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

 

  Endo International plc

(Name of Registrant as Specified in Its Charter)

 

         

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LOGO

 

 

  2019     

Notice of the

2019 Annual

General Meeting

of Shareholders

and Proxy Statement

 

 

 

 

 

 

June 11, 2019 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

Dear Fellow Endo International plc Shareholder:

It is my pleasure to invite you to the 2019 Annual General Meeting of Shareholders (the Annual Meeting) of Endo International plc (Endo or the Company), which will be held on June 11, 2019 at 8:00 a.m., local time, at First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland. The attached Notice of Annual Meeting of Shareholders and proxy statement will serve as your guide to the business to be conducted.

Approximately two years ago, we established our Vision to be a highly focused generics and specialty branded pharmaceutical company, delivering quality medicines to patients in need through excellence in development, manufacturing and commercialization. We also outlined our three Strategic Priorities of our multi-year plan: Reshaping our Organization for Success; Building our Portfolio and Capabilities for the Future; and Driving Margin Expansion and De-levering.

 

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I am pleased with the progress we have made in reshaping our Company and establishing a foundation for Endo to transition to the next phase of our multi-year plan. Endo is a different organization today than it was two years ago. We have simplified our Company through centralization and unification and these actions have also served to drive productivity improvements. We have created a new Endo culture that is customer focused and performance driven, with a relentless commitment to quality, compliance and flawless operational execution. I am extremely proud of the dedication and commitment of our nearly 3,000 employees.

Delivering on Promises

2018 was a successful year for Endo. Our U.S. Branded—Sterile Injectables segment, which is anchored by VASOSTRICT®, and the specialty products portfolio of our U.S. Branded—Specialty & Established Pharmaceuticals segment both delivered double-digit growth. We drove expanded awareness and utilization of XIAFLEX® to treat patients living with Peyronie’s Disease and Dupuytren’s Contracture, launched 10 generic and sterile injectable products, including ertapenem for injection, the authorized generic of Invanz®, and colchicine tablets, the authorized generic of Colcrys®. We also navigated through stabilizing competitive pressures in the generic market. These actions contributed to our solid operating results, which exceeded our 2018 expectations.

We also reported positive Phase 3 results from our collagenase clostridium histolyticum (CCH) for the treatment of cellulite clinical trials. These positive results position us to pursue the exciting, untapped medical aesthetics market with a potential new injectable option to treat cellulite.


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Focused Investment in Our Core Growth Areas

Our investments will continue to be in our core growth areas, our U.S. Branded—Sterile Injectables segment, the specialty products portfolio of our U.S. Branded—Specialty & Established Pharmaceuticals segment, the development of CCH in cellulite and a focus on high-barrier, technically challenging generic products. We have taken and will continue to take a long-term approach with respect to how we manage the business, with a laser focus on methodically executing against our strategic priorities.

At year-end 2018, our U.S. Generic Pharmaceuticals and U.S. Branded—Sterile Injectables portfolio included approximately 85 Abbreviated New Drug Applications filed with the U.S. Food and Drug Administration (FDA), of which nearly 50% were either first-to-file or first-to-market opportunities, and we had approximately 70 projects in development. In 2018, we expanded our potential sterile injectables product pipeline through a licensing agreement with Nevakar. We are excited about this relationship, which will potentially provide up to five differentiated 505(b)(2) hospital and critical care based products.

During 2019, we will continue to prepare for the successful commercialization of CCH for the treatment of cellulite. We are continuing with our regulatory and pre-commercialization activities and we expect to submit a Biologics License Application to the FDA in the second half of 2019 and, if approved, launch commercially in the second half of 2020.

Committed to our Values and Vision

At Endo, our high-performance organization has fostered an entrepreneurial culture that emphasizes integrity and compliance. We are guided by our Core Values every day—Customer Focus, Results Driven, Leadership, Teamwork and Innovation and Continuous Improvement—as they shape who we are, influence how we work together and define the behaviors that drive our success.

We remain committed to delivering quality medicines to patients in need through excellence in development, manufacturing and commercialization, delivering sustainable operating results and creating value for our shareholders. Thank you for your investment and putting your trust in us.

We encourage you to read more about our Board of Directors, corporate governance practices and performance-driven compensation programs in this Proxy Statement. We hope that you will participate in the Annual Meeting, either by attending and voting in person or by voting through other acceptable means as described in this Proxy Statement as promptly as possible. Your vote is important—so please exercise your right.

Sincerely,

 

 

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Paul V. Campanelli

President, Chief Executive Officer and Director

Dublin, Ireland

April 29, 2019


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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 11, 2019

8:00 a.m., Local Time

First Floor, Minerva House,

Simmonscourt Road, Ballsbridge, Dublin 4, Ireland

Notice is hereby given that the 2019 Annual General Meeting of Shareholders of Endo International plc, an Irish public limited company, will be held on June 11, 2019 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, seven members to our Board of Directors to serve until the next Annual General Meeting of Shareholders;

 

(2)

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

 

(3)

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

 

(4)

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

 

(5)

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

 

(6)

To approve the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2019 and to authorize the Board of Directors, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration; 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 4 and 6 are ordinary resolutions requiring the approval of a simple majority of the votes cast at the Annual Meeting. Proposal 5 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.


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The Company’s Irish statutory financial statements for the fiscal year ended December 31, 2018, including the reports of the directors and auditors thereon, will be presented and considered 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 of the Company’s affairs.

Only shareholders of record at the close of business on April 12, 2019 are entitled to notice of and to vote at the Annual Meeting and any adjournment thereof.

This year, we have elected to continue 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, by telephone 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.

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

Yoon Ah Oh

Corporate Secretary

Dublin, Ireland

April 29, 2019

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).


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Proxy Statement for 2019 Annual General Meeting of Shareholders

 

 

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General Information

     1  

Proposal 1: Election of Directors

     4  

Proposal 2: Advisory Vote on the Compensation of Our Named Executive Officers (Say-on-Pay)

     18  

Proposal 3: Approval of the Endo International plc Amended and Restated 2015 Stock Incentive Plan

     54  

Proposal 4: Renewal of the Board’s Existing Authority to Issue Shares under Irish Law

     61  

Proposal 5: Renewal of the Board’s Existing Authority to Opt-Out of Statutory Pre-Emption Rights under Irish Law

     62  

Proposal 6: Approval of Appointment of Independent Registered Public Accounting Firm and Authorization to Determine the Firm’s Remuneration

     64  

Other Information Regarding the Company

     67  

Annex 1

     A-1  


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Proxy Statement for 2019 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 (the Board), an Irish public limited company, of proxies to be voted at the Annual Meeting to be held on June 11, 2019, 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, 2018 Annual Report on Form 10-K and 2018 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 29, 2019. 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 proxy materials electronically enables us to save costs associated with printing and delivering the materials and reduces 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 12, 2019 (the record date) are entitled to receive this notice and to vote their shares at the Annual Meeting. As of that date, there were 226,181,144 issued and outstanding 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, by telephone or by attending the Annual Meeting and voting in person by ballot as described below.

How to Vote

If you are a shareholder of record, you may vote by internet, by mail, by telephone or by attending the Annual Meeting and voting in person. If you request a paper copy of the proxy materials, which will include a proxy card, you can vote by mail by simply completing your proxy card, dating and signing it, and returning it in the postage-paid envelope provided.

For additional instructions on how shareholders of record can vote using any of the methods set forth above, please visit www.proxyvote.com, enter the control number found on the Notice of Internet Availability (or, if you request to receive a paper copy of the proxy materials, the proxy card) and follow the steps outlined on the secure website.

Deadline for Voting by Internet, by Mail or by Telephone

Internet and telephone votes must be received by 11:59 PM U.S. Eastern Time on June 10, 2019. If you are a shareholder of record and choose to vote by mail, your properly completed proxy card should be received by 8:00 a.m. Irish time on June 9, 2019.

 

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Additional Information on Voting at the Annual Meeting

Voting by internet, by mail or by telephone 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 in accordance with your instructions 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.”

Additional Information for Beneficial Owners of Shares Held Through a Bank or Brokerage Firm

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.

 

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:

   

a nominee to be elected as a director;

   

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

   

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

   

the Board’s existing authority to issue shares to be renewed; and

   

the appointment of the Company’s independent registered public accounting firm for the year ending December 31, 2019 to be approved and the Board, acting through the Audit Committee, to be authorized to determine the independent registered public accounting firm’s remuneration.

In addition, renewal of the Board’s existing authority to opt-out of statutory pre-emption rights will require 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, on an advisory basis, of the compensation to be paid to the named executive officers;

  (3)

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

  (4)

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

  (5)

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

  (6)

FOR the approval of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2019 and the authorization of the Board, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration.

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 Corporate Secretary;

   

timely delivering a valid, later-dated proxy; or

   

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.

 

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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 D.F. King & Co., Inc. to assist in soliciting proxies. We will pay D.F. King & Co., 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, 2018, including the reports of the directors and auditors thereon, will be presented and considered 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 2018 Irish Statutory Financial Statements are available, along with the Proxy Statement for Annual Meeting, 2018 Annual Report on 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 (the 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, 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, as further described in the section entitled “Compensation of Non-Employee Directors.”

As set forth in the Articles of Association, 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. 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 General Meeting or his or her earlier death, resignation or removal.

As of December 31, 2018, the Board consisted of eight members, including Roger H. Kimmel, Paul V. Campanelli, Shane M. Cooke, Nancy J. Hutson, Ph.D., Michael Hyatt, Sharad S. Mansukani, M.D., William P. Montague and Todd B. Sisitsky. All of the current members are nominated by the Board for re-election as directors of the Company, other than Mr. Sisitsky, who will not be standing for re-election. The Board has fixed the number of directors at seven, effective as of 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 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 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 LP (referred to herein as TPG or TPG Capital), one of Endo’s shareholders, interferes with their independence.

