended from time to time (including any regulations or further guidance). The Plan contains the following limitations for Grandfathered Awards. The total number of shares of Company stock subject to stock-based awards intended to qualify as Grandfathered Awards granted to any one participant during any tax year of the Company may not exceed one million five hundred thousand (1,500,000) shares (based on highest levels of performance resulting in maximum payout), subject to adjustment for certain transactions. With respect to cash-based awards intended to qualify as Grandfathered Awards, (i) the maximum value of the aggregate payment that any participant may receive with respect to any such cash-based award that is an annual incentive award is $5,000,000, (ii) the maximum value of the aggregate payment that any participant may receive with respect to any such award that is a long-term cash incentive award is the amount set forth in clause (i) above multiplied by a fraction, the numerator of which is the number of months in the performance period and the denominator of which is twelve, (iii) the achievement of the awards will be based on the business criteria listed under “Performance Awards” below, and (iv) the additional rules described below will apply.

Director Compensation Limitation. The maximum fair market value of shares of Company stock subject to awards that may be granted to each non-employee director participant in any consecutive twelve-month period is limited to $750,000.

Description of Awards. The Plan provides for the grant of stock options, stock appreciation rights, shares of restricted stock, stock bonus, performance awards or other share-based or cash-based awards. Subject to earlier vesting on certain events, as described below, no award (or portion of an award) granted under the Plan provides for vesting prior to the first anniversary of its date of grant. However, awards that result in the issuance of an aggregate of up to 5% of the shares of Company stock available under the Plan may be granted under the Plan without regard to such minimum vesting provisions. In addition, as described below, awards that are subject to time-based vesting conditions are generally required under the Plan to vest over a three-year period.

Stock Options. Options granted under the Plan may be incentive stock options meeting the definition of an incentive stock option under Section 422 of the Code or options which do not qualify as incentive stock options (referred to as nonqualified options). An award will be evidenced by an award agreement that specifies the option price, duration of the option, the number of shares to which the option pertains, termination and transferability rights and other provisions as the Compensation Committee may determine to be appropriate. The option price for each grant will be at least equal to the fair market value of the shares subject to the option on the grant date of the option. The date on which the Compensation Committee adopts a resolution granting an option will be considered the grant date of the option, unless such resolution specifies a later date. No option may be exercised later than the tenth anniversary date of its grant. Notwithstanding the foregoing, if the vesting condition for any option (other than options excluded from the minimum vesting requirement) relates exclusively to the passage of time and continued employment, such time period will not be less than 36 months, with no more than 33 1/3% of the award vesting every 12 months from the date of the award (subject to earlier vesting on certain events described below). If the vesting condition for any award relates to the attainment of specified performance goals, such award will vest over a performance period of not less than one year (subject to earlier vesting on certain events described below).

 

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Stock Appreciation Rights (SARs). The Compensation Committee may grant SARs under the Plan, either in tandem with stock options or freestanding and unrelated to options. Tandem SARs may be exercised only when the related option is exercisable. Freestanding SARs may be exercised upon such terms and conditions established by the Compensation Committee. Each SAR will be evidenced by an award agreement that will specify the grant price, the term of the SAR and other provisions as the Compensation Committee or board may determine to be appropriate. In no event will the appreciation base of the ordinary shares subject to the SAR be less than the fair market value of the shares on the date of grant. The term of the SAR may not exceed ten (10) years. Notwithstanding the foregoing, if the vesting condition for any SAR (other than SARs excluded from the minimum vesting requirement) relates exclusively to the passage of time and continued employment, such time period will not be less than 36 months, with no more than 33 1/3% of the award vesting every 12 months from the date of the award (subject to earlier vesting on certain events described below). If the vesting condition for any award relates to the attainment of specified performance goals, such award will vest over a performance period of not less than one year (subject to earlier vesting on certain events described below). Upon exercise of a SAR, a participant will be entitled to receive payment from the Company in an amount determined by multiplying (i) the difference between the fair market value of a share on the exercise date and the appreciation base of the SAR, by (ii) the number of shares with respect to which the SAR is exercised.

Restricted Stock and Bonus Stock. The Compensation Committee may grant restricted stock awards, alone or in tandem with other awards under the Plan, subject to such restrictions, terms and conditions, as the Compensation Committee may determine in its sole discretion and as may be evidenced by the applicable agreements. The vesting of a restricted stock award granted under the Plan may be conditioned upon the completion of a specified period of employment or service with the Company or any subsidiary, upon the attainment of specified performance goals and/or upon such other criteria as the Compensation Committee may determine in its sole discretion. Notwithstanding the foregoing, if the vesting condition for any award that is settled in Company stock, such as restricted stock awards (full value awards) (other than full value awards excluded from the minimum vesting requirement) relates exclusively to the passage of time and continued employment, such time period will not be less than 36 months, with no more than 33 1/3% of the award vesting every 12 months from the date of the award (subject to earlier vesting on certain events described below). If the vesting condition for any full value award (including award of restricted stock) relates to the attainment of specified performance goals, such full value award will vest over a performance period of not less than one year (subject to earlier vesting on certain events described below). Each agreement with respect to a restricted stock award will set forth the amount (if any) to be paid by the participant with respect to the award and when and under what circumstances such payment is required to be made. The Compensation Committee may grant stock bonus awards, alone or in tandem with other awards under the Plan, subject to such terms and conditions as the Compensation Committee may determine in its sole discretion and as may be evidenced by the applicable agreement.

Performance Awards. The Compensation Committee may grant performance awards, alone or in tandem with other awards under the Plan, to acquire shares of Company stock in such amounts and subject to such terms and conditions as the Compensation Committee may, from time to time in its sole discretion, determine, subject to the terms of the Plan. To the extent necessary to satisfy the short-term deferral exception to Section 409A of the Code, unless the Compensation Committee will determine otherwise, the Performance Awards will provide that payment will be made within 2 1/2 months after the end of the year in which the Participant has a legally binding vested right to such award. No dividends or dividend equivalents will be paid in respect of unvested performance awards. In the event that the Compensation Committee grants a performance award or other award (other than a nonqualified option or incentive stock option) that is intended to constitute a Grandfathered Award, payments under the award will be made solely on account of the attainment of one or more objective performance goals and the performance goals must be established in writing by the Compensation Committee not later than 90 days after the commencement of the period of service to which the award relates (but in no event after 25 percent of the period of service has elapsed). The performance goal(s) to which the Grandfathered Award relates may be based on one or more of the business criteria set forth in the Plan, which include: stock appreciation; net revenues; return on total shareholders’ equity; earnings per ordinary share; net income; return on assets, return on investment, return on capital or return on equity; earnings from continuing operations; levels of expense, cost or liability; earnings before all or any interest, taxes, depreciation and/or amortization; inventory goals; market share; cost reduction goals; business development goals; customer satisfaction goals; employee satisfaction or employee engagement goals; identification or consummation of investment opportunities or completion of specified projects; entry into new markets; meeting specified market penetration or value added goals; development of new technologies; or cash flow.

Other Stock- or Cash-Based Awards. The Compensation Committee is authorized to grant other stock-based awards or other cash-based awards, as deemed by the Compensation Committee to be consistent with the purposes of the Plan. To the extent necessary to satisfy the short-term deferral exception to Section 409A of the Code, unless the Compensation Committee will determine otherwise, the awards will provide that payment will be made within 2 1/2 months after the end of the year in which the participant has a legally binding vested right to such award. The Compensation Committee may establish such rules applicable to the other stock- or cash-based awards to the extent not inconsistent with Section 162(m) of the Code with respect to Grandfathered Awards.

Termination of Service. Unless the applicable award agreement provides otherwise or the Compensation Committee in its sole discretion determines otherwise, the Plan generally provides for the treatment of outstanding awards in the event of a termination of a participant’s service with or without cause (as such term is defined in the Plan), for good reason (or any like term as defined under a participant’s employment agreement), or as a result of voluntary retirement, death or disability.

 

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Effect of Change in Control. Unless the applicable award agreement provides otherwise, in the event of a Change in Control (as such term is defined in the Plan), and in accordance with the requirements of Section 409A of the Code:

   

For any award that is assumed in connection with a Change in Control, in the event of a termination of a participant’s service by the Company without cause, during the 24-month period following the Change in Control, at the time of termination, all awards held by the participant will vest, and any performance conditions imposed on the awards will be deemed to be achieved at target levels.

   

For any award that is not assumed in connection with a Change in Control, immediately upon the occurrence of the Change in Control, all awards held by the participant will become fully vested and any performance conditions imposed on the awards will be deemed to be achieved at target levels.

   

An award will be considered assumed if, following the Change in Control, the award remains subject to the same terms and conditions that were applicable to the award immediately prior to the Change in Control except that, if the award related to shares of Company stock, the award instead confers the right to receive ordinary shares of the acquiring entity.

   

In the event of a Change in Control, except as would otherwise result in adverse tax consequences under Section 409A of the Code, the Company may provide that each award will, immediately upon the occurrence of a Change in Control, be cancelled in exchange for a payment in cash or securities in an amount equal to (x) the excess of the consideration paid per share of Company stock in the Change in Control over the exercise price (if any) per share of Company stock subject to the award multiplied by (y) the number of shares granted under the award.

Amendment or Termination of the Plan. Subject to certain limitations, the Board of Directors or the Compensation Committee may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, neither the Board of Directors, the Compensation Committee nor their respective delegates will have the authority to (a) re-price (or cancel and re-grant) any option or, if applicable, either award at a lower exercise, base or purchase price, or (b) cancel underwater options or stock appreciation rights in exchange for cash (at any time when the fair market value as defined in the Plan of the Company stock is less than the exercise price of the option or stock appreciation right) without first obtaining the approval of the Company’s shareholders.

Federal Income Tax Consequences of the Endo International plc Amended and Restated 2015 Stock Incentive Plan

The following discussion of certain relevant federal income tax effects applicable to stock options and other stock-based awards granted under the Plan is a summary only, and reference is made to the Code for a complete statement of all relevant federal tax provisions.

Options. With respect to nonqualified options (NSO), the participant will recognize no income upon grant of the option, and, upon exercise, will recognize ordinary income to the extent of the excess of the fair market value of the shares on the date of option exercise over the amount paid by the participant for the shares. Upon a subsequent disposition of the shares received under the option, the participant generally will recognize capital gain or loss to the extent of the difference between the fair market value of the shares at the time of exercise and the amount realized on the disposition.

In general, no taxable income is realized by a participant upon the grant of an incentive stock option (ISO). If ordinary shares are issued to a participant (option shares) pursuant to the exercise of an ISO granted under the Plan and the participant does not dispose of the option shares within the two-year period after the date of grant or within one year after the receipt of such option shares by the participant (a disqualifying disposition), then, generally (i) the participant will not realize ordinary income upon exercise and (ii) upon sale of such option shares, any amount realized in excess of the exercise price paid for the option shares will be taxed to such participant as capital gain (or loss). The amount by which the fair market value of ordinary shares on the exercise date of an ISO exceeds the purchase price generally will constitute an item which increases the participant’s “alternative minimum taxable income.”

If option shares acquired upon the exercise of an ISO are disposed of in a disqualifying disposition, the participant generally would include in ordinary income in the year of disposition an amount equal to the excess of the fair market value of the option shares at the time of exercise (or, if less, the amount realized on the disposition of the option shares), over the exercise price paid for the option shares. Subject to certain exceptions, an option generally will not be treated as an ISO if it is exercised more than three months following termination of employment. If an ISO is exercised at a time when it no longer qualifies as an ISO, such option will be treated as an NSO as discussed above.

In general, we will receive an income tax deduction at the same time and in the same amount as the employee recognizes ordinary income.

Payment of Option Price in Shares. If an option is exercised through the use of Company stock previously owned by the participant (subject to applicable law), such exercise generally will not be considered a taxable disposition of the previously owned shares and, thus, no gain or loss will be recognized with respect to such previously owned shares upon such exercise. The amount of any built-in gain on the previously owned shares generally will not be recognized until the new shares acquired on the option exercise are disposed of in a sale or other taxable transaction. However, if the previously owned shares were acquired on the exercise of an incentive stock option and the holding period requirement for those shares was not satisfied at

 

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the time they were used to exercise a stock option, such use would constitute a disqualifying disposition of such previously owned shares resulting in the recognition of ordinary income in the amount described above.

SARs. The recipient of a grant of SARs will not realize taxable income and we will not be entitled to a deduction with respect to such grant on the date of such grant. Upon the exercise of an SAR, the recipient will realize ordinary income equal to the amount of cash (including the amount of any taxes withheld) and the fair market value of any shares received at the time of exercise. In general, we will be entitled to a corresponding deduction, equal to the amount of income realized.

Restricted Stock. A participant who receives a grant of restricted stock will not recognize any taxable income at the time of the award, provided the shares are subject to restrictions (that is, they are nontransferable and subject to a substantial risk of forfeiture). A participant’s rights in restricted stock awarded under the Plan are subject to a substantial risk of forfeiture if the rights to full enjoyment of the shares are conditioned, directly or indirectly, upon the future performance of substantial services by the participant. However, the participant may elect under Section 83(b) of the Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the shares on the date of the award, determined without regard to the restrictions. If the participant does not make a Section 83(b) election within 30 days of receipt of the restricted shares, the fair market value of the shares on the date the restrictions lapse, less any amount paid by the participant for such shares, will be treated as compensation income to the participant and will be taxable in the year the restrictions lapse. We generally will be entitled to a compensation deduction for the amount of compensation income the participant recognizes.

Other Types of Awards. With respect to other awards under the Plan, generally when the participant receives payment with respect to an award, the amount of cash and fair market value of any other property received will be ordinary income to the participant, and the Company generally will be entitled to a tax deduction in the same amount.

New Plan Benefits

Future grants under the Plan will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable. On August 10, 2017, the Compensation Committee approved a grant of restricted stock units and options to Mr. Campanelli under the Plan, subject to shareholder approval of the Plan, as amended and restated in 2018. The table below further describes the awards that were granted to Mr. Campanelli subject to shareholder approval of the Plan, as amended and restated in 2018, and which will become effective on the date that such approval is obtained. No other grants were made subject to shareholder approval of the Plan, as amended and restated in 2018.

 

Endo International plc Amended and Restated 2015 Stock Incentive Plan  
Name and Position   Dollar Value ($)(1)     Number of Units (#)(2)  

Paul V. Campanelli, President and Chief Executive Officer

  $ 657,814       1,091,629  

Blaise Coleman, Executive Vice President and Chief Financial Officer

  $        

Terrance J. Coughlin, Executive Vice President and Chief Operating Officer

  $        

Matthew J. Maletta, Executive Vice President, Chief Legal Officer

  $        

Tony Pera, President, Par Pharmaceutical

  $        

Executive Group (6 persons)(3)

  $ 657,814       1,091,629  

Non-Executive Director Group (8 persons)

  $        

Non-Executive Officer Employee Group (2,960 persons)

  $        

 

(1)

The values for RSUs were calculated by multiplying the number of RSUs included in the table above (120,039) by the closing price of the Company’s ordinary shares of $5.48 per share on April 13, 2018 (the latest practicable date before the filing of this proxy statement).