In determining Dr. Mansukani’s independence, the Board also considered his relationship with Children’s Hospital of Philadelphia (CHOP), to which the Company sells certain sterile injectable products in the ordinary course of their respective businesses. Dr. Mansukani serves as Treasurer and sits on the board of CHOP. In 2018, CHOP made payments to the Company relating to such product sales totaling approximately $0.4 million. In determining Mr. Cooke’s independence, the Board considered his relationship with 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. Mr. Cooke was President of Alkermes until March 2018, when he was appointed to the board of directors of Alkermes. The total amount of royalty payments made to Alkermes in 2018 was approximately $0.2 million. The Board also considered Mr. Cooke’s relationship with UDG Healthcare plc (UDG), where he has served on its board of directors since February 2019. The Company’s subsidiaries and UDG are parties to agreements, entered into in the ordinary course of their respective businesses, whereby UDG provides certain services to the Company relating primarily to the packaging, by UDG’s Sharp division, of certain of the Company’s pharmaceutical products. The total amount of payments made to UDG by the Company in 2018 was approximately $7.9 million. The Board has determined that these relationships are not material and do not impair Dr. Mansukani’s or 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 seven non-employee directors currently serving are independent and that the members of the Audit, Compensation and Nominating & Governance Committees also meet the applicable independence tests of the Nasdaq listing rules. 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 any material relationship with the Company that would compromise independence. The Nominating & Governance Committee recommended this determination to the Board and explained the basis for its decision, and this determination was adopted by the full Board.

 

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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 that are adverse to the Company or any of its subsidiaries.

Nominees

There are seven nominees for election as directors of the Company to serve until the 2020 Annual General Meeting of Shareholders, or until death, resignation or removal, if earlier. 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 General Meeting of Shareholders.

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

 

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

  

light of other commitments, dedication, independence, those criteria and qualifications described in each director’s biography below and such other relevant factors that the Nominating & Governance Committee considers appropriate in the context of the needs of the Board. Although not specified in its charter, the Nominating & Governance Committee also considers diversity, such as 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 chair, vice chair, chief executive officer, chief financial officer and/or senior executive of other significant companies has provided each director with skills that are important to serving on our Board.

 

 

 

 

ROGER H. KIMMEL, 72, 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 Compliance 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 2001. Previously, Mr. Kimmel was a partner of the law firm Latham & Watkins for more than five years. Mr. Kimmel was a Director of PG&E Corporation, a public energy-based holding company, and its subsidiary Pacific Gas and Electric Company, a utility company, from 2010 until January 2019, a Director of Schiff Nutrition International until 2012 and a Director and Chairman of Endo Health Solutions Inc. from 2000 until February 2014. Mr. Kimmel  served as Chairman of the Board of Trustees of the

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University of Virginia Law School Foundation (not-for-profit) from 2009 to 2015. He has been a public speaker on corporate governance issues and private equity transactions. Since 2017, Mr. Kimmel has been a lecturer at the University of Virginia School of Law. 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. 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, 57, was appointed President, Chief Executive Officer and a Director of Endo International plc effective September 23, 2016. Mr. Campanelli joined Endo in September 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 acquisition by TPG in 2012. 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 on

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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, 56, has been a member of the Board of Directors since July 2014 and is Chair of Endo’s Audit Committee. In March 2018, Mr. Cooke retired from Alkermes plc (Alkermes), most recently having served as its President since 2011, when Elan Drug Technologies (EDT) merged with Alkermes. Mr. Cooke was appointed to the board of directors of Alkermes in March 2018. From 2007 until 2011, he was head of EDT and Executive Vice President of Elan and concurrently served as Chief Financial Officer of Elan Corporation from 2001 to 2011. Mr. Cooke was appointed director of Elan in 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. He currently serves on the boards of directors of

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Alkermes, Prothena Corporation plc, a publicly traded biotechnology company, and UDG Healthcare plc, a publicly traded company providing healthcare advisory, communications, commercial, clinical and packaging services through its two divisions: Ashfield and Sharp. Mr. Cooke is a chartered accountant and a graduate of University College Dublin, Ireland. 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.

 

 

NANCY J. HUTSON, Ph.D., 69, has been a member of the Board of Directors since the Company’s inception in February 2014 and is Chair 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 is currently a Director of BioCryst Pharmaceuticals, Inc. and PhaseBio Pharmaceuticals, Inc. Dr. Huston previously served as Director of Cubist Pharmaceuticals until 2015 and Inspire

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Pharmaceuticals, Inc. until 2011. From 2009 until February 2014, Dr. Hutson 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 holds a Bachelor of Arts degree from Illinois Wesleyan University and a Ph.D. degree from Vanderbilt University. 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.

 

 

MICHAEL HYATT, 73, has been a member of the Board of Directors since the Company’s inception in February 2014 and is Chair 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. Prior to joining Irving Place Capital in 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 2000 until February 2014, Mr. Hyatt was a Director of Endo Health Solutions Inc. Mr. Hyatt holds a Bachelor of Arts degree from Syracuse University and a J.D. degree, from Emory University School of Law. 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

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member of a publicly traded company.

 

 

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 has been serving as a senior advisor of TPG Capital LP since 2005. 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 pre-

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scription 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 boards of directors of Kindred Healthcare Inc. from 2015 to 2018, 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. 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, 72, has been a member of the Board of Directors since the Company’s inception in February 2014 and is Chair 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 2004 until his retirement in 2008 and as Director from 1996. He joined Mark IV Industries in 1972 as Treasurer/Controller, serving as Vice President of Finance from 1974 to 1986, then Executive Vice President and Chief Financial Officer from 1986 to 1996 and then as President from 1996 to 2004. Mr. Montague is also a Director of Gibraltar Industries, Inc., a publicly traded manufacturer and distributor of products for the building and industrial markets

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since 1993, and has served as Chairman of Gibraltar’s Board of Directors since 2015. From 2013 until 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 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.

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.

Corporate Governance

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 the 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 2018, our Board had four standing committees. 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 appropriate or 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 chair, vice chair, chief executive officer, chief financial officer and/or senior executive of other significant 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 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, the Senior Independent Director is 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.

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 a seasoned Board comprised of an experienced independent Board Chairman, Senior Independent Director, other independent directors and separate independent committee chairs, is the appropriate leadership structure for Endo.

 

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Risk Oversight and Key Policies

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 Endo officers as the Board may deem appropriate. In addition, each of our Board committees considers the risks within its respective areas of responsibility.

The Board believes that one of its most important responsibilities is to oversee how the Company’s Executive Leadership Team, which includes our current named executive officers (NEOs) and other senior leaders, 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 the Company faces to the attention of the Audit Committee and the Board. 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. Enterprise risks are identified and prioritized by management, and each material 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 program.

The Audit Committee regularly reviews, in consultation with third party advisors as appropriate, risks and risk management activities relating to liquidity, debt, financial, accounting, legal, tax, compliance, information technology security and other matters. 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’s executive officers and other employees. The full Board considers strategic risks and opportunities and regularly receives detailed reports from its committees regarding risk oversight in their respective areas of responsibility.

Code of Conduct

The Board 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 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.

Recovery of Compensation

The Compensation Committee maintains a compensation recovery policy relating to recoupment of cash and equity-based incentive awards (collectively, Covered Awards) granted to NEOs and other senior management employees at the vice president level and above (collectively, Covered Employees). 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 Compensation Committee, then the Compensation Committee will direct the Company to use reasonable efforts to seek recovery of all Covered Awards that were paid or granted for performance during the restated fiscal year or years. In addition, the Compensation Committee has the ability to recoup certain Covered Awards granted to Covered Employees for 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, which causes material financial harm to the Company. In the event that the Compensation 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.

Insider Trading Policy

The Board 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.

Company Policy on Parachute Payments

The Board has 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

 

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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 Code). The Company does not have any employment agreements with change in control excise tax gross up provisions.

Common Stock Ownership Guidelines

The Board 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. All non-employee directors, executive officers and members of senior management subject to the Ownership Guidelines are in compliance with the recommended guidelines.

The applicability of the Ownership Guidelines has been waived with respect 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. This waiver 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 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 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, Strategic Operations 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. Robert Campanelli’s 2018 compensation, calculated in accordance with the rules applicable to the Summary Compensation Table, totaled $387,177, of which $215,748 was salary, $88,670 was annual and other bonuses and $82,759 was compensation under 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.

Shareholder Interaction

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, 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 Corporate 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 Corporate 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(s). In the case of communications to the Board or any group or committee of directors, the Corporate 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 communication is addressed.

Shareholder Engagement

Endo’s Board 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

 

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topics, in order to assist our Board 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 with ISS and Glass Lewis to discuss key issues on a variety of topics. In addition to the shareholder advisory vote on executive compensation (the say-on-pay vote), these conversations have been beneficial, and will continue to provide the Compensation Committee with insights into evolving shareholder views, while serving as an effective communication channel for matters of critical importance to Endo’s short- and long-term priorities.

Throughout 2018, members of Endo’s Board and management team undertook efforts to engage with shareholders, which accounted for approximately 90% of Endo’s ordinary shares outstanding, and held direct discussions with ISS and Glass Lewis. These conversations have been beneficial, resulting in changes implemented by the Compensation Committee, including:

   

Placing more emphasis on performance-based equity for NEOs in the form of 50% Performance Share Units (PSUs) and 50% Restricted Stock Units (RSUs), representing an increase in the proportion of PSUs compared to 2018

   

Increasing the length of the PSU performance period by introducing an Adjusted Free Cash Flow (FCF) metric measured over a single three-year period, compared to three one-year periods prior to 2019, in addition to relative Total Shareholder Return (TSR) measured over a three-year period

   

No longer authorizing special or off-cycle LTI awards for NEOs, since the Compensation Committee’s approval of the special grant in 2017

The shareholder engagement process and implemented changes are discussed in further detail in the “Compensation Discussion and Analysis” (CD&A) section of this Proxy Statement.

Board Meetings, Attendance and Committees of the Board of Directors

Between January 1, 2018 and December 31, 2018, the Board as a whole met four times and acted by written consent on one occasion. All members of the Board 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 2018 (that were held during the respective periods in which they served on the Board and related committees). The Board’s committees also routinely engage with members of management outside of these scheduled meetings, including their participation in recurring informational calls that generally occur at least quarterly and other ad hoc discussions. The Company does not have a policy on director attendance at Annual Meetings. Messrs. Kimmel and Cooke attended the 2018 Annual General Meeting of Shareholders (the 2018 Annual Meeting).

The Board has a standing Audit Committee, Compensation Committee, Nominating & Governance Committee and Compliance Committee. The Board has determined that each committee’s chair and members, both current and expected, are “independent” in accordance with the criteria established by the SEC and Nasdaq. Each of these committees operates pursuant to a written charter adopted by the Board describing the nature and scope of responsibilities of each committee.

Audit Committee

The Audit Committee is responsible for overseeing the Company’s financial reporting process on behalf of the Board. In addition, the Audit Committee reviews, acts on and reports to the Board 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’s charter is available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—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, 2018 and December 31, 2018, the Audit Committee met four 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 determines the salary and incentive compensation of our President and Chief Executive Officer, reviews and approves the compensation levels of certain other senior executives of the Company, including the NEOs, and provides broad guidance regarding the remuneration and incentive compensation of the other employees of the Company. The Compensation Committee also reviews all the recommendations of the Company’s management for awards granted under the Endo International plc Amended and Restated 2015 Stock Incentive Plan and acts on such recommendations, as appropriate, in the Committee’s judgment. The Compensation Committee’s charter is available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—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 NEOs, including 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. 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;

   

annually evaluating the performances of the Company’s NEOs (and certain other employees) in light of those goals and objectives and determining and/or approving their compensation levels based on such evaluations;

   

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);

   

interpreting, implementing, administering, reviewing and approving all other 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;

   

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 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. Management 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 Code.

Between January 1, 2018 and December 31, 2018, the Compensation Committee met four 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 and employee 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 2018 fiscal year. The consultant reports to the Chair 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;

   

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

 

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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 2018, 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 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. As of the date of this Proxy Statement and during 2018, (i) none of the members of the Compensation Committee were or have been officers or employees of the Company or had or have had any relationship requiring disclosure under Item 404(a) of Regulation S-K and (ii) none of the executive officers of the Company served or have served on the compensation committee or board of any company that employed any member of the Company’s Compensation Committee or Board.

Nominating & Governance Committee

The Nominating & Governance Committee of the Board, 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’s charter is available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—Nominating & Governance Committee.”

While the Board does not have a formal policy with respect to diversity, the Board 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 considers 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. Although not specified in its charter, the Nominating & Governance Committee also considers diversity, such as ethnicity and gender, when selecting candidates so that additional diversity may be represented on the Board.

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 Corporate Secretary at Endo International plc, First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

The Nominating & Governance Committee will also, from time to time, engage national search firms that specialize in identifying and evaluating director candidates.

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 person should be considered further. If the Nominating & Governance Committee determines that the candidate warrants further consideration, the Chair 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

 

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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 tender his or her resignation to the Board.

Between January 1, 2018 and December 31, 2018, the Nominating & Governance Committee met four times.

Compliance Committee

The Compliance Committee focuses on assisting the Board by providing oversight of regulatory, compliance, quality and legal matters. The Compliance Committee’s charter is available on the Company’s website at www.endo.com, under “Investors/Media—Corporate Governance—Compliance Committee.”

Between January 1, 2018 and December 31, 2018, the Compliance Committee met five times.

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
Committee
 

Roger H. Kimmel

 

 

Member

 

 

 

 

 

 

Member

 

 

 

Member

 

Paul V. Campanelli

 

 

 

 

 

 

 

 

 

 

 

 

Shane M. Cooke

 

 

Chair

 

 

 

 

 

 

 

 

 

 

Nancy J. Hutson, Ph.D.

 

 

 

 

 

 

 

 

Member

 

 

 

Chair

 

Michael Hyatt

 

 

 

 

 

Member

 

 

 

Chair

 

 

 

 

Sharad S. Mansukani, M.D.

 

 

 

 

 

Member

 

 

 

 

 

 

Member

 

William P. Montague

 

 

Member

 

 

 

Chair

 

 

 

 

 

 

 

Todd B. Sisitsky

 

 

 

 

 

Member

 

 

 

Member

 

 

 

 

Subject to the re-election of each of the director nominees at the Annual Meeting, there are no expected changes to the committees, other than Mr. Sisitsky, who will not be standing for re-election at the Annual Meeting.

With respect to the Audit Committee, the Board has determined that: (i) 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 (ii) the current and expected chair and members are financially literate in accordance with the criteria established by the SEC and the Nasdaq.

 

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Security Ownership of Certain Beneficial Owners and Management

The following table, together with the corresponding footnotes, sets forth, as of April 12, 2019, the name, address and holdings of each person, including any “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the Exchange Act), known by Endo to be the “beneficial owner” of more than 5% of the Company’s outstanding ordinary shares. The table also sets forth, as of April 12, 2019, the number of ordinary shares beneficially owned by each of the Company’s current directors and current NEOs, and by all current directors and NEOs of the Company as a group. Footnote (1) below provides a brief explanation of what is meant by the term “beneficial ownership.”

 

   Name of Beneficial Owner    Number of
Ordinary Shares
Beneficially
Owned (#)(1)
     Percentage
of Class (%)(a)
 
   Directors and Named Executive Officers:  

Roger H. Kimmel(2)

     273,371        *      

Shane M. Cooke(3)

     56,244        *      

Nancy J. Hutson, Ph.D.(3)

     58,064        *      

Michael Hyatt(4)

     297,484        *      

Sharad S. Mansukani, M.D.(5)

     43,540        *      

William P. Montague(3)

     72,982        *      

Todd B. Sisitsky(6)

            *      

Paul V. Campanelli(3)

     1,489,319        *      

Blaise Coleman(3)

     237,651        *      

Terrance J. Coughlin(3)

     402,238        *      

Matthew J. Maletta(3)

     248,683        *      

Tony Pera(3)

     137,692        *      

All current directors and named executive officers of the Company as a group (12 persons)

     3,317,268        1.5%  
   Other Shareholders:  

BlackRock, Inc.(7)

     34,645,917        15.3%  

The Vanguard Group, Inc.(8)

     25,644,375        11.3%  

TPG Group Holdings (SBS) Advisors, Inc.(9)

     22,152,136        9.8%  

Renaissance Technologies LLC(10)

     11,704,171        5.2%  

 

*

The percentage represents less than 1%.

 

(1)

“Beneficial ownership” is a term broadly defined by the SEC in Rule 13d-3 under the Exchange Act and includes more than the typical form of share ownership, that is, shares held in the person’s name. The term also includes what is referred to as “indirect ownership,” meaning ownership of shares as to which a person has or shares investment power. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares as of a given date that such person has the right to acquire within 60 days after such date. The amounts in this table do not reflect future grants. Beneficial ownership for the directors and NEOs included in the table above is summarized as follows:

 

   Name   Ordinary Shares(a)     RSUs That Will Be
Vested within the Next
60 Days
    Options to Purchase 
Ordinary Shares That 
Will Be Exercisable 
within the Next 60 Days 
 

Roger H. Kimmel

    265,277             8,094   

Shane M. Cooke

    56,244             —   

Nancy J. Hutson, Ph.D.

    49,970             8,094   

Michael Hyatt

    289,390             8,094   

Sharad S. Mansukani, M.D.

    43,540             —   

William P. Montague

    64,888             8,094   

Paul V. Campanelli

    551,326             937,993   

Blaise Coleman

    86,919       2,680       148,052   

Terrance J. Coughlin

    226,703             175,535   

Matthew J. Maletta

    84,031       902       163,750   

Tony Pera

    65,648             72,044   

 

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  (a)

The ordinary share amounts for Mr. Kimmel include 120,000 shares held in trusts for which he has shared voting power and shared disposition power. Excluding these amounts, the owners listed above have sole voting power and sole disposition power with respect to their ordinary shares.

(2)

The business address for Mr. Kimmel is c/o Rothschild, Inc., 1251 Avenue of the Americas, New York, New York 10020.

(3)

The business address for this person is c/o Endo International plc, First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

(4)

The business address for Mr. Hyatt is c/o Irving Place Capital, 745 Fifth Avenue, 7th Floor, New York, New York 10151.

(5)

The business address for Dr. Mansukani is 100 S.E. Third Avenue, Suite 2600, Fort Lauderdale, Florida 33394.

(6)

The business address for Mr. Sisitsky is c/o TPG Capital, 345 California Street, Suite 3300, San Francisco, California 94104.

(7)

The business address for this entity is 55 East 52nd Street, New York, New York 10055. BlackRock, Inc. has sole power to (i) vote 34,019,587 ordinary shares and (ii) dispose 34,645,917 ordinary shares. This ownership information is based on a Schedule 13G/A filed with the SEC on January 28, 2019 by BlackRock, Inc.