(2)

Includes 120,039 RSUs and 971,590 stock options awarded at a price of $7.55 and approved on August 10, 2017, subject to shareholder approval of this proposal, all of which would vest ratably over a three-year period at a rate of one-third of the total RSUs or stock options on each anniversary of August 10, 2017, subject to continued service through such dates.

(3)

Represents the executive officers disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

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Existing Plan Benefits

Pursuant to SEC rules, the following table sets forth the number of shares subject to options granted through April 13, 2018 that count against the maximum share authorization of the current Plan.

 

Endo International plc Amended and Restated 2015 Stock Incentive Plan  
Name and Position   Number of Options (#)(1)  

Paul V. Campanelli, President and Chief Executive Officer

    1,036,644  

Blaise Coleman, Executive Vice President and Chief Financial Officer

    360,129  

Terrance J. Coughlin, Executive Vice President and Chief Operating Officer

    418,607  

Matthew J. Maletta, Executive Vice President, Chief Legal Officer

    382,631  

Tony Pera, President, Par Pharmaceutical

    173,940  

Executive Group (6 persons)

    2,371,951  

Non-Executive Director Group (8 persons)

     

Non-Executive Officer Employee Group (2,960 persons)

    5,298,023  

 

(1)

Does not include the 971,590 stock options approved for Mr. Campanelli on August 10, 2017, subject to shareholder approval of this proposal, which are instead included in the New Plan Benefits table.

Equity Compensation Plan Information

The following information relates to plans in effect as of December 31, 2017 under which equity securities of Endo may be issued to employees and directors.

 

Plan Category  

Number of securities

to be issued upon
exercise of

outstanding options,
warrants and rights (a)(1)

    Weighted-average
exercise price of
outstanding options,
warrants and rights (b)(2)
   

Number of securities
remaining available for future
issuance under

equity compensation
plans (excluding securities
reflected in column (a)) (c)(1)(3)

 

Equity compensation plans approved by security holders

    13,426,446     $ 22.79       8,822,860  
Equity compensation plans not approved by security holders                  

Total

    13,426,446     $ 22.79       8,822,860  
(1)

The company issued approximately 1.0 million stock options and 0.1 million restricted stock units for which a grant date has not yet been established for accounting purposes. These options and restricted stock units were not considered to have been granted for purposes of this table.

(2)

Excludes shares of restricted stock units and performance share units outstanding.

(3)

Reflects shares available for future grants under the current Plan as of December 31, 2017. As of April 13, 2018, 4,542,291 shares remain available for future awards under the current Plan.

Registration with the SEC

We intend to file with the SEC a registration statement on Form S-8 covering the Company stock reserved for issuance under the Plan.

 

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Proposal 5: Renewal of the Board’s Existing Authority to Issue Shares under Irish Law

Summary

Under Irish law, directors of an Irish public limited company must have authority from its shareholders to issue any shares, including shares which are part of the company’s authorized but unissued share capital. The Company’s current authorization is included in our Articles of Association and authorizes the Board to issue shares up to the amount of the Company’s authorized but unissued share capital. This authorization will expire on February 25, 2019. We are presenting this proposal to renew the Board’s existing authority to issue authorized but unissued shares on the terms set forth below, which are in line with customary practice in Ireland and are more limited than the Board’s current authorization. If this proposal is not approved, the Company will have a limited ability to issue new ordinary shares after February 25, 2019.

It is customary practice in Ireland to seek shareholder authority to issue an aggregate number of shares up to 33% of the company’s issued share capital and for such authority to be limited to a period of 12 to 18 months. Therefore, in accordance with that customary practice in Ireland, we are seeking approval to issue up to a maximum of 33% of our issued ordinary capital as of April 19, 2018 (the latest practicable date before this proxy statement), for a period expiring on the date which is 18 months from our 2018 Annual Meeting, unless otherwise varied, revoked or renewed. The Board expects to propose a renewal of this authorization on a regular basis at our annual general meetings in future years.

Granting the Board this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish market practice. This authority, which is more limited than the Board’s current authority, is fundamental to our business and enables us to issue shares, including, if applicable, in connection with funding acquisitions and raising capital. We are not asking you to approve an increase in our authorized share capital or to approve a specific issuance of shares. Instead, approval of this proposal will only grant the Board the authority to issue shares that are already authorized under our Articles of Association pursuant to the terms set forth below. In addition, because we are a Nasdaq-listed company, our shareholders continue to benefit from the protections afforded to them under the rules and regulations of Nasdaq and the SEC, including those rules that limit our ability to issue shares in specified circumstances without obtaining shareholder approval. This authorization is required as a matter of Irish law and is not otherwise required for other companies listed on Nasdaq. Accordingly, approval of this resolution would merely place us on equal footing with other Nasdaq-listed companies.

The text of the resolution in respect of Proposal 5 (which is proposed as an ordinary resolution) is as follows:

RESOLVED, that, without limitation to the authority contained in Article 7.1 of the Company’s Articles of Association, the directors be and they are, with effect from the passing of this resolution, hereby generally and unconditionally authorized pursuant to section 1021 of the Companies Act 2014 to exercise all the powers of the Company to allot relevant securities (within the meaning of the said section 1021 of the Companies Act 2014) up to an aggregate nominal amount of $415,781,113 (73,850,997 ordinary shares) (being equivalent to approximately 33% of the aggregate nominal value of the issued ordinary share capital of the Company as of April 19, 2018 (the latest practicable date before this Proxy Statement)). The authority conferred by this resolution shall expire 18 months from the passing of this resolution, unless previously renewed, varied or revoked by the Company; provided that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such an offer or agreement as if the authority conferred by this resolution had not expired.

Vote Required

A majority of the votes cast at the Annual Meeting will be required to renew the authorization of the Board to issue shares.

 

The Board of Directors recommends a vote FOR the renewal of its existing authority to issue shares under Irish law.

 

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Proposal 6: Renewal of the Board’s Existing Authority to Opt-Out of Statutory Pre-Emption Rights under Irish Law

Summary

Under Irish law, unless otherwise authorized, when an Irish public limited company issues shares for cash to new shareholders, it is required first to offer those shares on the same or more favorable terms to existing shareholders of the company on a pro-rata basis (commonly referred to as the pre-emption right). Our current authorization, contained in our Articles of Association, will expire on February 25, 2019. We are therefore proposing to renew the Board’s authority to opt-out of the pre-emption right on the terms set forth below, which are more limited than the Board’s current authorization.

It is customary practice in Ireland to seek shareholder authority to opt-out of the pre-emption rights provision in the event of the issuance of shares for cash if the issuance is limited to up to 10% of a company’s issued ordinary share capital and provided that the authority granted in respect of 5% of such issued share capital is used only for the purposes of an acquisition or a specified capital investment. It is also customary practice for such authority to be limited to a period of 12 to 18 months.

Therefore, in accordance with customary practice in Ireland, we are seeking this authority, pursuant to a special resolution, to authorize the directors to issue shares for cash without applying statutory pre-emption rights, up to a maximum of approximately 10% of the Company’s issued share capital as of April 19, 2018 (the latest practicable date before this proxy statement), provided that the authority granted in respect of 5% of such issued share capital is used for the purposes of an acquisition or a specified capital investment. The proposed authority is for a period expiring on the date which is 18 months from our 2018 Annual Meeting, unless otherwise varied, renewed or revoked. The Board expects to propose a renewal of this authorization on a regular basis at our annual general meetings in future years.

Granting the Board this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish market practice. Similar to the authorization sought for Proposal 5, this authority is fundamental to our business and, if applicable, will facilitate our ability to fund acquisitions and otherwise raise capital. We are not asking you to approve an increase in our authorized share capital. Instead, approval of this proposal will only grant the Board the authority to issue shares in the manner already permitted under our Articles of Association upon the terms below. Without this authorization, in each case where we issue shares for cash after February 25, 2019, we would first have to offer those shares on the same or more favorable terms to all of our existing shareholders, which could cause delays in the completion of acquisitions and the raising of capital for our business. This authorization is required as a matter of Irish law and is not otherwise required for other companies listed on Nasdaq. Accordingly, approval of this resolution would merely place us on equal footing with other Nasdaq-listed companies.

The text of the resolution in respect of Proposal 6 (which is proposed as a special resolution, as required under Irish law) is as follows:

RESOLVED, that, subject to and conditional on the passing of the resolution in respect of Proposal No. 5 as set out above and with effect from the passing of this resolution, but without limitation to the authority contained in Article 7.2 of the Company’s Articles of Association, the directors be and they are hereby empowered pursuant to section 1023 of the Companies Act 2014 to allot equity securities (within the meaning of section 1023 of the Companies Act 2014) for cash, pursuant to the authority conferred by Proposal No. 5 as if section 1022 of that Act did not apply to any such allotment, provided that this power shall be limited to:

 

  (a)

the allotment of equity securities in connection with a rights issue in favor of the holders of ordinary shares (including rights to subscribe for, or convert into, ordinary shares) where the equity securities respectively attributable to the interests of such holders are proportional (as nearly as may be) to the respective numbers of ordinary shares held by them (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with fractional entitlements that would otherwise arise, or with legal or practical problems under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, any territory, or otherwise); and

 

  (b)

the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of $125,994,277 (22,379,090 shares) (being equivalent to approximately 10% of the aggregate nominal value of the issued ordinary share capital of the Company as of April 19, 2018 (the latest practicable date before this Proxy Statement)) provided that, with respect to 11,189,545 of such shares (being equivalent to approximately 5% of the issued ordinary share capital as of April 19, 2018), such allotment is to be used for the purposes of an acquisition or a specified capital investment;

and, in each case, the authority conferred by this resolution shall expire 18 months from the passing of this resolution, unless previously renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the directors may allot equity securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.

 

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Vote Required

75% of the votes cast at the Annual Meeting will be required to renew the authorization of the Board to opt-out of statutory pre-emption rights. In addition, this proposal is conditioned upon the approval of Proposal 5, as required by Irish law.

 

The Board of Directors recommends a vote FOR the renewal of Board’s existing authority to opt-out of statutory pre-emption rights under Irish law.

 

 

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Compensation Discussion and Analysis

 

 

    Executive Summary

 

 

    A Message from Endo’s Chairman of the Board and Chairman of the Compensation Committee

 

   

LOGO

   

 

Dear Shareholders:

 

In developing this year’s proxy statement, efforts have been made to clearly communicate the decisions made by the Compensation Committee in the context of the Company’s operating performance and strategic actions over the past year, while remaining consistent with our pay-for-performance philosophy. The Compensation Committee recognized that while the past few years have been challenging for Endo’s shareholders, significant progress has been made since the appointment of Paul Campanelli to the position of President and Chief Executive Officer in September 2016.

   

 

Roger H. Kimmel

 

LOGO

 

William P. Montague

   

 

In 2017, the first full year under Mr. Campanelli’s leadership, the Company achieved solid financial and operating results despite being confronted with numerous strategic challenges and legacy issues, while laying the groundwork for long-term sustainable growth. This past year represents an important step in the Company’s turnaround, with the fundamental goal of delivering value to our shareholders. These legacy issues were compounded by additional external headwinds, including challenges specific to the U.S. generics industry.

 

Prior to the start of 2017, Mr. Campanelli and the management team outlined a multi-year turnaround plan based on a set of key strategic priorities that directly address the various opportunities and challenges facing Endo. Throughout the year, the management team made significant progress against the multi-year plan and achieved solid performance in 2017, expanding adjusted operating margins, generating strong cash flow and growing key products, including XIAFLEX®; VASOSTRICT®; and ADRENALIN®. These and other key accomplishments including strategic portfolio optimization, selective investments in product development, improved operating efficiency and mitigation of significant legacy liabilities are discussed in greater detail throughout the CD&A.

 

In acknowledgement of the successes and challenges facing Endo in 2017, the Company’s pay practices continued to reinforce the Compensation Committee’s commitment to our pay-for-performance philosophy. By design, awards issued under our performance-based annual incentive compensation program were reflective of our management team’s accomplishments throughout the year, while lower levels of realized value associated with the Company’s equity-based long-term incentive program reflect the various external pressures negatively impacting Endo’s stock price. Director pay was also adjusted, with an overall decrease in compensation and a greater proportion of pay in the form of Endo shares.

 

The Board is keenly aware that management continuity will be critical to Endo’s successful turnaround, and is confident in the management team’s ability to build on recent successes and continue the transformation of Endo as a result of the following:

 

  Excellent management team and their track record of success

  Focused strategy and clear set of priorities

  Strong business segments, focusing on branded pharmaceuticals, sterile injectables, high-value generics and select international markets

  Exciting growth platforms, including XIAFLEX® as the Company’s flagship product, with multiple on-market indications and promising potential indications including cellulite

  Promising generics pipeline with more than 100 ANDAs

 

We are confident in the management team’s ability to achieve the Company’s core vision to be a highly focused specialty branded and generic pharmaceutical company, delivering quality medicines to patients in need through excellence in development, manufacturing and commercialization.

 

Sincerely,

       

 

Roger H. Kimmel

 

 

William P. Montague

       

LOGO

 

LOGO

       

Chairman of the Board of Directors

 

Chairman of the Compensation Committee

         

 

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    Executive Summary (continued)

 

 

 

Compensation Philosophy

 

Pay-for-performance underlies Endo’s compensation philosophy. The Compensation Committee (referred to in this “Compensation Discussion and Analysis” section as the Committee) believes that the most effective executive compensation program is one that is designed to provide incentives that advance the interests of shareholders and deliver levels of compensation that are commensurate with performance. Endo’s compensation philosophy is designed to support our business strategy by attracting and retaining highly-talented individuals and motivating them to achieve competitive corporate performance, while embracing the Company’s key values and behaviors.

 

The Company’s commitment to its pay-for-performance philosophy was demonstrated again in 2017. In the context of the Company’s financial, strategic, operating and compliance achievements, as well as legacy issues and external challenges impacting Endo’s stock price performance this past year, the Committee remained committed to the Company’s pay-for-performance philosophy, which is reflected in the awarded and realized pay levels for all NEOs.

     
   

 

Strategic Vision & Results

 

 
   

 

A highly focused generics and specialty branded pharmaceutical company delivering quality medicines to patients in need through excellence in development, manufacturing and commercialization.