(8)

The business address for this entity is 100 Vanguard Blvd., Malvern, Pennsylvania 19355. The Vanguard Group, Inc. has sole power to (i) vote 226,400 ordinary shares and (ii) dispose 25,411,595 ordinary shares and shared power to (i) vote 25,600 ordinary shares and (ii) dispose 232,780 ordinary shares. This ownership information is based on a Schedule 13G/A filed with the SEC on February 11, 2019 by The Vanguard Group, Inc.

(9)

The business address for this entity is 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102. This ownership information is based on a Schedule 13D/A filed with the SEC on May 20, 2016 by TPG Group Holdings (SBS) Advisors, Inc.

(10)

The business address for this entity is 800 Third Avenue, New York, New York 10022. Renaissance Technologies LLC has sole power to (i) vote 10,255,246 ordinary shares and (ii) dispose 10,553,602 ordinary shares and shared power to dispose 1,150,569 ordinary shares. This ownership information is based on a Schedule 13G filed with the SEC on February 12, 2019 by Renaissance Technologies LLC.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers, directors and greater-than-ten-percent shareholders (collectively, Reporting Persons) to file an initial report of ownership (Form 3) and reports of changes of ownership (Forms 4 and 5) of Endo securities with the SEC and the Nasdaq. These persons are also required to furnish the Company with copies of all Section 16(a) reports that they file with respect to Endo securities. Based solely upon a review of Section 16(a) reports furnished to the Company for the year ended December 31, 2018 and written representations from certain Reporting Persons that no other reports were required, the Company believes that all Reporting Persons complied with the applicable filing requirements for the year ended December 31, 2018, except that Carrie Ann Nichol’s timely-filed Form 3 was amended to add an additional holding that was inadvertently omitted from the initial filing.

Compensation of Non-Employee Directors

The Compensation Committee annually reviews compensation for each non-employee director who was not affiliated with the Company against pay levels observed among Endo’s Pay Comparator Companies and makes adjustments, as appropriate. In addition to offering a competitively positioned compensation package, our objective is to award a meaningful portion of compensation in the form of equity to further align the interests of non-employee directors with the interests of Endo shareholders.

Over the past two consecutive years, the Compensation Committee has taken action to reduce overall pay for non-employee directors to better align the program with competitive market practices observed among Endo’s Pay Comparator Companies. These changes allow Endo to appropriately align non-employee director pay levels with the median pay levels of Pay Comparator Companies, while balancing the mix between equity- and cash-based compensation in a manner that strengthens alignment between non-employee director and shareholder interests and increasing the level of consistency with the median mix reported by our Pay Comparator Companies.

In February 2018, additional reductions were approved by the Compensation Committee, including:

   

Reducing the annual Board cash and equity retainer fees

   

Cash reduced from $75,000 to $60,000

   

Equity reduced from $275,000 to $240,000—allotting the equity portion of the retainer to account for 80% of the Board retainer fees

   

Reducing the committee chair retainers for the Audit, Compensation and Compliance Committees from $30,000 to $25,000, $20,000 and $20,000, respectively

Because Mr. Sisitsky serves as a representative of TPG Capital, whose policies prohibit personal ownership of Company stock by its representatives, 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.

 

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The compensation cycle for non-employee directors runs from January 1st through December 31st of each year, with the annual payment date scheduled for the first trading day following the Annual General Meeting of Shareholders. The current compensation package for non-employee directors, which reflects the most recent changes implemented in 2018, is further described below.

Annual Cash Retainer

Non-employee directors are entitled to receive an annual cash retainer based on their service on the Board, as well as for their roles on certain committees of the Board. The amounts that non-employee directors were entitled to receive in June 2018 and will be entitled to receive in June 2019, which reflect the reduced director pay program noted above, are set forth in the following schedule:

 

   Purpose   Amount  

For membership on the Board of Directors

  $ 60,000  

For serving as the Chair of the Board of Directors

  $     150,000  

For serving as Senior Independent Director(1)

  $ 60,000  

For serving as Chair of the Audit Committee

  $ 25,000  

For serving as Chair of the Compensation Committee

  $ 20,000  

For serving as Chair of the Compliance Committee

  $ 20,000  

For serving as Chair of the Nominating & Governance Committee

  $ 15,000  
(1)

On April 26, 2018, the Compensation Committee approved a cash retainer of $60,000 for Dr. Mansukani in connection with his appointment by the Board to the newly-created position of Senior Independent Director.

Meeting Fees

Non-employee directors are entitled to receive a fee of $5,000 cash per trip to Ireland on Company business, other than for attending regularly scheduled meetings in Ireland.

Annual Equity Retainer

Effective with the 2018 compensation cycle, each non-employee director is entitled to receive an annual award of fully-vested ordinary shares having a grant date value equal to $240,000. The number of ordinary shares actually awarded to each non-employee director is calculated using the closing price as of the date of the grant. This annual stock award will be granted on June 12, 2019. Pursuant to the Directors Stock Election Plan (described below), non-employee directors may also elect to receive their cash retainer fees in the form of Endo ordinary shares.

Directors Stock Election Plan

Under the Directors Stock Election Plan, non-employee directors may elect to have some or all of their cash retainer fees delivered in the form of Endo ordinary shares. The amount of shares will be determined by dividing the portion of cash fees elected to be received as shares by the closing price of the shares on the day the payment would have otherwise been paid in cash.

Additional Arrangements

The Company provides Irish tax return preparation services for certain non-employee directors and pays for or provides (or reimburses directors for out-of-pocket costs incurred for) transportation, hotel, food and other incidental expenses related to attending Board and committee meetings or participating in director education programs and other director orientation or educational meetings.

Insurance and Indemnification

The Company has retained directors and officers indemnification insurance coverage. This insurance covers non-employee directors and officers individually.

 

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Director Compensation Table

The following table provides information concerning the compensation of the Company’s non-employee directors paid during 2018 and includes any individual who served as a non-employee director of the Company at any time during 2018. Directors who are employees of the Company receive no additional compensation for their services as directors or as members of Board committees. For a complete understanding of the table, please read the footnotes and the narrative disclosures that follow the table.

 

                                                                                                                                                                                        
   
Name   Length of Service     Fees Earned or
Paid in Cash ($)(1)
    Stock Awards
($)(2)(3)
    All Other
Compensation ($)
    Total ($)  

Roger H. Kimmel

    5 Years     $               210,000     $         240,000     $                            —     $   450,000  

Shane M. Cooke

    4 Years 6 Months     $ 85,000     $ 240,000     $     $ 325,000  

Nancy J. Hutson, Ph.D.

    5 Years     $ 80,000     $ 240,000     $     $ 320,000  

Michael Hyatt

    5 Years     $ 75,000     $ 240,000     $     $ 315,000  

Sharad S. Mansukani, M.D.

    1 Year     $ 120,000     $ 240,000     $     $ 360,000  

William P. Montague

    5 Years     $ 80,000     $ 240,000     $     $ 320,000  

Todd B. Sisitsky

    3 Years     $     $     $     $  

Jill D. Smith

    4 Years     $ 129,863     $     $     $ 129,863  

 

(1)

The amounts in this column include all fees earned by each non-employee director during the 2018 compensation cycle. Mr. Montague elected to receive 100% of such fees, or $80,000, in Endo ordinary shares. Accordingly, no actual cash was paid to Mr. Montague in respect of his fees earned. Ms. Smith was a non-employee director until June 7, 2018. Her amounts in the table above represent pro-rated payments, which were paid entirely in cash, for her service on the Board from January 1, 2018 through her ending service date.

(2)

The amounts shown in this column represent the grant date fair value for each non-employee director’s share-based awards under Accounting Standard Codification Topic 718—Stock Compensation (ASC 718). The stock awards reflect compensation for annual services. Refer to the “Share-Based Compensation” footnote in our audited financial statements included in the Endo International plc 2018 Annual Report on Form 10-K for the assumptions we used in valuing and expensing these awards in accordance with ASC 718. The grant date fair value of each stock award granted in 2018, computed in accordance with ASC 718, is as follows:

 

                                                                         
   
Name   Grant Date     Fair Value on Grant
Date of
Stock Awards ($)
 

Roger H. Kimmel

    June 8, 2018     $             240,000  

Shane M. Cooke

    June 8, 2018     $ 240,000  

Nancy J. Hutson, Ph.D.

    June 8, 2018     $ 240,000  

Michael Hyatt

    June 8, 2018     $ 240,000  

Sharad S. Mansukani, M.D.

    June 8, 2018     $ 240,000  

William P. Montague

    June 8, 2018     $ 240,000  

Todd B. Sisitsky

    n/a     $  

 

(3)

The following table summarizes the number of stock options and RSUs outstanding and exercisable at December 31, 2018 for each non-employee director serving on the Board at December 31, 2018:

 

                                           
   
Name  

Options  

Outstanding  

at Fiscal Year  

End (#)  

   

Options  

Exercisable at  

Fiscal Year End (#)  

   

Restricted Stock  

Units Outstanding  

at Fiscal Year End  

(#)  

    Value at Fiscal Year  
End ($)(a)  
 

Roger H. Kimmel

                               8,094                           8,094                              15,074     $                 110,040  

Shane M. Cooke

                    $  

Nancy J. Hutson, Ph.D.

    13,185       13,185       6,515     $ 47,560  

Michael Hyatt

    18,478       18,478           $  

Sharad S. Mansukani, M.D.

                    $  

William P. Montague

    18,478       18,478       23,108     $ 168,688  

Todd B. Sisitsky

                    $  

 

  (a)

Based upon the closing price on December 31, 2018 of $7.30. Includes all RSUs and all outstanding options as of December 31, 2018, for which the exercise price is equal to or less than $7.30 per share.

 

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Proposal 2: Advisory Vote on the Compensation of Our Named Executive Officers (Say-on-Pay)

We are seeking an advisory vote to approve our executive compensation for 2018. At our 2017 Annual General Meeting of Shareholders, a majority of shareholders voted to have a say-on-pay vote each year. As a result, on August 1, 2017, the Compensation Committee resolved that Endo will conduct an advisory vote on executive compensation annually at least until the next shareholder advisory vote on the frequency of such votes, which is scheduled to occur no later than June 2023.

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 NEOs as disclosed in CD&A and in the other tabular and narrative executive compensation disclosures in this Proxy Statement. Since the required vote is advisory, the result of the vote is not binding upon the Board.

Although the say-on-pay vote is advisory and is not binding on our Board, our Compensation Committee will take into consideration the outcome of the vote when making future executive compensation decisions. At the 2018 Annual Meeting, approximately 65.7% of the votes cast favored our say-on-pay proposal. The Compensation Committee considered this result disappointing and solicited input from investors during our shareholder engagement process.

Throughout 2018, members of Endo’s Board and management team undertook efforts to engage with shareholders, which accounted for approximately 90% of Endo’s ordinary shares outstanding, and held direct discussions with ISS and Glass Lewis. These conversations have been beneficial, resulting in changes implemented by the Compensation Committee, including:

   

Placing more emphasis on performance-based equity for NEOs in the form of 50% PSUs and 50% RSUs, representing an increase in the proportion of PSUs compared to 2018

   

Increasing the length of the PSU performance period by introducing an FCF metric measured over a single three-year period, compared to three one-year periods prior to 2019, in addition to relative TSR measured over a three-year period

   

No longer authorizing special or off-cycle LTI awards for NEOs, since the Compensation Committee’s approval of the special grant in 2017

The shareholder engagement process and specific changes to our compensation programs are outlined in greater detail under the section “Say-on-Pay and Shareholder Engagement Feedback” within the CD&A section.

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 recommend a vote FOR the approval, on an advisory basis, of the compensation of Endo’s named executive officers as described in CD&A and in the other tabular and narrative executive compensation disclosures in this Proxy Statement.

 

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, 2018.

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

Members of the Compensation Committee:

William P. Montague (Chair)

Michael Hyatt (Member)

Sharad S. Mansukani (Member)

Todd B. Sisitsky (Member)

 

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Table of Contents

Compensation Discussion and Analysis

 

 

    Executive Summary

 

 

    

 

 

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

 

 

        

 

LOGO

 

Roger H. Kimmel

 

LOGO

 

William P. Montague

 

        

 

 

Dear Shareholders:

 

This year’s proxy statement highlights decisions made by the Compensation Committee in the context of Endo’s strong financial and operating performance in 2018, as well as feedback received during the 2018 shareholder engagement process relating to our executive compensation program.

 

Throughout 2018, Mr. Campanelli and the management team have continued to successfully execute against the Company’s strategic plan developed under Mr. Campanelli’s leadership following his appointment in late 2016, which includes a set of key priorities that articulated a clear vision to be a highly focused generics and specialty branded pharmaceutical company delivering quality medicines to patients in need through excellence in development, manufacturing and commercialization. Under Mr. Campanelli’s leadership, the Company has made substantial progress towards achieving its goals by directly identifying and addressing the various opportunities and challenges facing the Company. Endo’s performance in 2018 continued to advance the Company’s turnaround strategy, as demonstrated through the significant financial, operational and strategic progress realized throughout the year. The Company’s U.S. Branded—Specialty & Established Pharmaceuticals segment is being transformed into a highly focused branded specialty pharmaceutical business with best-in-class commercial capabilities. The U.S. Branded—Sterile Injectables segment continues to expand rapidly, achieving strong revenue results for all key products. Non-core assets and businesses were divested and the U.S. Generics Pharmaceutical segment was repositioned by executing a comprehensive product portfolio and manufacturing footprint rationalization initiative.

 

Through these actions, the Company has achieved margin improvement, made targeted investments to further enhance capabilities in developing high-barrier, technically challenging generic products and reallocated resources to our core growth areas, including U.S. sterile injectables, branded specialty products and the development of CCH for the treatment of cellulite, as demonstrated by the recent successful completion of the Company’s CCH Phase 3 trials in patients with cellulite. A strong foundation has been established to transition to Endo’s next phase by reshaping the organization for success, building the Company’s portfolio and capabilities for the future and driving margin expansion and positioning for de-levering.

 

Endo’s progress in 2018 was also reflected in the Company’s relative TSR performance. Based on ISS’s TSR methodology, Endo’s 2018 TSR was 24.4%, ranking Endo in the top decile relative to the following key comparator groups: the organizations included in Endo’s Pay Comparator Companies peer group (96th percentile), the Company’s custom index of forty-one pharmaceutical companies (90th percentile), ISS’s peer group (100th percentile) and the peer group used by Glass Lewis (100th percentile). We believe 2018’s relative TSR performance reflected the Company’s progress in implementing its strategic priorities, as well as its 2018 financial and operating performance, further demonstrating Endo’s progress in achieving its fundamental goal of delivering value to our shareholders. Consistent with Endo’s pay-for-performance philosophy, awards issued under our performance-based incentive programs were reflective of our management team’s accomplishments in 2018.

 

The Compensation Committee continued to assess and evaluate the Company’s executive compensation program in 2018, considering the results of the most recent say-on-pay vote that only yielded 65.7% support during the 2018 Annual Meeting. The Compensation Committee considered this result disappointing and conducted an extensive shareholder engagement process to understand and address shareholder concerns. Throughout the course of the Company’s shareholder engagement discussions, the Compensation Committee heard a high degree of support for the Company’s strategy, operating performance and management team. Shareholders collectively expressed general support for the Company’s executive compensation programs and structure, while understanding the basis for the Compensation Committee’s decisions in 2018. Our shareholders, in addition to ISS and Glass Lewis, also provided constructive feedback, supporting the Compensation Committee’s plans to implement select program changes in 2019 that directly address the key concerns raised by our shareholders. The changes will better align the Company’s executive compensation program with Endo’s operating performance, strategic actions, pay-for-performance philosophy and alignment with shareholder interests (the specific actions taken are outlined in detail under the section “Say-on-Pay and Shareholder Engagement Feedback” on page 27). The Compensation Committee values these discussions and is looking forward to continued engagement with shareholders in 2019.

 

The Board is pleased with the Company’s financial and operating performance in 2018 and is confident in the management team’s ability to continue to execute on Endo’s stated strategic priorities. With strength is each of its core businesses, Endo is well positioned in 2019 and beyond as it embarks upon the next phase of the Company’s strategic plan and the enhancement of shareholder value.

 

Sincerely,

       

 

Roger H. Kimmel

 

 

William P. Montague

       

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Chairman of the Board of Directors

 

Chair of the Compensation Committee

         

 

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    Executive Summary (continued)

 

     
   

 

Strategic Vision and 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:

 

  Increased investments in XIAFLEX® contributed to significant product growth, generating 2018 double-digit demand growth and 24% year-on-year revenue growth, attributable to underlying volume growth in both the Peyronie’s Disease and Dupuytren’s Contracture indications

  Launched a number of significant generic product entries, realizing meaningful revenue and profitability contributions

  Achieved year-on-year revenue growth of 24% in our U.S. Branded—Sterile Injectables segment, with fourth quarter year-on-year growth run rates of +22% and +60% for VASOSTRICT® and ADRENALIN®, respectively

  Expanded the Company’s product pipeline through internal development, third-party agreements and successful execution of authorized generic relationships

 

Invest prudently in product pipeline:

 

  Significantly progressed the CCH cellulite treatment development program, reporting positive results from two Phase 3 clinical trials for the treatment of cellulite in the buttocks

  Positioned the Company for an expected CCH BLA filing during the second half of 2019, with commercial launch projected for the second half of 2020

  Expanded VASOSTRICT® patent estate as listed in the Orange Book, while challenging the FDA’s authorization of the bulk compounding of certain drugs, including vasopressin, that have not satisfied the legal requirements under Section 503B of the Drug Quality and Security Act amendments to the Federal Food, Drug and Cosmetic Act, and ultimately obtaining a favorable determination by FDA that vasopressin is not eligible for bulk compounding under Section 503B.

  Placed intense focus on the development of high-value product opportunities and optimized the product selection process, while progressing generic regulatory filings based on commercial viability determinations

  Divested non-core Abbreviated New Drug Application (ANDA) assets

  Executed a development agreement with Nevakar for 5 differentiated 505(b)(2) injectable products

 

Enhance focus on operational execution:

 

  Successfully repositioned the U.S. generics business by executing a comprehensive product portfolio and manufacturing footprint rationalization initiative

  Achieved significant productivity and margin improvements, while generating cash flow that exceeded guidance

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

  Successfully implemented an integrated sales and operations planning (S&OP) management process focused on reducing backorders and inventory write-offs

 

Meet financial objectives, establishing a foundation for growth:

 

  Achieved 107.4% of targeted Adjusted Revenue, 100.5% of targeted Adjusted EBITDA Margin and 121.3% of targeted Adjusted Diluted EPS from Continuing Operations objectives

  Exceeded Net Debt Leverage Ratio objective for 2018, laying the foundation to de-lever to the 3-4x range over time

  Optimized annual capital expenditure budget, appropriately investing in growth drivers

 

 

 
     
    

 

2018 Financial Results as a Percent of Operating Plan Target

 

 

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    Executive Summary (continued)

 

   
 

CEO Performance & Compensation Determination Summary

 

Paul V. Campanelli

President, Chief Executive Officer and Director

 

 
 

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Performance. The Compensation Committee’s (referred to in this “Compensation Discussion and Analysis” section as the Committee) assessment of Mr. Campanelli’s performance was based on the successful development and advancement of Endo’s strategic imperatives, the Company’s strong financial results and the achievement of operating performance objectives. These achievements were considered in the context of Endo’s multi-year turnaround plan built on organic growth and portfolio optimization, investments made in progressing the Company’s growth assets and advancement of a more efficient cost structure and operating model focused on operational execution.