 

 
   

 

Build on strengths in generic and branded pharmaceuticals:

 

  Investments in XIAFLEX® contributed to significant product growth, generating high single-digit demand growth for 2017, with combined low double-digit fourth quarter growth run rates for Peyronie’s Disease and Dupuytren’s Contracture

  Realized meaningful revenue and profitability contributions from new U.S. generics product launches, while enhancing the Company’s product selection process

  Successfully navigated the business challenges within the consolidating U.S. generics industry

  Significantly expanded the Company’s non-U.S. product portfolio and pipeline, filing several products for the Canadian market, while closing several in-licensing deals

 

Invest prudently in product pipeline:

 

  Significantly progressed cellulite treatment development program for collagenase clostridium histolyticum (CCH), with agreed upon plan with FDA including primary endpoint, safety measures and analysis method

  Expanded VASOSTRICT® patent estate and listed additional patent in Orange Book; aggressively pursued patent and trade secret lawsuits against challengers for VASOSTRICT® and ADRENALIN®

  Launched 17 new generic products in 2017, while progressing the initiation of two pivotal Phase III clinical trials of CCH for the treatment of cellulite

  Placed intense focus on high value product opportunities while eliminating non-core assets, including the return of BELBUCA™ to BDSI

  In consultation with the FDA, voluntarily ceased shipments of OPANA® ER as part of the removal of the product from the market

 

Enhance focus on operational execution:

 

  Implemented a series of restructuring initiatives, resulting in a leaner operating model leading to projected annualized cost savings of $95-$115 million

  Refinanced $3.7 billion existing credit agreement, significantly enhancing the Company’s operational flexibility over the medium to long-term

  Met all compliance objectives, including no warning letters received and reductions in filed alerts and recalls, with none due to internal systems quality failures

  Divested non-core assets, finalizing the Litha Healthcare sale to Acino Pharma AG and the Somar sale to AI Global Investments (Netherlands) PCC Limited

 

Meet financial objectives establishing a foundation for growth:

 

  Achieved 98.2% of targeted Adjusted Revenue, 105.2% of targeted Adjusted EBITDA Margin and 110.2% of targeted Adjusted Diluted EPS from Continuing Operations objectives

  Refinanced debt to allow for greater operating flexibility

  Optimized annual Capital Expenditure budget, appropriately investing in growth drivers

 

 

 
     
    

 

2017 Financial Results as a Percent of Operating Plan Target

 

 

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    Executive Summary (continued)

 

   
 

Program Objectives and Elements of Executive Compensation

 

Our executive compensation program seeks to:

  Align pay practices and incentive structures with long-term shareholder value;

  Provide appropriate compensation for achieving annual results while fostering a long-term performance orientation;

  Link compensation with Company and individual performance;

  Reward high performance as measured against the Company’s strategic and business plans;

  Reflect the competitive market for acquiring and retaining top talent; and

  Mitigate pay practice risks through a balanced approach to performance-based compensation.

 

In support of these objectives, the Company’s compensation programs consist of elements designed to complement each other and reward achievement of short-term and long-term objectives tied to the Company’s performance through the establishment and achievement of strategic operating metrics or as a function of the Company’s total shareholder return. In support of our compensation philosophy, we have chosen selected metrics to align employee compensation, including compensation for the NEOs, to the Company’s business strategy and strategic operating results. The three principal components of the Company’s total compensation are base salary, annual cash incentive compensation and equity-based LTI compensation, as discussed in greater detail under the section “Executive Compensation Program.”

 

Competitive Considerations

 

In making compensation decisions with respect to each element of compensation, the Committee considers the competitive market for executives and compensation levels provided by comparable companies. The Committee reviews the compensation practices at companies with which the Company competes for talent, including businesses engaged in activities similar to those of the Company. While we do not believe that it is appropriate to establish compensation levels based primarily on benchmarking, we believe that information regarding pay practices at other companies is nevertheless useful in two respects. First, we recognize that our compensation practices must be competitive in the marketplace. Second, independent marketplace information is one of the many factors that we consider in assessing the reasonableness of compensation.

 

The Committee generally aligns target executive compensation at the median of compensation packages for executives in similar positions and with similar responsibilities and experience at similar companies of comparable size, with the opportunity for top quartile actual compensation based upon individual and Company performance. We recognize, however, that positions with similar titles are not always comparable in terms of responsibility to such positions at the Company. The Committee’s choice of this target percentile reflects the Company’s consideration for our shareholders’ interests in paying what is competitive to achieve our corporate goals, while conserving cash and equity as much as practicable.

 

We believe that, given our compensation philosophy and objectives, compensation targeted at the median of similarly-situated companies with the opportunity for top quartile total compensation based upon performance is generally sufficient to retain our current executive officers and to hire new executive officers when and as required. In setting compensation for the NEOs, the Committee considers comparative market data requested from Korn Ferry Hay Group, its compensation consultant. In gathering relevant competitive market compensation data, the Committee approved the use of a sample of companies with similar operations as Endo.

 

We refer to all of these sample companies as the “Pay Comparator Companies.” The Committee believes that Endo competes with the Pay Comparator Companies for talent and for shareholder investment. In assessing the relevance of the Pay Comparator Companies, Korn Ferry Hay Group evaluates the appropriateness based on several key criteria in an effort to identify comparator companies with the most appropriate business fit. These factors include company size (in terms of both revenue and market cap), industry/business sector, operating complexity, location, talent market, customer base and other relevant factors, recognizing that not all peer companies will match all criteria and not all criteria are of equal importance.

 

The Pay Comparator Companies typically have similar executive officer positions; however, the Committee does not attempt to set each compensation element for each executive within a particular range as it relates to the Pay Comparator Companies. Instead, the Committee uses market comparisons as one factor in making compensation decisions. Among other factors considered when making individual executive compensation decisions include individual contribution and performance, reporting structure, complexity and importance of role and responsibilities, leadership and growth potential.

 

Korn Ferry Hay Group makes periodic recommendations to the Committee regarding the recalibration of the Pay Comparator Companies referenced. As a result of this annual review, Endo recalibrated the Pay Comparator Companies to include organizations that were relevant to Endo’s size and business composition. The consolidation of viable peer companies and loss of many similarly-sized competitor companies during the past few years has forced Endo to consider comparator companies that fall outside of the normal size parameters in order to include organizations relevant to Endo’s

 

 

 

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    Executive Summary (continued)

 

 

business. This includes companies both larger and smaller in size, in an effort to include a balanced and fair assessment of the range of competitive pay levels. Ultimately, Endo believes it is imperative that the comparator companies align with Endo’s customer base and market for key talent in order to establish a reasonable assessment of competitive pay levels for our NEOs.

 

The Committee approved Pay Comparator Companies for 2017 are listed in the table below:

 

 
    2017 Pay Comparator Companies     
 

Alexion Pharmaceuticals Inc.

 

Mallinckrodt plc

   
 

Alkermes plc

 

Mylan NV

   
 

Biogen Inc.

 

Perrigo Co. plc

   
 

BioMarin Pharmaceutical Inc.

 

Regeneron Pharmaceuticals

   
 

Celgene Corporation

 

United Therapeutics Corporation

   
 

Horizon Pharma plc

 

Valeant Pharmaceuticals International Inc.

   
 

Impax Laboratories Inc.

 

Vertex Pharmaceuticals Inc.

   
 

Jazz Pharmaceuticals plc

       
 

 

Say-on-Pay Consideration

 

In establishing 2018 compensation, the Committee also considered the results of the most recent shareholder advisory vote on executive compensation (the say-on-pay vote) at the Company’s Annual Meeting held in June 2017, where over 87% of the votes cast on the say-on-pay proposal were voted in favor of the proposal. The Committee believes this result affirms shareholder support for our executive compensation decisions and policies, and as such, the Committee did not implement any changes as a result of this vote. The Committee will continue to consider the results of future say-on-pay votes when making executive compensation decisions and policies.

 

In addition to the say-on-pay vote, the Committee believes it is important to directly engage with shareholders, including targeted outreach initiatives as a means of soliciting their views on matters, including governance, environmental, social, executive compensation and other important topics, in order to assist our Committee with items requiring a broader shareholder perspective. Over the past several years, certain non-employee directors and members of our management team have engaged with our shareholders, as well as ISS and Glass Lewis to discuss key issues on a variety of topics. These conversations have been beneficial, and will continue to provide the Committee with a deeper understanding of the views of our shareholders, while serving as an effective communication channel for matters of critical importance to Endo’s short- and long-term priorities. These outreach initiatives will continue into 2018, focusing on the importance of leveraging Endo’s pay-for-performance executive compensation program to effectively attract and retain key individuals essential to the long-term success of the Company.

 

Pay Risk and Governance

 

At least on an annual basis, the Company conducts an assessment of the potential risks associated with the Company’s compensation arrangements, policies and practices. The assessment is conducted by Korn Ferry Hay Group and then reviewed by the Company’s Compensation Committee. A key objective is to determine whether the Company’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the Company. This risk assessment process includes:

  A comprehensive review of compensation programs with the highest potential for material adverse effect;

  Identification of key Company positions and business areas that could potentially carry a significant portion of the Company’s risk profile;

  Identification of compensation programs for the key Company positions and business areas; and

  An analysis of employee compensation plans with the highest potential for risk, pursuant to which we:

  Identify the features within the plans that could potentially encourage excessive or imprudent risk taking;

  Identify business risks that these features could potentially encourage;

  Identify controls and plan features that mitigate the risks identified;

  Determine residual risk remaining after having identified mitigating controls and features; and

  Assess whether residual risk is reasonably likely to have a material adverse effect on the Company as a whole.

 

The Committee also reviews the Company’s compensation programs that allow for variable payouts. A key consideration is the establishment of an appropriate mix of performance metrics. The Committee also oversees the plans so that they reward both annual goal achievement and the long-term sustainable success of the Company. In addition, the reviews focus on plans where an employee might be able to influence payout factors and programs that involve our executives, with a focus on analyzing whether any of the performance targets encourage excessive risk taking. During the assessment, several control and design features of the Company’s compensation program that are intended to mitigate the risk of excessive risk-taking are evaluated. Risk profiles are also evaluated on an ongoing basis by the Company’s management team as new program designs are considered.

 

 

 

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    Executive Summary (continued)

 

 

Based on the process described above, it was concluded that the potential risks associated with the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on Endo. The Committee will continue to review the Company’s compensation programs at least annually to identify and address potential risks that may have a material adverse effect on the Company.

 

Company Actions

 

In response to the evolving nature of our business structure and our goal to strengthen our executive pay decisions, emphasis has been placed on continuing to enhance the effectiveness of our executive compensation policies in increasing shareholder value creation and preservation. The following reflects the leading practices implemented and maintained by the Company in an effort to achieve pay-for-performance, while maintaining good corporate governance:

 

 
    Item   Actions
  Competitive

Considerations

 

“Pay Comparator Companies” updated and maintained to compare NEO total compensation levels; and

Conduct assessments at least annually of the positioning of NEO total compensation levels against the Pay Comparator Companies to assess competitive external market alignment in the industry sectors in which Endo competes for talent.

  Incentive
Compensation
 

Short- and long-term incentive programs designed to closely link pay and performance with the objective of enhancing shareholder value;

The Amended and Restated 2015 Stock Incentive Plan prohibits the re-pricing of equity awards without shareholder approval and does not allow for cash buyouts of underwater options (1);

“Double trigger” change in control provisions in our Amended and Restated 2015 Stock Incentive Plan (1);

LTI awards granted to employees under the Amended and Restated 2015 Stock Incentive Plan are generally subject to three-year vesting conditions, subject to earlier vesting on certain events (1);

PSU performance criteria based on relative three-year TSR against a custom index of pharmaceutical companies, and free cash flow performance;

In an effort to minimize share pool utilization and underlying dilution levels, implemented 2018 initiatives including the use of an alternate equity mix, annual grant reductions and broader use of Long-term Cash Incentive (LTCI) awards for non-executive positions;

In addition to managing share pool availability, LTI mix changes for 2018 involve an expanded use of RSUs in an effort to increase the direct ownership equity stake for key executives, while contributing to business continuity and strategic growth priorities; and

A common grant date of April 1st (or the next business day if April 1st falls on a weekend or holiday), supporting best practices by granting the annual equity awards a sufficient amount of time after Endo’s annual earnings release.

  Employment

Agreements

 

“Golden parachute” gross-up payments related to excise tax liabilities resulting from a change in control of the Company are prohibited; and

Except as required by local law, NEO employment agreements with automatic renewal provisions are disallowed.

  Risk
Management
 

Annual assessments conducted of the potential risks associated with compensation arrangements, policies and practices to confirm that they are not reasonably likely to have a material adverse effect on Endo;

Amended the Company’s compensation recovery policy (clawback) to: 1) expand covered payments to include both cash incentive awards as well as equity-based incentives, and 2) seek recoupment in situations involving material misconduct or gross negligence resulting in material financial harm to the Company;

Hedging and pledging of Company stock by employees and/or non-employee Directors is prohibited;

Stock ownership guidelines for both non-employee Directors and for executive management to align their interests with the interests of Endo shareholders (requiring non-employee Directors not to sell shares until guidelines are attained);

Individual share limitations for non-employee Directors (1); and

The Committee retained Korn Ferry Hay Group as its independent compensation consultant.

 

(1)

Also noted in the proposed Endo International plc Amended and Restated 2015 Stock Incentive Plan, described earlier in Proposal 4.

 

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Executive Compensation Program

The Company’s primary objectives with respect to the development and implementation of executive compensation programs are to attract, retain and motivate highly qualified talent, as well as align executive compensation with the Company’s overall operating performance and business strategies, closely linked to the enhancement of shareholder value. The Committee believes that the most effective executive compensation program is one that is designed to recognize the achievement of specific annual, long-term and strategic goals of the Company, rewarding executives who contribute to meeting and exceeding the Company’s business objectives, with the ultimate objective of improving shareholder value.

The three principal components of the Company’s total compensation are: base salary, annual cash incentive compensation and equity-based LTI compensation. In allocating compensation among these elements, we believe that the majority of the compensation of our senior-most levels of management—the levels of management having the greatest ability to influence the Company’s performance—should be variable and dependent upon performance.

 

 

LOGO

In making decisions with respect to any element of a named executive officer’s compensation, the Committee considers the total compensation that may be awarded to the officer, including salary, annual incentive compensation cash bonus and long-term incentive compensation. In addition, in reviewing and approving employment agreements for NEOs, the Committee considers the other benefits to which the officer is entitled by the agreement, including compensation payable upon termination of the agreement under a variety of circumstances. The Committee’s goal is to award compensation that is competitive to attract and retain highly qualified leaders and motivate high business performance. The Committee believes that its compensation programs align executive and shareholder interests by effectively calibrating compensation payout levels with individual and Company performance.

Base Salary

Purpose. The objective of base salary is to reflect job responsibilities, value to the Company and individual performance while taking into consideration market competitiveness. We seek to provide our executive officers with competitive annual base salaries in order to attract and retain them. While the base salary component of our executive officer compensation program is primarily designed to provide the baseline level of compensation to executive officers, individual performance is also a key consideration when establishing appropriate base salary levels, further supporting the Company’s pay-for-performance philosophy.

Considerations. Salaries for the NEOs are determined initially by each individual’s employment agreement which are described under “Employment and Change in Control Agreements; Severance Agreements” below. These salaries and the amount of any increase over these salaries are determined by the Committee based on a variety of factors, including:

   

the nature and responsibility of the position and, to the extent available, salary norms for persons in comparable positions at the Pay Comparator Companies;

   

the expertise and competencies of the individual executive;

   

the competitiveness of the market for the executive’s services;

   

internal review of the executive’s compensation, both individually and relative to other NEOs;

   

the recommendations of the President and Chief Executive Officer (except in the case of the President and Chief Executive Officer’s own compensation); and

   

individual performance of the NEO, which includes:

   

achievement of individual annual goals and objectives, the risks and challenges involved, and the impact of the results;

   

performance of day-to-day responsibilities;

   

increases in competencies and skill development;

   

value of the NEO’s contribution to function and Company goal achievement; and

   

behaviors aligned with Endo key values.

Base salaries are generally reviewed annually. In reviewing salaries, the Committee adjusts salaries from time to time to realign salaries with market levels, individual performance and incumbent experience. The Committee also considers salaries relative

 

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to those of others within the Company and may, on occasion, make adjustments to salaries or other elements of total compensation, such as annual incentive compensation and long-term incentive targets, where such an adjustment would correct a compensation imbalance, as the Committee deems appropriate.

2017 Decisions Regarding Base Salary. In November 2017, as part of the Committee’s annual review of compensation, Korn Ferry Hay Group provided the Committee with a market assessment of the competitive compensation for the Company’s executive officers. This assessment included reviewing the Pay Comparator Companies and:

   

establishing a benchmark match for each of the positions;

   

gathering and analyzing competitive compensation from relevant labor markets; and

   

developing competitive market medians of compensation for the positions.

Based on the competitive market data referred to above, the Committee developed, with the assistance of Korn Ferry Hay Group, market medians of compensation for each of Endo’s compensation elements (base salary, target annual incentive compensation, and expected target value of long-term incentive compensation) and then compared each NEO’s current compensation to the market median for each data sample. The market data and the performance of each of Endo’s NEOs are reviewed each year, but there is no assurance that any of their individual compensation packages will be aligned with the market. Please reference the “Individual Compensation Determination” section for approved salary actions.

Performance-Based Annual Cash Incentive Compensation

Purpose. The compensation program provides for an annual cash incentive that directly reinforces the Company’s pay-for-performance approach. This incentive compensation program is a short-term performance-based incentive plan that rewards the achievement of annual goals and objectives, as well as longer-range strategic goals. Both the Company and individual performance goals, and the resulting payments, are pre-established and formulaic. The objective of the program is to compensate individuals based on the achievement of specific goals that are intended to correlate closely with shareholder value.

The Committee will annually assess each NEO’s achievement against the Company’s annual pre-established and formulaic objectives, which allow for a maximum bonus equal to 225% of the target bonus amount based on the achievement of pre-established consolidated adjusted net income goals. The Committee then applies negative discretion based on quantifiable Company scorecard and individual performance objectives. The following illustrates the mechanics underlying the annual cash incentive calculation:

 

 

LOGO

The respective annual cash incentive compensation target for each named executive officer related to 2017, paid in early 2018, is expressed in the graph below.

 

LOGO

Please reference the “Individual Compensation Determination” section for additional information.

Considerations. The annual cash incentive compensation program includes relative incentive levels based on each NEO’s specific position accountabilities, and impact on overall Company strategic and operating performance, with target awards established as a percentage of base salary. Each NEO’s target annual incentive compensation bonus is initially established pursuant

 

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to his employment agreement, which is determined based on all factors that the Committee deems relevant, including (but not limited to) a review of Pay Comparator Company compensation. The annual incentive compensation metrics are aligned with the Company’s business strategy and the use of consolidated adjusted net income, as well as the Company scorecard objectives including Adjusted Revenue, Adjusted EBITDA Margin, Adjusted Diluted EPS from Continuing Operations and non-financial metrics, and are supported by practices observed among our Pay Comparator Companies. The Committee establishes annual incentive plan targets based upon the Company’s strategic and business plans and then aligns the compensation plan with the Company’s financial guidance for the year. Achieving the high end of the bonus payout threshold is contingent upon achieving significantly higher financial performance than the top end of the guidance range.

Discretion. Under the annual incentive compensation program, the Committee has discretion, in appropriate circumstances, to pay annual incentive compensation at less than or in excess of target levels. For example, in determining the extent to which the pre-set performance goals are met for a given period, the Committee exercises its judgment whether to reflect or exclude the impact of changes in accounting principles and unusual or infrequently occurring events reported in the Company’s public filings, but no more than the lesser of 1) the maximum aggregate amount of the annual incentive pool based on a pre-established fixed percentage of consolidated adjusted net income, or 2) a maximum individual amount of $5,000,000 for the President and Chief Executive Officer and three other highest-paid executive officers (not including the Company’s Executive Vice President & Chief Financial Officer in accordance with Section 162(m) of the Internal Revenue Code, as in effect for the 2017 tax year), which is the amount previously approved by shareholders in accordance with Section 162(m) of the Internal Revenue Code under Endo’s Amended and Restated 2015 Stock Incentive Plan. Further, pursuant to each of our NEO’s employment agreements, target annual incentive compensation as a percentage of annual base salary may subsequently be increased at the discretion of the Committee. Please reference the “Individual Compensation Determination” section for approved target annual incentive compensation changes.

2017 Decisions Regarding Incentive Compensation. The following information summarizes the components of the Company’s annual incentive compensation program and the basis for the actual award granted by the Committee for 2017. With respect to 2017, the annual award for each NEO was based on the achievement of pre-established consolidated adjusted net income goals, with negative discretion derived from corporate scorecard objectives and NEO individual performance. The consolidated adjusted net income performance target established for 2017, as well as the corporate scorecard and individual NEO performance objectives are aligned with the Company’s new priorities established as part of the 2017 strategic assessment process. The performance goals associated with the corporate scorecard were weighted as follows (specific targets are discussed in the following section entitled “2017 Consolidated Financial Results”):

 

 

LOGO

The above “scorecard” is structured so that objectives allow for a payout opportunity ranging from 0% to 225% of the target bonus opportunity (commensurate with performance), while operating within the structure of the Internal Revenue Code Section 162(m) compliant annual incentive compensation program, which allows for a maximum bonus equal to 225% of the target bonus amount, and the use of negative Committee discretion based on actual performance. The Committee also has the discretion to withhold annual cash incentives that otherwise would be made to any employees, including the NEOs, if it determines that overall performance is below performance thresholds. Moreover, the scorecard achievements are assessed based on whether the Company achieved the scorecard results considering (1) current healthcare compliance as reflected by a robust internal compliance program and as determined by outcomes of regulatory review and inspections, such as those of the Food and Drug Administration, and (2) progress on health and safety outcomes as determined by other regulatory and environmental matters.

2017 Consolidated Financial Results. In 2017, the Company continued to make significant progress in shaping Endo as a highly focused generics and specialty branded pharmaceutical company with a strong set of assets in both generic and branded pharmaceuticals. The Company also continued to expand the value of the established corporate structure, while succeeding in organically growing core branded and generic products, progressing key pipeline assets and successfully defending and progressing key product patents.

 

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Substantial progress was also made in advancing the Company’s culture to one that is customer focused and performance driven, with a strong emphasis on operational execution. Over the past year, efforts have been taken to simplify the Company’s structure through centralization and unification, actions that serve to drive productivity improvements. In 2017, Endo also successfully optimized the Company’s generic product portfolio, consistently seeking to be more efficient and operationally sound, while continuing to focus on core assets and businesses that are critical to our success. On an adjusted basis, the Company achieved the following financial objective results in 2017 compared to prior year financial performance:

 

   

Achieved $3.369 billion and $4.013 billion in Adjusted Revenue in 2017 and 2016, respectively, consisting of $3.469 billion and $4.010 billion of revenue determined in accordance with U.S. generally accepted accounting principles (GAAP), adjusted as described below.

 

   

Achieved 45.4% in Adjusted EBITDA Margin in 2017, consisting of $2.035 billion of net loss determined in accordance with GAAP, adjusted as described below, divided by $3.369 billion in Adjusted Revenue as described above.

 

   

Achieved $3.68 and $4.73 in Adjusted Diluted EPS from Continuing Operations in 2017 and 2016, respectively. These amounts consist of $(5.52) and $(14.48) of diluted EPS from continuing operations determined in accordance with GAAP, adjusted as described below.

 

   

Fully adjusted amounts are summarized in the graph below (Adjusted Revenue amounts are reported in millions).

 

 

LOGO

 

(1)

Adjusted Revenue, Adjusted EBITDA Margin and Adjusted Diluted EPS from Continuing Operations are not prepared in accordance with GAAP. In calculating these amounts, each amount is adjusted from GAAP in order to keep participants from being advantaged or disadvantaged as a result of certain unplanned and unbudgeted events or changes throughout the performance period. These adjustments include adjustments: for unbudgeted acquisitions during the performance period to include deal model base case revenue and EPS commitments in the Company’s performance targets; for unbudgeted dispositions during the performance period; for unplanned material changes in share count during the performance period; and to neutralize foreign exchange impact versus budget during the performance period.

(2)

EBITDA represents net income (loss) before interest expense, net; income tax; depreciation; and amortization, each prepared in accordance with GAAP. Adjusted EBITDA further adjusts EBITDA by adjusting for the items enumerated in note (1) above and by excluding other (income) expense, net; share-based compensation; certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, excess inventory reserves, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; gains or losses from early termination of debt; discontinued operations, net of tax; and certain other items. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Adjusted Revenue.

(3)

To arrive at Adjusted Diluted EPS from Continuing Operations, GAAP diluted EPS from continuing operations is adjusted for the items enumerated in note (1) above and for certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; certain non-cash interest expense and penalty interest; litigation-related and other contingent matters; gains or losses from early termination of debt; foreign currency gains or losses on intercompany financing arrangements; adjustments related to income taxes; and certain other items, including the impact of including dilutive securities if EPS moves from a net loss position to a net income position.

 

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Overall Company Performance Against Objectives. In addition to the financial results above, other performance goals are established in alignment with the Company’s strategic, operating and compliance priorities. Further, the goals are developed to deliver strong annual operating performance results, while positioning the Company for longer-term success and enhanced shareholder value. Performance goals are set to be challenging, while reasonably attainable given a concerted effort on the part of the Company’s NEOs and employees in consideration of conditions and trends. NEO compensation is closely aligned with the achievement of the 2017 financial objectives, as well as the Company’s strategic, operating and compliance priorities.

The Committee reviewed the Company’s achievement of the scorecard objectives set forth above for 2017, and made the following performance determination, which applies to each NEO (certain amounts may not recalculate due to rounding).

 

         Plan Weightings          Payout Percent  
(Target 100%)  
     Final Company        
Performance        

Adjusted Revenue

   25%            85.4%        21.3%      

Adjusted EBITDA Margin

   25%            150.0%        37.5%      

Adjusted Diluted EPS from Continuing Operations

   20%            150.0%        30.0%      

Strategic/Operating/Compliance Priorities

   30%            112.3%        33.7%      
    

 

       

 

Total

   100%                   122.5%      
  

 

     

 

 

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Details behind the Company performance objectives, relative weighting and actual results are summarized below from the 2017 Company Performance Scorecard (certain amounts may not recalculate due to rounding and select results have been generalized due to competitive considerations):

 

    

Objective

 

 

2017 Results

 

 

Weighting      

 

   

Achievement
Level

 

   

 

Contribution
(Weighting x
Achievement)

 

 

 

FINANCIAL OBJECTIVES

 

   

 

 

 

 

70.0%           

 

 

 

 

 

 

 

 

 

126.9%     

 

 

 

 

 

 

 

 

 

88.8%     

 

 

 

 

 

Adjusted Revenue  Goal (1)

 

 

 

Meet or Exceed Company Adjusted Revenue of $3.43 billion

 

 

 

Adjusted Revenue at 98.2% of target

 

 

 

 

25.0%           

 

 

 

 

 

 

85.4%     

 

 

 

 

 

 

21.3%     

 

 

 

Adjusted EBITDA Margin Goal (1)

 

 

 

Meet or Exceed EBITDA Margin of 43.1%

 

 

EBITDA Margin at 105.2% of target

    25.0%                  150.0%            37.5%       

 

Adjusted Diluted EPS from Continuing Operations Goal (1)

 

 

 

Meet or Exceed Adjusted Diluted EPS from Continuing Operations of $3.34

 

 

Adjusted Diluted EPS from Continuing Operations at 110.2% of target

    20.0%                  150.0%            30.0%       

 

STRATEGIC, OPERATING AND COMPLIANCE PRIORITIES

 

 

 

 

 

 

30.0%           

 

 

 

 

 

 

 

 

 

112.3%     

 

 

 

 

 

 

 

 

 

33.7%     

 

 

 

 

Drive revenue achievement through core businesses  

 

Execute XIAFLEX® investment plan to meet annual demand vial growth targets

 

 

Investments contributed to significant product growth, generating high single-digit demand growth for 2017, with combined low double-digit Q4 growth run rates for Peyronie’s Disease and Dupuytren’s Contracture

 

    3.0%                  125.0%            3.8%       
 

 

Meet Generics revenue targets from 2017 launch products

 

 

Realized 91% of targeted revenue contributions, and meaningful profitability contributions, from new U.S. generics product launches, while enhancing the Company’s product selection process

 

    2.0%                  90.0%            1.8%       
 

 

Successfully navigated the business challenges within the consolidating U.S. generics industry

 

 

 

Achieved 90-100% of targeted objective

    2.0%                  95.0%            1.9%       
 

 

Identify key Par product opportunities and file 4-6 products for Canada and/or UK markets, while closing 2-4 in-licensing or acquisition deals

 

 

Significantly expanded the Company’s non-U.S. product portfolio and pipeline, filing several products for the Canadian market, while closing several in-licensing deals

 

    2.0%                  125.0%            2.5%       
Advance key R&D pipeline products  

 

Advance cellulite treatment development program for collagenase clostridium histolyticum (CCH), achieving Phase III First Patient In (FPI)

 

 

Significantly progressed cellulite treatment development program with agreed upon plan with FDA including primary endpoint, safety measures and analysis method

 

    3.0%                  95.0%            2.9%       
  Develop and execute OPANA® ER Advisory Committee preparation and response plan  

After careful consideration and consultation with the FDA, voluntarily ceased shipments of OPANA® ER as part of the removal of the product from the market

 

    2.0%                  100.0%            2.0%       
  Execute patent protection plan for VASOSTRICT® and ADRENALIN®  

Expanded VASOSTRICT® patent estate and listed additional patent in Orange Book; aggressively pursued patent and trade secret lawsuits against challengers for VASOSTRICT® and ADRENALIN®

 

    2.0%                  150.0%            3.0%       
  Achieve 25 regulatory submissions and 20-25 new product launches within Generics  

Achieved 17 high-value product launches while progressing generic regulatory filings based on commercial viability determinations

 

    2.0%                  95.0%            1.9%       
Enhance focus on operational execution  

 

Achieve overall Enterprise SG&A percentage of Adjusted Revenue target and improvement versus 2016, while investing in core assets driven by execution of restructuring initiatives

 

 

 

Exceeded final SG&A percentage of Adjusted Revenue targets, while building capabilities to support overall strategy and core assets

 

    2.0%                  125.0%            2.5%       
  Meet FDA, DEA and CIA compliance requirements including no warning letters received and no quality system failures that result in market action  

Met all compliance objectives, including no warning letters received and reductions in filed alerts and recalls, with none due to internal systems quality failures

 

    2.5%                  125.0%            3.1%       
  Develop and execute strategic options for Somar and Litha  

Divested non-core assets, finalizing the Litha sale (July) and Somar sale (October) with respective proceeds of approximately $100 million and $124 million

 

    2.5%                  100.0%            2.5%       
Achieve key financial metrics  

 

Deliver on year-end 2017 Net Debt Leverage Ratio guidance

 

 

Achieved year-end Net Debt Leverage Ratio objective, while refinancing debt to allow for greater operating flexibility

 

    2.5%                  125.0%            3.1%       
 

Execute capital expenditures plan achieving all key investment milestones and delivering below or to budget

 

 

Optimized annual Capital Expenditure budget, appropriately investing in growth drivers

 

    2.5%                  110.0%            2.8%       

 

(1)

Refer to the section above entitled “2017 Consolidated Financial Results” for discussion of Adjusted Revenue, Adjusted EBITDA Margin and Adjusted Diluted EPS from Continuing Operations.