 
 

 

As evidenced by the Company’s performance in 2018, Endo demonstrated continued advancement of the Company’s transformational priorities and strategic growth objectives resulting in the creation of shareholder value. In summary, the Committee considered the following key factors and achievements as they relate to Mr. Campanelli’s performance in 2018:

 

 

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Compensation Determination Summary. Consistent with Endo’s pay-for-performance philosophy, the Committee’s 2019 compensation determination for Mr. Campanelli aligns with his various achievements throughout 2018. In consideration of competitive pay practices and levels observed among Endo’s Pay Comparator Companies, the Committee agreed to maintain Mr. Campanelli’s annual base salary at $950,000, continuing to rely more heavily on performance-based compensation. In recognition of Mr. Campanelli’s contributions and performance against the 2018 scorecard objectives, Mr. Campanelli was awarded an annual cash performance-based bonus equal to approximately 195.8% of his annual incentive compensation (IC) target. The Committee also approved an equity-based award with an expected target value based on Endo’s closing share price at the time of grant equal to $7,200,000, with 50% of the grant awarded in the form of PSUs contingent upon three-year cumulative relative TSR and FCF performance criteria and 50% awarded in the form of time-based RSUs. Mr. Campanelli’s equity-based award reflects the application of a 20% company-wide long-term incentive (LTI) reduction, which was recommended to the Compensation Committee by management, to be applied to all 2019 LTI awards to help manage the Company’s share utilization levels.

 

 

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    Executive Summary (continued)

 

    

 

 

Please see the below chart, which compares the expected target value of Mr. Campanelli’s compensation package for 2018 performance against the actual value authorized by the Committee in 2019 for such performance.

 

 

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The “Individual Compensation Determination” section provides additional details concerning the Committee’s compensation determination for all of Endo NEOs. The Summary Compensation Table’s footnotes (1) and (2) on page 44 provide details regarding adjustments to base salary earnings and LTI valuations under ASC 718 for accounting and proxy reporting purposes.

 

CEO Equity Compensation. The information contained in this proxy statement is intended to clearly communicate the various considerations contemplated by the Committee when determining the appropriateness of executive compensation. To further explain the LTI references reported in this proxy, it is important to highlight the material differences between the data reported in the Summary Compensation Table on page 44 and the awards approved by the Committee, specifically as it relates to Mr. Campanelli’s 2018 LTI.

 

The SEC rules governing the Summary Compensation Table requires that all grants, or portions thereof, are recognized and reported based on when the awards are considered “granted” from an accounting perspective (represented as the grant date fair value of the awards determined in accordance with ASC 718). For this reason, Mr. Campanelli’s LTI awards in the Summary Compensation Table will reflect grant levels that are materially higher than the awards authorized by the Committee in 2018. This is the result of the following:

  It was necessary to issue Mr. Campanelli’s annual grant on two different dates in 2018 in order to adhere to the 1.5 million share maximum individual grant limitation in place at the time of the annual grant. The total number of PSUs and RSUs awarded to Mr. Campanelli as part of the annual grant was based on the approved expected target value of $9,000,000, and derived from the closing share price of $5.67 on April 2, 2018.

  The first portion of the 2018 annual grant was issued on April 2, 2018 during the normally scheduled annual grant (in adherence with the annual individual grant limitation in place at that time), with the reported grant date fair values derived from the April 2, 2018 closing price of $5.67. The remaining portion of the 2018 annual grant would be granted following shareholder approval of the Amended and Restated 2015 Stock Incentive Plan and the removal of the individual grant limitation.

  Following shareholder approval of the Amended and Restated 2015 Stock Incentive Plan on June 7, 2018 and removal of the individual grant limitation, the remaining portion of the annual grant was authorized by the Committee on July 31, 2018, with a reported grant date fair value based on the closing price of $12.44 on such date.

 

  Mr. Campanelli’s reported 2018 LTI awards also include compensation expenses associated with grants approved by the Committee in 2017, but not considered granted from an accounting perspective until 2018. Approximately $5.0 million of the $16.8 million reported in the Summary Compensation Table for 2018 relates to Committee-approved awards issued in 2017, the vast majority of which (approximately $4.8 million) is associated with the portion of the August 10, 2017 special grant that was approved by the Committee in 2017, and submitted for shareholder approval in 2018. The Committee submitted this portion of the special award for shareholder approval since Mr. Campanelli’s 2017 LTI grants exceeded the 1.5 million share maximum individual grant limitation that was in place prior to the approval of the amended stock plan in 2018. Shareholders approved the amended stock plan proposal and special grant with the vote yielding 94.4% support during the 2018 Annual Meeting.

 

 

 

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    Executive Summary (continued)

 

    

 

 

The Committee believes this information will help our shareholders realize the extent to which the 2017 grant activity impacted reported 2018 LTI levels in the Summary Compensation Table, while also explaining how the required administration of the 2018 annual grant impacted the reported valuation of Mr. Campanelli’s annual LTI award.

 

The following chart compares the expected target value of LTI authorized by the Committee for issuance in 2018 with the amounts required to be reported in the Summary Compensation Table.

 

 

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As illustrated above, the Summary Compensation Table’s rules for reporting LTI compensation may from time to time result in LTI expense being recorded in years subsequent to the date that awards are issued. For this reason, the Committee believes it is important for our shareholders to evaluate LTI information reported in the Summary Compensation Table over a multi-year period. The following illustrates Mr. Campanelli’s projected LTI over a three-year period based on Summary Compensation Table methodology.

 

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Executive Compensation Program

Compensation Philosophy

Pay-for-performance underlies Endo’s compensation philosophy. 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 perform at the highest professional level, while embracing the Company’s Code of Conduct, key values and behaviors.

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, operating and compliance 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, compliance 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 three principal components of the Company’s executive compensation package include 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.

 

 

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In making decisions with respect to any element of an NEO’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 employment 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.

Considerations

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 as a tool to assess the reasonableness and competitiveness of our compensation practices.

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

 

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choice of this target percentile reflects the Company’s consideration for our shareholders’ interests in paying what is competitive to achieve our corporate goals.

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 by the Committee 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 to Endo, which we refer to collectively 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 Pay Comparator Companies market comparisons as one factor in making compensation decisions. Other factors considered when making individual executive compensation decisions include individual contribution and performance, reporting structure, complexity and importance of role and responsibilities, leadership, growth potential and secondary executive compensation survey sources specific to the pharmaceutical industry, among others.

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 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 2018 are listed in the table below:

 

 

2018 Pay Comparator Companies

 

Alexion Pharmaceuticals Inc.

 

Incyte Corporation

Alkermes plc

 

Jazz Pharmaceuticals plc

Amneal Pharmaceuticals Inc.

 

Mallinckrodt plc

Bausch Health Companies Inc.

 

Mylan NV

Biogen Inc.

 

Perrigo Co. plc

BioMarin Pharmaceutical Inc.

 

Regeneron Pharmaceuticals

Celgene Corporation

 

United Therapeutics Corporation

Horizon Pharma plc

 

Vertex Pharmaceuticals Inc.

 

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Pay Risk and Governance. The 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 the Committee:

 

 

What We Do

 

   

 

Maintain a Compensation Committee composed entirely of independent directors

 

 

 

Engage with shareholders, ISS and Glass Lewis on governance and compensation matters

 

 

 

Retain an independent executive compensation consultant to the Committee

 

 

 

Conduct annual assessments of NEO pay positioning against Pay Comparator Companies

 

 

 

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

 

 

 

Implement an executive pay program that is highly concentrated on variable short- and long-term incentive compensation tied to individual and Company performance

 

 

 

Grant LTI awards that are generally subject to three-year vesting conditions

 

 

 

Grant NEO LTI awards comprised of 50% PSUs, tied to relative TSR and Adjusted Free Cash Flow performance over a three-year cumulative performance period, and 50% RSUs that vest ratably over a three-year period

 

 

 

Maintain ownership guidelines for executive management and non-employee Directors

 

 

 

Maintain a compensation recovery (clawback) policy that applies to both cash- and equity-based incentives in situations involving material misconduct or gross negligence resulting in material financial harm to the Company

 

 

 

 

What We Don’t Do

 

   

 

Reward executives for excessive, inappropriate, or unnecessary risk-taking

 

 

 

Authorize special or off-cycle LTI awards to current NEOs (since the Compensation Committee’s approval of the special grant in 2017)

 

 

 

Allow re-pricing of equity awards without shareholder approval

 

 

 

Allow cash buyouts of underwater options

 

 

 

Allow hedging and pledging of Company shares

 

 

 

Grant single-trigger vesting of equity-based awards upon change in control

 

 

 

Enter into employment agreements with automatic renewal provisions (except as required by local law)

 

 

 

Allow change in control gross-up payments

 

 

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 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.

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.