 

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The Committee also considered each named executive officer’s individual performance and awarded the NEOs the 2017 annual cash IC bonus amounts set forth in the “Individual Compensation Determination” section. See also below under the heading “Post-Termination Benefits” regarding how each named executive officer with an employment agreement is entitled to annual cash incentive compensation as a percentage of salary under certain circumstances.

Equity-Based Long-term Incentive Compensation

Purpose. The LTI program provides an annual award (and, under certain circumstances, a periodic award) that is directly aligned with Endo’s financial, strategic, operating and share price performance objectives. The objective of the program is to align compensation for NEOs over a multi-year period directly with the interests of shareholders of the Company by motivating and rewarding creation and preservation of long-term shareholder value. The level of LTI compensation is determined based on an evaluation of competitive factors in conjunction with total compensation provided to NEOs and the goals of the compensation program described above. Currently, LTI awards are equity-based providing for the awarding of PSUs, RSUs and/or stock options. The timing of our equity grants, including stock options, is not coordinated in a manner that intentionally benefits our executive officers or is timed to coincide with the release of material non-public information.

The Company believes that targeted combinations of PSUs, RSUs and/or stock options closely equates the value of the benefit received by the recipient to the accounting expense of the benefit to the Company. The Company also believes that the resulting blend of PSUs, RSUs and/or stock options is supported by the pattern of equity-based awards that prevails in the Pay Comparator Companies and in the external market generally.

In 2017, senior management’s targeted annual equity mix was established in a manner that was supported by Company priorities as well as practices observed among Endo’s Pay Comparator Companies. The intention was to motivate management through a balanced approach aimed at enhancing realized value opportunities for Endo’s executives, while creating and preserving shareholder value. Each NEO, including Mr. Campanelli, received an equally weighted allocation of PSUs, RSUs and stock options during the 2017 annual grant cycle, each award accounting for one-third of the NEO’s overall LTI value. The annual equity mix for senior management, including Mr. Campanelli is reflected in the graph below.

 

 

LOGO

In determining the annual LTI grants for the NEOs, the Committee considered market data on total compensation packages, the value of long-term incentive grants at the Pay Comparator Companies, TSR, share usage and shareholder dilution and, except in the case of the award to the President and Chief Executive Officer, the recommendations of the President and Chief Executive Officer.

Select actions were taken by the Committee in connection with the 2018 annual grant in support of the Company’s 2018 priorities. In an effort to minimize share pool utilization and underlying dilution levels, the Committee implemented special initiatives, including the use of an alternate equity mix, annual grant reductions and broader use of Long-Term Cash Incentive (LTCI) awards for non-executive positions. In addition to managing share pool availability, the LTI mix changes for 2018 involve an expanded use of RSUs for Vice President positions and above in an effort to increase the direct ownership equity stake for key executives, while contributing to business continuity and strategic growth priorities. Each NEO, including Mr. Campanelli, received a 25% allocation of PSUs and a 75% allocation of RSUs during the 2018 annual grant cycle. In support of these objectives, LTI awards for all employees were reduced by 10% during the 2018 annual grant cycle. Since Mr. Campanelli’s LTI compensation is determined at the sole discretion of the Committee, this decision to apply a company-wide reduction in LTI was taken into account (in addition to Mr. Campanelli’s performance and competitive pay positioning) when considering Mr. Campanelli’s 2018 LTI award.

 

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The equity-based LTI compensation target for each named executive officer related to 2017, to be granted in early 2018, is reflected in the graph below.

 

 

LOGO

Note: LTI for Paul V. Campanelli

determined at the discretion of the Committee

Further, performance is considered based on a collective group of factors focused on financial, operational and strategic results, which drives the Company’s future success as a highly focused generics and specialty branded pharmaceutical company, delivering quality medicines to patients in need through excellence in development, manufacturing and commercialization. At the end of the performance year, each named executive officer’s performance is assessed and then factored into the awarding of equity-based compensation. Grant levels are determined based on overall performance relative, but not limited to, the following factors adopted by the Committee for all applicable NEO LTI assessments:

 

 

Development of a long-term vision for the Company and the successful execution of the overall business strategy

 

 

 

Strengthening the balance sheet by effectively managing capital and cash flow conversion

 

 

Focus on operational execution and the achievement of operating objectives and overall financial performance

 

 

 

Progress in the development and expansion of the Company’s product portfolio and pipeline

 

 

Success in forging the Company for long-term sustainable revenue and profitability growth

 

 

 

Advancement of the Company’s performance-oriented culture and efficient operating model

 

 

Achievement of quality and compliance objectives

 

 

 

Relative shareholder value creation and preservation

 

Based upon the achievement of Company goals and individual objectives, our Chief Executive Officer recommends an adjustment to each named executive officer’s target annual equity-based LTI compensation target based upon performance related to key job accountabilities and annual performance objectives. The recommendation is then reviewed by the Committee, which has discretion to modify the final award. Regarding the award for the Company’s President and Chief Executive Officer, the Committee follows a similar process and has the ultimate discretion for determining the annual equity award.

Discretion. Mr. Campanelli’s employment agreement does not prescribe a specific LTI target but instead provides that his LTI compensation would be determined at the sole discretion of the Committee if the Company and executive achieve certain performance targets set by the Committee with respect to each year ending during Mr. Campanelli’s employment term. All other NEOs are eligible to receive LTI compensation in an amount equal to a fixed percentage of their annual base salary for such year (or such lesser (including zero) or greater percent of the base salary for such year as is recommended to the Committee by the President and Chief Executive Officer and approved by the Committee). The Committee may use negative discretion to take into account factors outside of the pre-established performance objectives to reflect extraordinary business circumstances. Further, pursuant to each of our NEO’s employment agreements, target LTI as a percentage of annual base salary may subsequently be increased at the discretion of the Committee. Please reference the “Individual Compensation Determination” section for approved target LTI changes.

Performance Share Units. PSU awards are granted annually, with each award covering a three-year performance period. Through this program, executives are eligible to earn a specified target number of Company shares at the end of the three-year performance period. The actual share award is released at the end of the three-year plan period depending on how well the Company performed against the targets set at the beginning of the performance period.

In February 2017, the Committee approved modifications to the PSU program, effective with the 2017 grants, to eligible Vice President-level and above positions, including the Company’s NEOs. The plan was based upon two discrete measures, relative TSR performance and adjusted free cash flow. The addition of a free cash flow performance metric, which accounted for 50% of the PSU award at grant, demonstrates its importance to the success and sustainability of the Company and will be measured annually over the performance cycle which spans over a three-year period. The three-year performance period is comprised of three one-year annual free cash flow targets, established at the beginning of each annual performance period. Earned awards are banked each year and released at the end of the three-year vesting period. Under this design, the portion of the PSU award that is tied to free cash flow performance will not vest unless the 2017 results reach the minimum 94% of target threshold, at which an attainment multiple of 0.5x will apply, while the maximum attainment multiple of 2x can only be achieved if the Company’s 2017 performance is at or above 112% of target. Award levels will be interpolated between the 0.5x and

 

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2x payout multiples. The performance period for the 2017 awards measured against free cash flow performance began on January 1, 2017 and ended on December 31, 2017, with the final multiple of target PSUs associated with the 2017 performance cycle approved at 177.6% of target.

The remaining 50% of the PSU award was tied exclusively to relative TSR performance which will be measured against the three-year TSR of the custom index of companies. The custom index utilized for the 2017 grant was initially comprised of a statistically meaningful group of forty pharmaceutical companies, which include companies in the New York Stock Exchange ARCA Pharmaceutical Index, Endo’s Pay Comparator Companies and other specialty pharmaceutical companies. For purposes of determining the final relative TSR performance measurement, each company in the custom index will be included only if they are publicly-traded at both the beginning and end of the performance period. Under this design, the portion of the PSU award that is tied to relative TSR performance will not vest unless the three-year TSR results reach the 40th percentile minimum threshold, at which an attainment multiple of 0.5x will apply, while the maximum attainment multiple of 2x can only be achieved if the Company’s percentile rankings is at or above the 90th percentile over the performance period. Further, a maximum of 1x of the award will vest if the Company’s TSR for the performance period is negative, with no payout made if results are below the 40th percentile. Award levels based on positive TSR results will be interpolated between the 1x and 2x payout multiples. The performance period for the 2017 awards measured against relative TSR performance began on February 21, 2017 and ends on February 21, 2020, and will be assessed at the end of the performance cycle based on a beginning Per Share Price of $12.93.

The number of PSUs awarded to each executive continues to be based on a targeted percentage of the executive’s base salary, with the actual number of shares awarded adjusted based on relative TSR and free cash flow performance. Effective with the 2017 awards, PSU award opportunities range between zero and 200% of the target award amount, dependent upon achievement of the pre-determined relative TSR & free cash flow performance goals. As of the record date, TSR performance associated with the 2017 PSU awards is tracking below the 40th percentile and a 0x payout opportunity. Free cash flow for the 2017 performance year achieved over 109% of target, resulting in a payout of 177.6% (with this earned portion banked and released at the end of the three-year vesting period). The performance schedule for the 2017 awards is shown in the charts below:

 

 

LOGO

 

LOGO

“Per Share Price” means the average of the closing prices of the Company’s ordinary shares for the applicable company during the thirty consecutive trading days ending on the day prior to the applicable measurement date.

“Total Shareholder Return” means the appreciation of the Per Share Price during the performance period, plus any dividends paid on the applicable Company’s ordinary shares during the performance period. The determination of the TSR attainment levels will be made by the Committee following an independent third-party confirmation of the results.

Free Cash Flow” means Adjusted Cash Flow from Operations less Capital Expenditures.

 

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In February 2018, the Committee approved updates for the free cash flow performance schedule for the 2018 performance year. In establishing the 2018 schedule, slight modifications to the performance attainment levels were approved by the Compensation Committee to align the program with 2018 budget projections. Under the updated schedule, the portion of the PSU award that is tied to free cash flow performance will not vest unless the 2018 results reach the minimum 95% of target threshold, at which an attainment multiple of 0.5x will apply, while the maximum attainment multiple of 2x can only be achieved if the Company’s 2018 performance is at or above 110% of target. Award levels will be interpolated between the 0.5x and 2x payout multiples. No changes were made to the relative TSR schedule. The free cash flow performance schedule for the new 2018 awards is shown in the chart below:

 

 

LOGO

Restricted Stock Units. In addition to the PSUs described above, our NEOs also are granted time-based RSUs, which are the second element of our equity-based LTI compensation package. RSUs are valued based on the closing price of our ordinary shares on the Nasdaq on the date of grant, and each RSU represents the right to receive one ordinary share of the Company as of the date of vesting. RSUs granted to the NEOs vest ratably over three years.

Stock Options. Stock options represent the third element of our equity-based LTI compensation package, and are designed to reward NEOs only if the share price increases. The LTI program calls for stock options to be granted with exercise prices of not less than the closing price of our shares as quoted on the Nasdaq on the date of grant and generally to vest ratably over four years. The Committee will not reduce the exercise price of stock options (except in connection with adjustments to reflect recapitalizations, share or extraordinary dividends, share splits, mergers, spin-offs and similar events permitted by the relevant plan) without shareholder approval. Stock option grants to NEOs have been awarded with a term of ten years, but were not issued as part of the 2018 annual grant.

Vesting due to retirement age. On the first day of the year in which an NEO reaches retirement age, which is considered age 60 with five years of service or age 55 with ten years of service, PSUs, RSUs and stock options are eligible for continued vesting in accordance with the original vesting schedule. However, awards eligible for continued vesting as a result of reaching retirement age are not settled until after the end of the applicable performance or vesting period, if applicable.

Considerations. The Company believes that the most effective means to encourage long-term performance by our NEOs is to create an ownership culture. This philosophy is implemented through the granting of the equity-based awards described above. The LTI program described above is designed so that Company leaders hold a competitive stake in the Company’s financial future. The LTI program provides a future reward structure so that employees who have an impact on the Company’s performance share in the results of that impact.

The LTI pool is established annually based on the Company’s achievement of goals and objectives, and can vary significantly from year to year, as demonstrated in 2018 with the application of the 10% award reductions. The share pool is also managed in a manner that focuses on optimizing share utilization, while remaining aligned with competitive eligibility and grant practices. In an effort to proactively manage share utilization levels in 2017 and 2018, LTCI awards were granted to eligible middle-management and professional level employees. LTCI awards operate like cash-settled RSUs, vest ratably over a three-year period, can only be settled in cash and are tied to the value of Endo stock at the time of vesting. In addition, the LTI mix offered to Vice President positions and above was modified to offer only full value awards in 2018. This allowed the Committee to manage share pool availability, while increasing the direct ownership equity stake for key executives and contributing to business continuity and strategic growth priorities.

 

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Key dilution metrics such as burn rate and overhang are regularly evaluated against external benchmarks, but also considered in the context of the Company’s current business environment.

 

LOGO

The Company generally establishes non-NEO eligibility criteria to align Company and industry practices, with participation in the LTI program based on individual performance. LTI awards remain an important component of the Company’s compensation philosophy and are allocated most heavily to:

   

Reward consistently high performing individuals who make significant contributions to the success of the Company;

   

Reward individuals at various levels who have high impact relative to the expectations and objectives of their role; and

   

Retain eligible individuals who have skills critical to the long-term success of the Company.

Timing of Grants. Annual grants of PSUs, RSUs and/or stock options to our NEOs have been historically made at a regularly scheduled meeting of the Committee held during the first quarter of each year. Effective with the 2018 annual grant, the Committee will approve the annual equity award values during the regularly scheduled meeting held during the first quarter of each year, but grant the awards on a new common grant date of April 1st (or the next business day if April 1st falls on a weekend or holiday). The number of PSUs, RSUs, LTCI awards and/or stock options awarded will be based on Endo’s closing stock price at the time of grant. Supported by best practices, this is intended to grant the annual equity awards after the annual earnings release, while allowing for a sufficient amount of time between the filing of the Company’s 10-K and the date of Endo’s annual grant. The Company may also make occasional grants during the year to employees of the Company. These grants are typically associated with promotions and hiring, and are typically made shortly following the effective date of the promotion or date of hire.

2017 Decisions Regarding Equity-Based LTI Program. In 2017, the Committee awarded LTI compensation for NEOs pursuant to the program described above resulting in the awards of PSUs, RSUs and stock options identified in the Summary Compensation Table and the 2017 Grants of Plan-Based Awards Table. Included in these tables are special grants authorized by the Committee to address the Company’s need to increase each NEO’s direct ownership equity stake. These special grants help to further align the interests of our NEOs with those of our shareholders through the use of stock options, which only produce value for the recipient if shareholder value is created, and RSUs, which provide an enhanced ownership opportunity that is directly tied to shareholder value creation. For grants awarded in 2018 based on 2017 performance, the Committee reviewed the Company’s achievements as well as each NEO’s contributions and awarded the NEOs the LTI amounts set forth in the “Individual Compensation Determination” section.

Stock Ownership Guidelines for Executive and Senior Management. The current Ownership Guidelines for executive and senior management are as follows:

 

LOGO

 

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Executive and senior management are expected to achieve the Ownership Guidelines within five years of joining the Company. Executive and senior management are also expected to continuously own sufficient shares to meet the Ownership Guidelines once attained. Members of executive and senior management who subsequently get promoted to a higher level will have five years from the date of promotion to achieve their new ownership target. All individuals subject to the Ownership Guidelines are in compliance with the established guidelines.

Mr. Campanelli has a sizable personal investment in the success of Endo. Per the terms of Mr. Campanelli’s original employment agreement following the acquisition of Par, Mr. Campanelli was required to purchase or retain shares of Endo stock equal in value to at least fifteen percent (15%) of the after-tax proceeds that he received in connection with the merger. Further, Mr. Campanelli is required to retain shares with a purchase price of $5,000,000 for three years and retain the balance of the shares for one year following his date of employment with Endo. Mr. Campanelli chose to retain substantially more than the aforementioned requirement, and has since made additional open market purchases of Endo stock (allowing him to exceed the Company’s Ownership Guidelines with a current ownership level of 15.2x base salary based on eligible share ownership levels of 1,642,461 shares as of April 13, 2018), strengthening the alignment between management and shareholder interests.

Periodic Review

The Committee reviews both the annual incentive compensation program and the LTI program annually to confirm that their key elements continue to meet the objectives described above.

Individual Compensation Determination

Under our compensation structure, the mix of base salary, annual cash incentive compensation and equity-based LTI compensation varies depending on each named executive officer’s level. Annual compensation determinations by the Committee are based on factors including the Company’s performance, individual performance and the competitiveness of each NEO’s pay as reported by the Committee’s consultant, Korn Ferry Hay Group. The following summarizes the compensation opportunities applicable in 2017 and the actual compensation awarded in 2018 by the Committee for the named executive officers based on 2017 performance:

 

Name

 

 

Base Salary as

of

December 31,

2017

 

   


2017 Annual
Incentive
Compensation
Target

 

   


2017 Annual
Incentive
Compensation
Actual

 

   

2017 Long-Term
Equity Incentive
Compensation
Target

 

   

 

2017 Long-

Term Equity
Incentive
Compensation
Actual (Expected
Target Value)(1)

 

 

 

Paul V. Campanelli

 

 

 

$

 

 

            950,000

 

 

 

 

 

 

$

 

 

            1,140,000

 

 

 

 

 

 

$

 

 

            1,815,450

 

 

 

 

 

 

 

 

 

Committee Discretion

 

 

 

 

 

 

$

 

 

            6,804,000

 

 

 

 

 

Blaise Coleman

 

 

 

$

 

 

            550,000

 

 

 

 

 

 

$

 

 

            302,500

 

 

 

 

 

 

$

 

 

            613,203

 

 

 

 

 

 

$

 

 

            1,375,000

 

 

 

 

 

 

$

 

 

            1,237,500

 

 

 

 

 

Terrance J. Coughlin

 

 

 

$

 

 

            600,000

 

 

 

 

 

 

$

 

 

            420,000

 

 

 

 

 

 

$

 

 

            800,125

 

 

 

 

 

 

$

 

 

            1,800,000

 

 

 

 

 

 

$

 

 

            1,620,000

 

 

 

 

 

Matthew J. Maletta

 

 

 

$

 

 

            550,000

 

 

 

 

 

 

$

 

 

            302,500

 

 

 

 

 

 

$

 

 

            600,203

 

 

 

 

 

 

$

 

 

            1,375,000

 

 

 

 

 

 

$

 

 

            1,237,500

 

 

 

 

 

Tony Pera

 

 

 

$

 

 

            460,000

 

 

 

 

 

 

$

 

 

            253,000

 

 

 

 

 

 

$

 

 

            409,925

 

 

 

 

 

 

$

 

 

            920,000

 

 

 

 

 

 

$

 

 

            828,000

 

 

 

 

 

(1)

Award levels established at the time of grant are based on the grant expected target value which is derived from Endo’s closing share price at the time of grant for RSUs and PSUs (see Summary Compensation Table’s footnote (1) on page 53 for details regarding LTI valuations under ASC 718 for accounting and proxy reporting purposes). As further described below, based on Mr. Campanelli’s 2017 performance, the Committee approved an award for Mr. Campanelli with an expected target value of $9,000,000; however, only approximately $6,804,000 (comprised of 900,000 RSUs and 300,000 PSUs), representing expected target value, was granted by the Committee during the annual grant cycle in 2018. This was due to the fact that Mr. Campanelli’s award exceeded the 1.5 million share maximum individual grant limitation under the current LTI Program.

Each named executive officer’s target percentage and actual number of PSUs and RSUs granted in 2018, based on 2017 performance, were as follows:

 

Name

 

 

 

LTI Target % of
Base Salary

 

   

 

PSUs Actually
Granted

 

   

 

RSUs Actually
Granted

 

 

 

Paul V. Campanelli

 

 

 

 

 

 

Committee Discretion

 

 

 

 

 

 

 

 

 

200,000

 

 

 

 

 

 

 

 

 

900,000

 

 

 

 

 

Blaise Coleman

 

 

 

 

 

 

250%

 

 

 

 

 

 

 

 

 

36,375

 

 

 

 

 

 

 

 

 

163,690

 

 

 

 

 

Terrance J. Coughlin

 

 

 

 

 

 

300%

 

 

 

 

 

 

 

 

 

47,618

 

 

 

 

 

 

 

 

 

214,285

 

 

 

 

 

Matthew J. Maletta

 

 

 

 

 

 

                                   250%

 

 

 

 

 

 

 

 

 

                                   36,375

 

 

 

 

 

 

 

 

 

                                   163,690

 

 

 

 

 

Tony Pera

 

 

 

 

 

 

200%

 

 

 

 

 

 

 

 

 

24,337

 

 

 

 

 

 

 

 

 

109,523

 

 

 

 

 

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Paul V. Campanelli

President and Chief Executive Officer

 

 
 

 

To provide further assurance of independence, the information used to determine the compensation recommendation for the President and Chief Executive Officer is developed by Korn Ferry Hay Group. Korn Ferry Hay Group prepares analyses showing competitive Chief Executive Officer compensation among the Pay Comparator Companies for the individual elements of compensation and total Direct Compensation. The consultant develops a range of recommendations, based on various Company and individual performance assumptions, for any change in the President and Chief Executive Officer’s base salary, annual cash incentive, equity grant value, and equity mix. The recommendations take into account the competitive Pay Comparator Company pay analysis, expected future pay trends and the position of the President and Chief Executive Officer in relation to other senior company executives and proposed pay actions for all key employees of the Company. The results of this analysis are shared with the Committee, during which time the Company’s performance, and the performance of the President and Chief Executive Officer are evaluated, and compensation decisions determined. The President and Chief Executive Officer has no prior knowledge of the recommendations, and only participates in the process during the stage when he reviews his evaluation of Company performance and his personal performance with the Committee. The President and Chief Executive Officer takes no part in the recommendations, Committee discussions or decisions, other than what is described above.

 

The Committee’s assessment of Mr. Campanelli’s performance was based on the successful development and advancement of Endo’s strategic imperatives, the Company’s solid financial results and the achievement of operating performance objectives. Mr. Campanelli’s performance was evaluated based upon the Company’s overall financial performance and the achievement of annual operating objectives established for 2017. Specifically, the Committee strongly considered the Company’s financial and operating objectives as summarized in the Compensation Discussion & Analysis “Executive Summary” and further detailed within the “Performance-Based Annual Cash Incentive Compensation” section. In addition, the Committee considered Mr. Campanelli’s performance based upon his successful transition into the CEO role, the progress made in executing the transformation of Endo based on the Company’s new strategy built on organic growth and portfolio optimization, the investments initiated in progressing the Company’s growth assets and the advancement of a more efficient cost structure and operating model focused on operational execution.

 

Based on an analysis of the competitiveness of Mr. Campanelli’s pay related to the Company’s Pay Comparator Companies conducted by Korn Ferry Hay Group and the Company’s compensation plan objective to have a significant percentage of pay in the form of variable incentive-based compensation, Mr. Campanelli’s annual base salary compensation remained unchanged at $950,000. The Committee also assessed Mr. Campanelli’s achievement against the Company’s annual pre-established and formulaic objectives, while operating within the structure of Endo’s Internal Revenue Code Section 162(m) compliant annual incentive compensation program, which allows for a maximum bonus equal to 225% of the target bonus amount and the use of negative Committee discretion based on actual performance. In consideration of Mr. Campanelli’s contributions and the Company’s performance against the 2017 scorecard objectives as noted on page 41, Mr. Campanelli was awarded an annual performance-based bonus equal to approximately 159% of his annual incentive compensation target. The 2017 annual incentive award reflects the Board’s confidence in Mr. Campanelli and his ability to lead the organization through the execution of key financial, operational and strategic priorities.

 

The following illustrates the mechanics underlying the annual cash incentive calculation for Mr. Campanelli:

 

 

 
 

LOGO

 

Mr. Campanelli entered into a new employment agreement with the Company on September 23, 2016, with a three-year term. His agreement does not prescribe a specific LTI target, but instead provides for his LTI compensation to be determined at the sole discretion of the Committee based upon several performance-based criteria.

 

Mr. Campanelli’s performance in 2017 was assessed by the Committee based on a collective group of factors focused on strategic, financial and operational strategic results, which drives the Company’s future success as a highly focused generics and specialty branded pharmaceutical company. Based on Korn Ferry Hay Group’s analysis of competitive LTI levels, and in consideration of Mr. Campanelli’s strong performance and the Committee’s decision to apply a company-wide reduction in LTI, the Committee approved an equity-based award with an expected target value based on Endo’s closing stock price at the time of grant equal to $9,000,000. The approved award is highly consistent with median actual

 

 

 

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Paul V. Campanelli

President and Chief Executive Officer (continued)

 
 

LTI levels awarded by Endo’s Pay Comparator Companies (see Summary Compensation Table’s footnote (1) on page 53 for details regarding LTI valuations under ASC 718 for accounting and proxy reporting purposes), and reflective of Mr. Campanelli’s performance and contributions in 2017. The Committee granted a portion of this award with an expected target value of approximately $6,804,000 (comprised of 900,000 RSUs and 300,000 PSUs) during the annual grant cycle in 2018. This was due to the fact that Mr. Campanelli’s award exceeded the 1.5 million share maximum individual grant limitation under the current LTI Program.

 

Consistent with Endo’s other NEOs, Mr. Campanelli’s 2018 equity award was issued in the form of RSUs equal to 75% of Mr. Campanelli’s total LTI award, and performance-based equity consisting of 25% PSUs, with realizable value dependent upon the delivery of shareholder value and achievement of free cash flow objectives. The combined use of RSUs and PSUs in 2018 supported the Company’s share pool management priorities, and also allowed for a consistent approach for all executive and senior management employees aimed at increasing the equity stake for our key leaders, while motivating our key leaders so they can remain focused on business continuity and strategic growth priorities. Since joining Endo in 2015, Mr. Campanelli received a relatively high proportion of his LTI awards in the form of PSUs and stock options. The decision to award Mr. Campanelli 75% of his 2018 equity award in the form of RSUs also helped to balance the LTI he received since joining Endo more evenly across PSUs, RSUs and stock options. This grant was approved in recognition of Mr. Campanelli’s overall performance relative, but not limited to, the factors adopted by the Committee for all applicable NEO LTI assessments (as referenced under the section “Equity-Based Long-term Incentive Compensation”).

 

 
 

Mr. Campanelli’s equity-based award allows his total Direct Compensation levels and pay mix to be highly consistent with practices observed among CEOs of both Endo’s Pay Comparator Companies and ISS Peer Group (2017 target Direct Compensation levels ranked below the 50th percentile compared to the Endo Pay Comparator Companies, and above the 50th percentile compared to the ISS Peer Group median). Mr. Campanelli’s 2017 pay structure supports the Company’s pay-for-performance compensation philosophy in that only 9% of Mr. Campanelli’s total Direct Compensation is fixed while 91% is variable and dependent upon performance.

 

 
 

LOGO

 

 

 

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Blaise Coleman

Executive Vice President and Chief Financial Officer

 
 

 

Mr. Coleman has served as Executive Vice President and Chief Financial Officer since December 19, 2016 and also oversees the Company’s information technology function. Mr. Coleman has broad-based leadership skills, financial expertise and business acumen related to strategic and financial matters. For 2017, the Company ended the year with Adjusted Revenue of $3.369 billion, Adjusted EBITDA Margin of 45.4% and Adjusted Diluted EPS from Continuing Operations of $3.68. Throughout 2017, Mr. Coleman played a key leadership role in executing Endo’s strategic priorities, including the management of capital expenditure investments, targeting the Company’s key growth drivers. Mr. Coleman continued to optimize the Company’s cost structure, which included the refinancing of Endo’s debt obligations, allowing for greater operating flexibility. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Coleman’s pay related to Endo’s Pay Comparator Companies, and in recognition of Mr. Coleman’s 2017 performance, the Committee approved a merit increase to base salary of approximately 9.1% effective February 26, 2018. In consideration of Mr. Coleman’s contributions and the Company’s performance against the 2017 scorecard objectives as noted on page 41, Mr. Coleman was awarded an annual performance-based bonus equal to approximately 203% of his annual incentive compensation target. Based on the performance factors noted on page 43, Mr. Coleman was also awarded an equity-based award equal to 90% of his LTI target.

 

 

 

 

Terrance J. Coughlin

Executive Vice President and Chief Operating Officer

 
 

 

Mr. Coughlin has served as Endo’s Executive Vice President and Chief Operating Officer since November 1, 2016, with responsibility for global research & development and worldwide manufacturing operations. Previously, Mr. Coughlin served as Vice President, Operations of Par Pharmaceutical Companies, Inc., a subsidiary of Endo. Prior to Endo’s acquisition of Par in September 2015, Mr. Coughlin was the Chief Operating Officer of Par Pharmaceutical Companies, Inc. where he was responsible for leading Par’s manufacturing operations, product development and supply operations. Throughout 2017, Mr. Coughlin played a key leadership role in progressing the clinical development of collagenase clostridium histolyticum for the treatment of cellulite in cooperation with the FDA, while achieving 17 new product launches and progressing generic regulatory filings based on commercial viability determinations. Mr. Coughlin also led the review of Endo’s global manufacturing and supply chain capabilities, resulting in the initiation of an extensive optimization strategy in support of the Company’s 2017 financial and operational priorities. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Coughlin’s pay related to Endo’s Pay Comparator Companies, and in recognition of Mr. Coughlin’s performance and contributions in 2017, the Committee approved a merit increase to base salary of approximately 4.2%, effective February 26, 2018. Based on individual performance and Company performance against 2017 scorecard objectives as noted on page 41, Mr. Coughlin was awarded an annual performance-based bonus equal to approximately 191% of his annual incentive compensation target. Based on the performance factors noted on page 43, Mr. Coughlin was also awarded an equity-based award equal to 90% of his LTI target.