 

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Say-on-Pay and Shareholder Engagement Feedback. In establishing 2019 compensation, the Committee considered the results of the most recent say-on-pay vote at the Company’s Annual Meeting held in June 2018, where only 65.7% of the votes cast on the say-on-pay proposal were voted in favor of the proposal. In addition to addressing the immediate concerns raised by shareholders relating to the 2018 say-on-pay vote, the Committee believes it is important to directly engage with shareholders as a means of soliciting their views on matters including corporate governance, environmental and social initiatives, executive compensation and other important topics, in order to assist the Committee with items requiring a broader shareholder perspective. Throughout 2018, and consistent with prior year practices, our Chair of the Compensation Committee, Mr. Montague, and certain non-employee directors and members of our management team have engaged with our shareholders, ISS and Glass Lewis to discuss key issues and specific shareholder concerns that led to the June 2018 say-on-pay proposal outcome and changes implemented as a result of these discussions.

This initiative, which was led by Mr. Montague and assisted by Endo’s proxy solicitors, extended into 2019 and resulted in the following:

 

 

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The general feedback received from shareholders included a high degree of support for the Company’s strategy, performance and management, along with general agreement with the Company’s executive compensation policies, plan designs and use of metrics. While the general consensus also noted an understanding of the rationale for the August 10, 2017 special equity award and high use of time-based equity, the shareholder feedback we received indicated that Endo should consider a greater allocation of PSUs (generally 50%), with performance periods of at least 3-years on a going-forward basis. Another common suggestion revolved around Endo exclusively granting equity through the annual grant cycle, rather than special or off-cycle awards. The feedback received from shareholders was highly consistent with the feedback provided by ISS and Glass Lewis, in both their 2018 annual research reports as well as our direct conversations with these firms.

In response to the feedback received from our engagement efforts with shareholders, ISS and Glass Lewis, as well as other internal discussions, the Committee implemented the following changes to align Endo’s executive compensation program with best practices and the Company’s strategy:

 

 

Program Enhancements

 

  

 

Prior Approach

 

  

 

Implemented Changes

 

Placing more emphasis on per share metrics in the annual incentive program

  

EPS = 30% of Financial Target Weighting in 2018

  

EPS = 35% of Financial Target Weighting

Placing more emphasis on performance-based equity for NEOs

  

25% PSUs and 75% RSUs in 2018

  

50% PSUs and 50% RSUs

Increasing the length of equity performance periods

  

Relative TSR over a 3-year period &

Adjusted Free Cash Flow over three 1-year periods in 2018

  

Relative TSR over a 3-year period &

Adjusted Free Cash Flow over a 3-year period

Eliminating special or off-cycle LTI awards for NEOs

  

Special award of 50% Options and 50% RSUs approved by the Committee in 2017

  

No special or off-cycle LTI awards authorized by the Committee for current NEOs (since the special grant approved in 2017)

The Committee believes the actions implemented directly address the feedback received through the course of our engagement discussions and serve to strengthen the executive compensation program’s long-term performance-based orientation and reflect the creation and preservation of long-term shareholder value.

Shareholder conversations have been beneficial and are continuing into 2019 to provide the Committee with insights into evolving shareholder views, while serving as an effective communication channel for matters of critical importance to Endo’s short- and long-term priorities and other shareholder interests. The Committee will also continue to consider the results of future say-on-pay votes when making executive compensation decisions and policies. Such votes are expected be conducted annually at least until the Company solicits the next shareholder advisory vote on the frequency of such votes, which is scheduled to occur no later than June 2023.

 

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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 increases 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 and secondary executive compensation survey sources specific to the pharmaceutical industry;

   

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 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.

2018 Decisions Regarding Base Salary. In November 2018, 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 secondary executive compensation survey sources specific to the pharmaceutical industry 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.

 

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The Committee annually assesses 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. The Committee then determines the level of realized performance based on quantifiable Company scorecard and individual performance objectives. The following illustrates the mechanics underlying the annual cash incentive calculation:

 

 

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The respective annual cash incentive compensation target for each NEO related to 2018, paid in early 2019, is expressed in the graph below.

 

 

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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, operating and compliance performance, with target awards established as a percentage of base salary. Each NEO’s target annual incentive compensation bonus is initially established pursuant 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 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 and subject to certain limitations, 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 in determining 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 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 Code, as in effect for the 2018 tax year), which is the amount previously approved by shareholders in accordance with Section 162(m) of the 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.

 

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2018 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 2018. With respect to 2018, the annual award for each NEO was based on the achievement of corporate scorecard objectives and NEO individual performance. The corporate scorecard and individual NEO performance objectives are aligned with the Company’s new priorities established as part of the 2018 strategic assessment process. The performance goals associated with the corporate scorecard were weighted as follows (specific targets are discussed in the following section entitled “2018 Consolidated Financial Results”):

 

 

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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). 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 (i) 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 (ii) progress on health and safety outcomes as determined by other regulatory and environmental matters.

2018 Consolidated Financial Results. In 2018, 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 across our various segments, evidenced by double-digit year-on-year revenue increases in our core growth areas of the U.S. Branded—Sterile Injectables segment and the specialty products portfolio of our U.S. Branded—Specialty & Established Pharmaceuticals segment. The Company also succeeded in organically growing core products, progressing key pipeline assets and successfully defending and progressing key product patents.

As expected and contemplated in our 2018 financial guidance, 2018 also saw Adjusted Revenue and Adjusted EPS declines due to a variety of factors including the 2017 loss of marketing exclusivity for certain key generic products such as ezetimibe tablets and quetiapine ER tablets, continued competitive pressure on a variety of products, the ceasing of shipments of OPANA® ER to customers by September 2017 and, consistent with our stated strategic initiatives, the discontinuation of various non-core products and the divestitures of our Litha and Somar businesses. The Company considered these and other factors in determining the 2018 financial guidance and the associated annual cash incentive compensation program’s performance objectives approved by the Committee, including the year-on-year reductions to the Adjusted Revenue and Adjusted Diluted EPS from Continuing Operations targets.

On an adjusted basis, the Company achieved the following financial objective results in 2018 compared to prior year financial performance:

   

Achieved $2.952 billion and $3.369 billion in Adjusted Revenue in 2018 and 2017, respectively, consisting of $2.947 billion and $3.469 billion of revenue determined in accordance with U.S. generally accepted accounting principles (GAAP), adjusted as described below.

   

Achieved 46.0% and 45.4% in Adjusted EBITDA Margin in 2018 and 2017, respectively, consisting of $1.031 billion and $2.035 billion, respectively, of net loss determined in accordance with GAAP, adjusted as described below, divided by $2.952 billion and $3.369 billion, respectively, in Adjusted Revenue as described above.

   

Achieved $2.90 and $3.68 in Adjusted Diluted EPS from Continuing Operations in 2018 and 2017, respectively. These amounts consist of $4.29 and $5.52 of diluted loss per share from continuing operations determined in accordance with GAAP, adjusted as described below.

 

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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 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 and changes in the fair value of contingent consideration; 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; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; gains or losses from early termination of debt; gains or losses from the sales of businesses and other assets; 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 and changes in the fair value of contingent consideration; 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; litigation-related and other contingent matters; gains or losses from early termination of debt; gains or losses from the sales of businesses and other assets; foreign currency gains or losses on intercompany financing arrangements; and certain other items, including the impact of including dilutive securities if EPS moves from a net loss position to a net income position; further adjusted for the tax effect of adjusted pre-tax income at applicable tax rates and other tax adjustments.

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 incentivize 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 2018 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 2018, 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

  

 

24.5%

 

  

 

150.0%

 

  

 

36.8%

 

Adjusted EBITDA Margin

  

 

24.5%

 

  

 

111.4%

 

  

 

27.3%

 

Adjusted Diluted EPS from Continuing Operations

  

 

21.0%

 

  

 

150.0%

 

  

 

31.5%

 

Strategic/Operating/Compliance Priorities

  

 

30.0%

 

  

 

116.7%

 

  

 

35.0%

 

                        

Total

  

 

100.0%

 

     

 

130.5%

 

                    
                    

 

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Details behind the Company performance objectives, relative weighting and actual results are summarized below from the 2018 Company performance scorecard (certain amounts may not recalculate due to rounding and select results have been generalized due to competitive considerations):

 

Objective

 

 

2018 Results

 

 

Weighting

 

   

Achievement
Level

 

   

 

Contribution 
(Weighting x 
Achievement) 

 

 

 

 

FINANCIAL OBJECTIVES

   

 

 

 

 

 

70.0%

 

 

 

 

 

 

 

 

 

136.5%

 

 

 

 

 

 

 

 

 

95.5% 

 

 

 

 

Adjusted Revenue Goal(1)

 

 

 

Meet or Exceed Adjusted Revenue of $2.75 billion

 

 

 

 

Adjusted Revenue at 107.4% of target

 

 

 

 

 

 

24.5%

 

 

 

 

 

 

 

 

 

150.0%

 

 

 

 

 

 

 

 

 

36.8% 

 

 

 

 

Adjusted EBITDA  Margin Goal(1)

 

 

 

Meet or Exceed Adjusted EBITDA Margin of 45.8%

 

 

 

Adjusted EBITDA Margin at 100.5% of target

 

 

 

 

 

 

 

24.5%

 

 

 

 

 

 

 

 

 

111.4%

 

 

 

 

 

 

 

 

 

27.3% 

 

 

 

 

Adjusted Diluted EPS from Continuing Operations
Goal(1)

 

 

 

Meet or Exceed Adjusted Diluted EPS from Continuing Operations of $2.39

 

 

 

Adjusted Diluted EPS from Continuing Operations at 121.3% of target

 

 

 

 

 

 

 

21.0%

 

 

 

 

 

 

 

 

 

150.0%

 

 

 

 

 

 

 

 

 

31.5% 

 

 

 

 

 

STRATEGIC, OPERATING AND COMPLIANCE PRIORITIES

 

 

 

 

 

 

30.0%

 

 

 

 

 

 

 

 

 

116.7%

 

 

 

 

 

 

 

 