 

 

 

 

Matthew J. Maletta

Executive Vice President, Chief Legal Officer

 
 

 

Mr. Maletta has served as the Company’s Executive Vice President, Chief Legal Officer since May 4, 2015. Mr. Maletta brings over two decades of legal experience and organizational leadership in the specialty pharmaceutical industry and with private law firms, including extensive experience in litigation strategy, M&A, corporate, governance, securities, finance, commercial and employment law. Throughout 2017, Mr. Maletta has played a key leadership role in supporting the advancement of the Company’s strategy which included both legal and operational priorities. Mr. Maletta has led and progressed the Company’s product liability and litigation strategy, while providing advice on a wide range of significant legal and business matters, including product patent protection, regulatory matters, and corporate structure considerations. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Maletta’s pay related to Endo’s Pay Comparator Companies, and in recognition of Mr. Maletta’s performance and contributions in 2017, the Committee approved a merit increase to base salary of approximately 4.5%, effective with the commencement of Mr. Maletta’s new employment agreement on February 13, 2018. Based on individual performance and Company performance against 2017 scorecard objectives as noted on page 41, Mr. Maletta was awarded an annual performance-based bonus equal to approximately 198% of his annual incentive compensation target. Based on the performance factors noted on page 43, Mr. Maletta was also awarded an equity-based award equal to 90% of his LTI target.

 

 

 

 

Tony Pera

President, Par Pharmaceutical

 
 

 

Mr. Pera serves as President, Par Pharmaceutical, leading Endo’s U.S. Generics business, including responsibility and oversight of Par Generic and Par Sterile sales teams, as well as Par’s marketing and business analytics group. Mr. Pera was appointed as President, Par Pharmaceutical on November 1, 2016, and previously served as Chief Commercial Officer of Par Pharmaceutical. As Chief Commercial Officer, Mr. Pera was responsible for all sales, marketing, pricing and customer operations functions for Par. Throughout 2017, Mr. Pera effectively led the Company’s generics strategy and business during a period of significant disruption in the U.S. generics industry. Under his leadership, the Company’s U.S. Generic Pharmaceuticals segment achieved Adjusted Revenue in excess of $2.2 billion, including the launch of several new products that led to new sources of revenue for the Company. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Pera’s pay related to Endo’s Pay Comparator Companies, and in recognition of Mr. Pera’s performance and contributions in 2017, the Committee approved a merit increase to base salary of approximately 2.5%, effective February 26, 2018. Based on individual performance and Company performance against 2017 scorecard objectives as noted on page 41, Mr. Pera was awarded an annual performance-based bonus equal to approximately 162% of his annual incentive compensation target. Based on the performance factors noted on page 43, Mr. Pera was also awarded an equity-based award equal to 90% of his LTI target.

 

 

 

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Additional Compensation Components

The Company’s current practice is to limit use of perquisites. In 2017, other than as described below, the only perquisites provided to the NEOs were financial planning services, housing allowances, term life and long-term disability insurance.

Retirement Benefits

The Company currently offers two executive retirement programs: the 401(k) Restoration Plan and the Executive Deferred Compensation Plan, each of which is described below. Both plans were effective January 1, 2008, and were amended and restated in 2014.

401(k) Restoration Plan. The purpose of the 401(k) Restoration Plan is to provide eligible employees with the opportunity to defer a portion of their compensation on a tax-favored basis in parity with the tax benefit provided under the qualified 401(k) plan. The 401(k) Restoration Plan allows eligible employees whose compensation exceeds the Internal Revenue Code Section 401(a)(17) amount (or other criteria set by the Committee), including NEOs, to defer eligible pay after such individual’s contribution to the Company’s existing qualified 401(k) plan has exceeded the maximum. The Company does not fund employer matching contributions in the 401(k) Restoration Plan.

The amount in any individual’s 401(k) Restoration Plan account will be paid to such individual at termination of employment or following the elected specified payment date. Actual 401(k) Restoration Plan participation will begin when an executive’s total cash compensation exceeds the Internal Revenue Code earnings limit for the qualified 401(k) ($275,000 for 2018). Individuals who elect to defer their eligible pay under the 401(k) Restoration Plan will defer federal and state (to the extent allowed by state law) taxes until the account is paid to the individual.

Executive Deferred Compensation Plan. The Executive Deferred Compensation Plan permits executives to elect to defer up to 100% of the portion of the following year’s LTI compensation that is in the form of RSUs.

Deferral of the RSUs defers federal and state (as allowed under state laws) taxes on the compensation when the RSUs vest. The compensation is deferred until the deferred RSUs are settled in shares. The RSUs may be deferred to a specified payment date on which the elected disbursement(s) under the participant’s account will commence. The value of the compensation an executive receives upon the share delivery is based on the value of the Company’s shares on the date the deferral is delivered to the executive, and the executive will be responsible for the federal and state taxes at that time.

The Executive Deferred Compensation Plan also allows an executive to defer up to 50% of his or her annual incentive compensation award. When an executive makes his or her irrevocable election to defer cash incentive compensation, he or she also elects a specified payment date in which the elected disbursement(s) under the participant’s account will commence.

Post-Termination Benefits

Employment and Change in Control Agreements; Severance Agreements. The Company generally enters into a written employment agreement with each of its NEOs. The purpose of these agreements and the compensation and benefits provided for therein is to aid recruitment and retention and to reinforce an ongoing commitment to shareholder value creation and preservation.

In connection with Mr. Campanelli’s appointment to President and Chief Executive Officer, the Company entered into a new executive employment agreement with Mr. Campanelli which was effective September 23, 2016, and has a term of three years. Mr. Campanelli’s new employment agreement replaced his previous agreement, which was dated as of September 25, 2015.

On December 9, 2016, the Company entered into a new executive employment agreement with Terrance J. Coughlin, which was effective December 9, 2016 and has a term of three years. Mr. Coughlin’s new employment agreement replaced his previous agreement, which was dated as of September 8, 2015.

On December 22, 2016, the Company entered into an executive employment agreement with Blaise Coleman, which was effective December 19, 2016 and has a term of three years.

On February 13, 2018, the Company entered into a new executive employment agreement with Matthew J. Maletta, which was effective February 13, 2018 and has a term of three years. Mr. Maletta’s new employment agreement replaced his previous agreement, which was dated as of April 28, 2015.

On December 5, 2016, the Company entered into an executive employment agreement with Tony Pera, which was effective December 5, 2016 and has a term of three years.

Each employment agreement sets forth the benefits to be received upon termination of employment by each of the respective NEOs. These benefits are further described in the “Compensation of Executive Officers and Directors” section below under the heading “Potential Payments Upon Termination or Change in Control.” Each NEO’s employment agreement contains restrictive covenants.

The Company also generally enters into a written separation agreement with each of its NEOs upon his termination of employment. The purpose of these agreements is to provide the Company with certainty regarding its post-termination protections and obligations. With regard to termination of employment, each separation agreement replaces the employment agreement and thus constitutes the entire agreement between the NEO and the Company regarding post-termination benefits.

 

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Other Compensation Practices and Policies

Tax Deductibility of Compensation

Prior to the enactment of the Tax Act in December 2017, Section 162(m) of the Internal Revenue Code precluded a public corporation from taking a tax deduction for certain compensation in excess of $1.0 million in any one year paid to its Chief Executive Officer or any of its three other highest-paid executive officers (not including the Company’s Chief Financial Officer), unless certain specific and detailed criteria are satisfied. However, certain qualifying “performance-based” compensation (that is, compensation paid under a plan administered by a committee of outside directors, based on achieving objective performance goals, the material terms of which were approved by shareholders, such as our Amended and Restated 2015 Stock Incentive Plan) was not subject to the $1.0 million deduction limit.

With the passage of the Tax Act, only qualifying performance-based compensation paid pursuant to a binding written contract in effect on November 2, 2017 (and not modified in any material respect on or after November 2, 2017) as set forth under the Tax Act will be eligible for the deduction exception. The Tax Act also expanded the executive officers covered by Section 162(m) to include the chief financial officer position as well as any person who ever was a covered executive for any prior taxable year, beginning after December 31, 2016. As a result of these changes, starting in 2018, most compensation payable to any person who was a named executive officer of the Company since fiscal year 2016 will not be deductible, regardless of whether the compensation is performance-based.

While the Committee considers the applicable rules regarding deductibility when making awards, it reserves the right to make nondeductible payments when it deems appropriate.

Company Policy on Parachute Payments

On May 5, 2009, the Company’s Board of Directors adopted a policy that provides that the Company will not enter into any future employment agreements that include “golden parachute” excise tax gross-ups with respect to payments contingent upon a change in control. Accordingly, the employment agreements for Messrs. Campanelli, Coleman, Coughlin, Maletta and Pera do not include excise tax gross-ups with respect to payments contingent upon a change in control. An excess parachute payment is generally a change in control payment in excess of one times the average of the officer’s taxable W-2 income for the five years prior to the change in control (base amount), and generally only results if the change in control payment exceeds 2.99 times the base amount. Excess parachute payments, including any excise tax gross-up payments, are non-deductible to the Company under Section 280G of the Internal Revenue Code. The Company does not have any employment agreements with Change in Control excise tax gross up provisions.

Recovery of Compensation

In 2009, the Committee adopted a compensation recovery policy relating to repayment of cash incentive awards by an executive in the event of a restatement of the Company’s financial results under certain circumstances. In February 2018, the Committee amended this policy to: (1) expand the recoupable incentive awards to include equity-based incentives in addition to cash incentive awards (collectively, Covered Awards), and (2) expand the Committee’s ability to recoup certain Covered Awards granted within the prior 12-month period to NEOs and other senior management employees who are at vice president level and above (collectively, Covered Employees) for their material misconduct or gross negligence resulting in a material violation of the Company’s policies or applicable laws, as determined by a court of competent jurisdiction in a final, non-appealable judgment, and causing material financial harm to the Company in addition to the Committee’s existing ability to recoup Covered Awards in connection with a restatement of the Company’s financial results. Under the policy, if the Company issues a material restatement of its reported financial results caused by the Covered Employee’s fraud or intentional misconduct, as determined by the Committee, then the Committee will direct the Company to use reasonable efforts to seek recovery of all Covered Awards that were overpaid or overgranted for performance during the restated fiscal year or years. In the event that the Committee invokes this policy to recover any Covered Awards, the Company will disclose such recoupment as required by law or regulation or if the applicable misconduct has otherwise become public knowledge. The Committee approved this amended policy after consideration of market practices and to further align the interests of senior management employees with our shareholders.

Compensation Committee Report

The Compensation Committee reviewed and discussed with the Company’s management the section of this Proxy Statement entitled “Compensation Discussion and Analysis.” In reliance on this review and discussion, the Compensation Committee recommended to the Board of Directors that the section entitled “Compensation Discussion and Analysis” be included in this Proxy Statement and incorporated by reference into the Endo International plc Annual Report on Form 10-K for the year ended December 31, 2017.

 

Submitted

by the Compensation Committee of the Company’s Board of Directors.

Members of the Compensation Committee:

William P. Montague (Chairman)

Roger H. Kimmel (Member)

Michael Hyatt (Member)

Sharad S. Mansukani (Member)

Todd B. Sisitsky (Member)

 

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Compensation of Executive Officers and Directors

Summary Compensation Table

The following table sets forth the cash and non-cash compensation paid to or earned by our current President and Chief Executive Officer, current Executive Vice President and Chief Financial Officer and the other three most highly compensated executive officers of the Company who were serving as executive officers at the end of the last completed fiscal year (collectively, the NEOs). Information for an NEO is included for each of the years ending December 31, 2017, 2016 and 2015 in which that individual met the definition of an NEO. For a complete understanding of the table, please read the footnotes and narrative disclosures that follow the table.

 

Name and Principal Position

 

 

Year

 

   

Salary
($)

 

   

Bonus
($)

 

   

Share
Awards
($)(1)

 

   

Option
Awards
($)(1)

 

   

Non-Equity
Incentive Plan
Compensation
($)(2)

 

   

All Other
Compensation
($)(3)

 

   

Total ($)

 

 

 

Paul V. Campanelli

President and Chief Executive

Officer

 

 

 

 

 

 

2017

2016

2015

 

 

 

 

 

 

 

 

$

$

$

 

 

  950,000

987,038

272,376

 

 

 

 

 

 

 

 

$

$

$

 

 

 

 

 

 

 

 

 

 

$

$

$

 

 

7,783,028

2,179,571

3,664,071

 

 

 

 

 

 

 

 

$

$

$

 

 

  2,996,836

4,590,794

949,733

 

 

 

 

 

 

 

 

$

$

$

 

 

  1,815,450

712,500

1,064,000

 

 

 

 

 

 

 

 

$

$

$

 

 

  57,081

23,007

3,977

 

 

 

 

 

 

 

 

$

$

$

 

 

  13,602,395

8,492,910

5,954,157

 

 

 

 

 

 

 

Blaise Coleman

Executive Vice President and

Chief Financial Officer

 

 

 

 

 

2017

2016

 

 

 

 

 

$

$

 

545,833

349,308

 

 

 

 

 

$

$

 

  165,000

100,000

 

 

 

 

 

$

$

 

1,661,589

291,038

 

 

 

 

 

$

$

 

1,360,469

190,191

 

 

 

 

 

$

$

 

613,203

216,563

 

 

 

 

 

$

$

 

4,417

10,819

 

 

 

 

 

$

$

 

4,350,511

1,157,919

 

 

 

 

Terrance J. Coughlin

Executive Vice President and

Chief Operating Officer

 

 

 

 

 

2017

2016

 

 

 

 

 

$

$

 

600,000

556,280

 

 

 

 

 

$

$

 

 

 

 

 

 

$

$

 

  2,214,791

951,113

 

 

 

 

 

$

$

 

1,655,854

258,306

 

 

 

 

 

$

$

 

800,125

315,000

 

 

 

 

 

$

$

 

5,000

8,292

 

 

 

 

 

$

$

 

5,275,770

2,088,991

 

 

 

 

Matthew J. Maletta

Executive Vice President, Chief

Legal Officer

 

 

 

 

 

2017

 

 

 

 

$

 

543,333

 

 

 

 

$

 

 

 

 

 

$

 

1,638,825

 

 

 

 

$

 

1,347,982

 

 

 

 

$

 

600,203

 

 

 

 

$

 

26,991

 

 

 

 

$

 

4,157,334

 

 

    2016     $ 504,167     $     $ 1,046,244     $ 284,120     $ 210,375     $ 31,887     $ 2,076,793  
   

 

2015

 

 

 

  $

 

322,148

 

 

 

  $

 

 

 

 

  $

 

1,466,873

 

 

 

  $

 

628,989

 

 

 

  $

 

338,894

 

 

 

  $

 

88,667

 

 

 

  $

 

2,845,571

 

 

 

 

Tony Pera

President, Par

Pharmaceutical

 

 

 

 

 

2017

 

 

 

 

$

 

460,000

 

 

 

 

$

 

 

 

 

 

$

 

920,046

 

 

 

 

$

 

692,505

 

 

 

 

$

 

409,925

 

 

 

 

$

 

39,548

 

 

 

 

$

 

2,522,024

 

 

 

  (1)

The amounts shown in these columns represent the grant date fair value of the awards granted in 2017, 2016 and 2015, determined in accordance with ASC 718. During the periods presented above, equity awards granted included both option awards and share awards, including RSUs, market-based PSUs measured based on the Company’s Total Shareholder Return (referred to as TSR-based PSUs) and performance-based PSUs measured based on the Company’s adjusted free cash flow performance (referred to as FCF-based PSUs). Option awards are valued using a Black-Scholes valuation model. RSUs are valued based on the closing price of Endo’s ordinary shares on the date of grant. TSR-based PSUs are valued using a Monte-Carlo variant valuation model that takes into account a variety of potential future share prices for Endo as well as our peer companies in a selected market index. FCF-based PSUs are valued taking into consideration the probability of achieving the specified performance goal. FCF-based PSUs were first awarded to the NEOs in February 2017 and represented 50% of the February 2017 PSU award. Although these awards are only released at the end of a three-year vesting period, one-third of each award is measured upon the completion of three successive annual performance targets, which are generally established in February of each year. As of December 31, 2017, performance targets with respect to the 2018 and 2019 annual performance periods were not yet established and, as such, a grant has not yet occurred in accordance with ASC 718 and no fair value has been ascribed to these annual performance periods. Share awards and option awards issued that are subject to shareholder approval are not considered to have been granted until such approval have been received. Refer to the “Share-Based Compensation” footnotes in our audited financial statements included in the Endo International plc Annual Reports on Form 10-K for 2017, 2016 and 2015 for the assumptions we used in valuing and expensing these awards in accordance with ASC 718. For additional information on the current year awards, refer to the “2017 Grants of Plan-Based Awards” table below.

  (2)

The amounts shown in this column represent cash amounts earned pursuant to the Company’s annual incentive compensation program with respect to 2017, 2016 and 2015 performance. These amounts were approved by the Compensation Committee on February 13, 2018, February 21, 2017 and February 23, 2016, respectively.

 

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  (3)

The amounts shown in this column for 2017 include the items summarized in the table below:

 

Name

 

 

Perquisites &
Other Personal
Benefits (a)

 

   

 

Registrant
Contributions to
Defined
Contribution
Plans (b)

 

   

Life Insurance
Premiums (c)

 

   

Other (d)

 

   

Total

 

 
           

Paul V. Campanelli

 

  $

 

44,721

 

 

 

  $

 

7,917

 

 

 

  $

 

2,860

 

 

 

  $

 

1,583

 

 

 

  $

 

57,081

 

 

 

           

Blaise Coleman

 

  $

 

—  

 

 

 

  $

 

4,417

 

 

 

  $

 

—  

 

 

 

  $

 

—  

 

 

 

  $

 

4,417

 

 

 

           

Terrance J. Coughlin

 

  $

 

—  

 

 

 

  $

 

5,000

 

 

 

  $

 

—  

 

 

 

  $

 

—  

 

 

 

  $

 

5,000

 

 

 

           

Matthew J. Maletta

 

  $

 

16,191

 

 

 

  $

 

10,800

 

 

 

  $

 

—  

 

 

 

  $

 

—  

 

 

 

  $

 

26,991

 

 

 

           

Tony Pera

 

  $

 

36,010

 

 

 

  $

 

3,538

 

 

 

  $

 

—  

 

 

 

  $

 

—  

 

 

 

  $

 

39,548

 

 

 

 

  (a)

Mr. Campanelli and Mr. Pera received $44,721 and $36,010, respectively, for housing allowances. Mr. Maletta received $16,191 for financial planning services.

  (b)

Represents the employers’ matching contribution to the Company’s Savings and Investment Plan (Endo’s 401(k) plan).

  (c)

Represents annual premiums paid by the Company for executive term life insurance policies.

  (d)

Represents annual premiums paid by the Company for executive long-term disability benefits.

The employment agreements, short-term and long-term incentive compensation program and awards, explanation of amount of salary and bonus in proportion to total compensation and other elements of the Summary Compensation Table are discussed at length in the “Compensation Discussion and Analysis” section above.

 

54


Table of Contents

2017 Grants of Plan-Based Awards

The following table summarizes grants of plan-based awards made to the NEOs under the Amended and Restated 2015 Stock Incentive Plan during the year ended December 31, 2017.

 

    Name

 

        Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (2)
    Estimated Future Payouts Under
Equity Incentive Plan Awards (3)
   

 

All Other
Stock
Awards
(number of
shares of
stock or
units)
(#)(4)

 

   

 

All Other
Option
Awards
(number of
securities
underlying
options)
(#)(4)

 

   

Exercise
or Base
Price of
Option
Awards
($/Sh)

 

   

Grant Date
Fair Value

of Stock &
Option
Awards
($)(5)

 

 
 

Grant
Date (1)

 

   

Threshold
($)

 

   

Target
($)

 

   

Maximum
($)

 

   

Threshold
(#)

 

   

Target
(#)

 

   

Maximum
(#)

 

         

 

Paul V.

Campanelli

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

1,140,000

 

 

 

 

$

 

2,565,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

    21 Feb 17     $     $     $                               510,204     $ 13.19     $ 2,996,836  
    21 Feb 17     $     $     $             151,629       303,258                 $     $ 2,461,698  
    21 Feb 17     $     $     $                         227,445           $     $ 2,999,999  
     

 

10 Aug 17

 

 

 

  $

 

 

 

 

  $

 

 

 

 

  $

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

307,461

 

 

 

   

 

 

 

 

  $

 

 

 

 

  $

 

2,321,331

 

 

 

 

Blaise

Coleman

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

302,500

 

 

 

 

$

 

680,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

    21 Feb 17     $     $     $                               74,404     $ 13.19     $ 437,034  
      21 Feb 17     $     $     $             22,112       44,224                 $     $ 358,988  
      21 Feb 17     $     $     $                         33,169           $     $ 437,499  
      10 Aug 17     $     $     $                               260,416     $ 7.55     $ 923,435  
     

 

10 Aug 17

 

 

 

  $

 

 

 

 

  $

 

 

 

 

  $

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

114,583

 

 

 

   

 

 

 

 

  $

 

 

 

 

  $

 

865,102

 

 

 

 

Terrance J.

Coughlin

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

420,000

 

 

 

 

$

 

945,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

    21 Feb 17     $     $     $                               127,551     $ 13.19     $ 749,209  
      21 Feb 17     $     $     $             37,907       75,814                 $     $ 615,419  
      21 Feb 17     $     $     $                         56,861           $     $ 749,997  
      10 Aug 17     $     $     $                               255,681     $ 7.55     $ 906,645  
     

 

10 Aug 17

 

 

 

  $

 

 

 

 

  $

 

 

 

 

  $

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

112,500

 

 

 

   

 

 

 

 

  $

 

 

 

 

  $

 

849,375

 

 

 

 

Matthew J.

Maletta

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

302,500

 

 

 

 

$

 

680,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

    21 Feb 17     $     $     $                               72,278     $ 13.19     $ 424,547  
      21 Feb 17     $     $     $             21,480       42,960                 $     $ 348,728  
      21 Feb 17     $     $     $                         32,221           $     $ 424,995  
      10 Aug 17     $     $     $                               260,416     $ 7.55     $ 923,435  
     

 

10 Aug 17

 

 

 

  $

 

 

 

 

  $

 

 

 

 

  $

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

114,583

 

 

 

   

 

 

 

 

  $

 

 

 

 

  $

 

865,102

 

 

 

 

Tony Pera

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

253,000

 

 

 

 

$

 

569,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

    21 Feb 17     $     $     $                               52,154     $ 13.19     $ 306,342  
      21 Feb 17     $     $     $             15,499       30,998                 $     $ 251,626  
      21 Feb 17     $     $     $                         23,249           $     $ 306,654  
      10 Aug 17     $     $     $                               108,901     $ 7.55     $ 386,163  
     

 

10 Aug 17

 

 

 

  $

 

 

 

 

  $

 

 

 

 

  $

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

47,916

 

 

 

   

 

 

 

 

  $

 

 

 

 

  $

 

361,766

 

 

 

 

  (1)

The grant date of each award reflected above is the date of the Board’s action pursuant to which such award was approved.

  (2)

The amounts shown in these columns represent the target and maximum annual incentive compensation program payouts approved by the Board for 2017 performance as described under the “Performance-Based Annual Cash Incentive Compensation” heading in the “Compensation Discussion and Analysis” section above. There is no threshold for this award. The non-equity incentive compensation payment for 2017 performance has been made according to the metrics described in the “Compensation Discussion and Analysis” section above and is shown in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation.”

  (3)

The quantities shown in these columns represent the target and maximum quantity of shares that may be released at the end of the three-year performance period applicable to PSUs deemed to have been granted in accordance with ASC 718 as of December 31, 2017. There is no threshold for this award and the release of any shares assumes achievement of performance objectives, as described under the “Equity-Based Long-term Incentive Compensation” heading in the “Compensation Discussion and Analysis” section above. As further described above in footnote (1) to the Summary Compensation Table, PSUs granted as of December 31, 2017 include 100% of the TSR-based PSUs issued in 2017 and approximately one-third of the FCF-based PSUs issued in 2017, representing the 2017 annual performance period for which performance targets were approved in February 2017. The PSUs granted in 2017 were granted according to the metrics described above and are included in the Summary

 

55


Table of Contents
 

Compensation Table in the column titled “Share Awards.” The PSUs issued on February 21, 2017 were based on the Company’s 2016 LTI compensation payout.

  (4)

Share awards and option awards issued that are subject to shareholder approval are not considered to have been granted until such approval have been received. The options and RSUs granted on February 21, 2017 as reflected in the table above, as well as the PSUs issued on that same date, were based on the Company’s 2016 LTI compensation payout. Those granted on August 10, 2017 represent special grants authorized by the Compensation Committee to improve the competitive positioning of NEO pay, while addressing the Company’s need to increase each NEO’s direct ownership equity stake. The 2017 LTI compensation payout was approved by the Board on February 13, 2018 and made on April 2, 2018. The following table shows grant details for eligible NEOs (including only those awards granted during the 2018 annual grant cycle):

 

Name

 

 

 

2017 Annual Long-Term
Equity Incentive
Compensation: Restricted
Stock Units (RSU) and
Performance Share Units
(PSU) (#)(a)

 

   

Grant Date Fair Value of 2017
Annual Long-Term Equity
Incentive Compensation
($)(b)

 

 

 

Paul V. Campanelli

 

 

 

 

 

 

1,100,000

 

 

 

 

 

 

 

 

 

6,711,924

 

 

 

 

 

Blaise Coleman

 

 

 

 

 

 

200,065

 

 

 

 

 

 

 

 

 

1,220,746

 

 

 

 

 

Terrance J. Coughlin

 

 

 

 

 

 

261,903

 

 

 

 

 

 

 

 

 

1,598,063

 

 

 

 

 

Matthew J. Maletta

 

 

 

 

 

 

200,065

 

 

 

 

 

 

 

 

 

1,220,746

 

 

 

 

 

Tony Pera

 

 

 

 

 

 

133,860

 

 

 

 

 

 

 

 

 

816,777

 

 

 

 

 

  (a)

Each NEO received a 25% allocation of PSUs and a 75% allocation of RSUs during the 2018 annual grant cycle. Of the PSUs, 50% were TSR-based and 50% were FCF-based. For FCF-based PSUs, only the portion considered to have been granted in accordance with ASC 718 is included in the table above, meaning that approximately two-thirds of the FCF-based PSUs are excluded from this table as the 2019 and 2020 annual performance targets have not yet been established. For the total number of RSUs and PSUs awarded, refer to the tabular disclosure in the “Compensation Discussion and Analysis” section above, under the heading “Individual Compensation Determination.”

  (b)

The amounts shown in this column represent the grant date fair value of the awards determined in accordance with ASC 718. Refer to footnote (1) of the Summary Compensation Table for additional details on how grant date fair value is determined. For FCF-based PSUs, only the portion considered to have been granted in accordance with ASC 718 is included in the table above.

  (5)

The amounts shown in this column represent the grant date fair value of the awards determined in accordance with ASC 718. Refer to footnote (1) of the Summary Compensation Table for additional details.

See “Compensation Discussion and Analysis” section above regarding the material terms, determining amounts payable, vesting schedule and other material conditions of these grants, including pages 43 to 45 summarizing performance conditions associated with Endo’s PSU awards.

 

56


Table of Contents

Outstanding Equity Awards at December 31, 2017

The following table summarizes the number of securities underlying outstanding plan awards for the NEOs at December 31, 2017. Amounts in this table and the related footnotes do not include options and awards for which a grant date has not yet occurred in accordance with ASC 718.

 

    

 

Option Awards

 

   

 

Stock Awards

 

 

Name

 

 

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)

 

   

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(1)

 

   

 

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

 

   

Option
Exercise
Price
($/Sh)

 

   

Option
Expiration Date

 

   

Number
of Shares
or Units of
Stock That
Have Not
Vested (#)

 

   

Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)(7)

 

   

 

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)

 

   

Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
($)(8)

 

 

 

Paul V.

Campanelli

 

 

 

 

 

 

 

 

 

 

510,204

 

 

 

 

 

 

 

 

 

 

$

 

13.19

 

 

 

 

 

 

21-Feb-2027

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

    143,215       286,430           $ 21.99       26-Sep-2026           $           $  
      9,969       29,906           $ 50.22       23-Feb-2026           $           $  
      28,460       28,460           $ 61.82       28-Sep-2025           $           $  
                      $             551,455 (2)     $ 4,273,776           $  
     

 

 

 

 

   

 

 

 

 

   

 

 

 

 

  $

 

 

 

 

   

 

 

 

 

   

 

 

 

 

  $

 

 

 

 

   

 

280,740 (2)

 

 

 

  $

 

2,403,708

 

 

 

 

Blaise

Coleman

 

 

 

 

 

 

 

 

 

 

260,416

 

 

 

 

 

 

 

 

 

 

$

 

7.55

 

 

 

 

 

 

10-Aug-2027

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

          74,404           $ 13.19       21-Feb-2027           $           $  
      6,749       13,497           $ 14.30       16-May-2026           $           $  
    1,266       3,797           $ 50.22       23-Feb-2026           $           $  
                      $             154,237 (3)     $ 1,195,337           $  
     

 

 

 

 

   

 

 

 

 

   

 

 

 

 

  $

 

 

 

 

   

 

 

 

 

   

 

 

 

 

  $

 

 

 

 

   

 

25,372 (3)

 

 

 

  $

 

229,878

 

 

 

 

Terrance J.

Coughlin

 

 

 

 

 

 

 

 

 

 

255,681

 

 

 

 

 

 

 

 

 

 

$

 

7.55

 

 

 

 

 

 

10-Aug-2027

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

          127,551           $ 13.19       21-Feb-2027</