 

35.0% 

 

 

 

 

Drive revenue achievement through core businesses

 

 

 

Achieve XIAFLEX® net sales and volume growth target objectives

 

 

 

Significantly exceeded net sales and volume objectives, achieving double-digit growth

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

150.0%

 

 

 

 

 

 

 

 

 

3.0% 

 

 

 

 

 

Execute core branded specialty product portfolio net sales growth objectives

 

 

 

Significantly exceeded net sales objectives, resulting in double-digit revenue growth

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

150.0%

 

 

 

 

 

 

 

 

 

3.0% 

 

 

 

 

 

Meet generics revenue targets from 2018 launch products

 

 

 

Significantly exceeded generics revenue target objectives from 2018 launch products

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

150.0%

 

 

 

 

 

 

 

 

 

3.0% 

 

 

 

 

 

Deliver on net sales growth targets for U.S. sterile injectables

 

 

 

Significantly exceeded U.S. sterile injectables net sales growth target objectives, achieving double-digit growth

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

150.0%

 

 

 

 

 

 

 

 

 

3.0% 

 

 

 

 

 

Achieve international budgeted sales and Adjusted EBITDA objectives

 

 

 

Significantly exceeded international budgeted revenue and Adjusted EBITDA objectives

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

150.0%

 

 

 

 

 

 

 

 

 

3.0% 

 

 

 

 

Advance key R&D pipeline products

 

 

 

Execute cellulite treatment development program for CCH, achieving critical study stage gates

 

 

 

Successfully completed CCH Phase 3 studies for the treatment of cellulite in the buttocks, realizing positive results by hitting all primary endpoints in both studies, while achieving 8 out of 8 key secondary endpoints in Release-1 and 7 out of 8 in Release-2

 

 

 

 

 

 

 

3.0%

 

 

 

 

 

 

 

 

 

130.0%

 

 

 

 

 

 

 

 

 

3.9% 

 

 

 

 

 

Achieve generics regulatory submission and new product launch objectives

 

 

 

Launched a number of significant generic product entries, while progressing generics regulatory filings based on commercial viability determinations

 

 

 

 

 

 

 

3.0%

 

 

 

 

 

 

 

 

 

100.0%

 

 

 

 

 

 

 

 

 

3.0% 

 

 

 

 

Enhance focus
on operational execution

 

 

 

Meet FDA and DEA requirements, including no warning letters received and no quality system failures that result in market action

 

 

 

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

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

100.0%

 

 

 

 

 

 

 

 

 

2.0% 

 

 

 

 

 

Meet CIA compliance requirements and OIG deliverables

 

 

 

Fulfilled CIA requirements for the 4th reporting year, including all relevant OIG monitoring, training and reporting objectives, and on target to complete all requirements for the 5th and final reporting year

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

100.0%

 

 

 

 

 

 

 

 

 

2.0% 

 

 

 

 

 

Develop and implement integrated S&OP management process to meet backorder reduction and inventory write-off objectives

 

 

 

Successfully implemented formal S&OP process leading to significantly exceeding inventory write-off reduction objective and the identification of backorder reduction opportunities with third party manufacturers

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

50.0%

 

 

 

 

 

 

 

 

 

1.0% 

 

 

 

 

 

Execute engagement and reward/recognition initiatives that contribute to the retention of high-performing talent

 

 

 

Delivered on all engagement and reward/recognition initiatives, exceeding high-performing retention objectives

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

110.0%

 

 

 

 

 

 

 

 

 

2.2% 

 

 

 

 

Achieve key financial metrics

 

 

 

Achieve total adjusted operating expense objective

 

 

 

Achieved lower total adjusted operating expense as a percent of revenue compared to budgeted target

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

75.0%

 

 

 

 

 

 

 

 

 

1.5% 

 

 

 

 

 

Deliver on year-end 2018 Net Debt Leverage Ratio guidance

 

 

 

Exceeded year-end Net Debt Leverage Ratio objective

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

120.0%

 

 

 

 

 

 

 

 

 

2.4% 

 

 

 

 

 

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

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

100.0%

 

 

 

 

 

 

 

 

 

2.0% 

 

 

 

 

(1)

Refer to the section above entitled “2018 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 NEO’s individual performance and awarded the NEOs the 2018 annual cash IC bonus amounts set forth in the “Individual Compensation Determination” section. See also below under the heading “Employment and Change in Control Agreements; Severance Agreements” regarding how each NEO 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 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 below. The LTI Program described below 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 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.

The LTI compensation program provides an annual grant that is directly aligned with Endo’s financial, strategic, operating, compliance 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. Currently, LTI awards for NEOs are equity-based providing for the opportunity to award a combination of PSUs, RSUs and/or stock options.

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 2018, select actions were taken by the Committee 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 for 2018 involved the 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. The Committee also approved a management-recommended company-wide 10% LTI reduction factor, which allowed Endo to continue to support its share utilization priorities 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.

For the 2019 annual grant, based on feedback received during the 2018 shareholder engagement process and ongoing internal discussions, the Committee determined to change the LTI mix for each NEO to 50% PSUs and 50% RSUs, with the PSU performance metrics tied to relative TSR and free cash flow performance metrics (each measured over a three-year performance period). The Committee believes these changes to the LTI mix strengthen the LTI Program’s long-term orientation and reflect the creation and preservation of long-term shareholder value. Please reference the “Performance Share Units” section for details concerning the change to the free cash flow three-year performance period.

The annual equity mix for senior management, including Mr. Campanelli is reflected in the graph below.

 

 

LOGO

 

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In addition to the continued use of PSUs and RSUs, the Committee’s decision to approve a management-recommended company-wide 20% LTI reduction factor allowed Endo to continue to support the Company’s share utilization priorities. These priorities are focused on optimizing the use of equity-based LTI compensation, while responsibly managing share pool usage and dilution. 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 2019 LTI award. Similar to Endo’s Committee-approved grant practices in 2018, Endo has not authorized (in 2019) and will not authorize special or off-cycle LTI awards to NEOs.

Considerations. 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. Further, performance is considered based on a collective group of factors focused on financial, strategic, operating and compliance, 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 NEO’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:

 

 

Factors

 

   

 

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, the Company’s President and Chief Executive Officer recommends an adjustment to each NEO’s 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.

The equity-based LTI compensation target for each NEO excluding Mr. Campanelli related to 2018 performance, to be granted in early 2019, is reflected in the graph below. Mr. Campanelli’s LTI compensation is determined at the discretion of the Committee.

 

 

LOGO

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.

 

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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 period depending on how well the Company performed against the targets set at the beginning of the performance period.

The PSUs granted in 2018 to eligible vice president and above positions, including the Company’s NEOs, were based on a plan design that utilized two discrete measures: relative TSR performance measured over a three-year performance period and Adjusted Free Cash Flow, also measured over a three-year period, but comprised of three one-year annual Adjusted Free Cash Flow targets.

The Adjusted 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. Each of the three one-year annual Adjusted Free Cash Flow targets are established near the beginning of each year of the performance period, with earned awards 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 Adjusted 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. The performance period for the 2018 awards measured against Adjusted Free Cash Flow performance began on January 1, 2018 and ended on December 31, 2018.

The remaining 50% of the PSU award was tied exclusively to relative TSR performance and will be measured against the three-year TSR of the custom index of companies. The custom index utilized for the 2018 grant was initially comprised of a statistically meaningful group of forty-one 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 2018 awards measured against relative TSR performance began on April 2, 2018 and ends on April 2, 2021 and will be assessed at the end of the performance cycle.

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 Adjusted Free Cash Flow performance. As of the record date, TSR performance associated with the 2018 PSUs is tracking above the 84th percentile, based on a beginning Per Share Price of $6.63. Adjusted Free Cash Flow for the 2018 performance year achieved 163.7% of target, based on a target amount of $456 million and actual attainment levels of $746 million, consisting of $267 million of cash flow from operations determined in accordance with GAAP, adjusted as described below, resulting in a payout of 200% (with this earned portion banked and to be released at the end of the three-year vesting period). The performance schedules for the 2018 PSUs are 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.

 

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“Total Shareholder Return” or “TSR” 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. Adjusted Free Cash Flow is not prepared in accordance with GAAP. To arrive at Adjusted Free Cash Flow, the amount of GAAP cash flow from operations is reduced by cash payments for capital expenditures and further adjusted to exclude certain upfront and milestone payments to partners; 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; litigation-related and other contingent matters; and certain other items.

In February 2019, the Committee implemented a change to the PSU plan design in response to feedback received during the 2018 shareholder engagement process and ongoing internal discussions. To further strengthen the program’s long-term performance-based orientation and reflect the creation and preservation of long-term shareholder value, the Adjusted Free Cash Flow performance metric was changed from three one-year annual Adjusted Free Cash Flow targets, to a single three-year Adjusted Free Cash Flow target.

Under this new design, the portion of the PSUs tied to Adjusted Free Cash Flow performance will not vest unless the 2019-2021 results reach the minimum 90% 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 free cash flow 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 performance schedule. The free cash flow performance schedule for the new 2019 PSUs 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 our share price increases. When offered, 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 or 2019 annual grant cycles.

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 become eligible for continued vesting, following certain termination events, 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.

Timing of Grants. Prior to 2018, annual grants of PSUs, RSUs and/or stock options to our NEOs have been made at a regularly scheduled meeting of the Committee held during the first quarter of each year. While the Committee will continue to approve

 

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the annual equity award values during the regularly scheduled meeting held during the first quarter of each year, effective with the 2019 annual grant, the timing of the annual LTI award has moved to a new common grant date, which occurs on the last business day in March. The number of PSUs, RSUs and/or stock options awarded will be based on Endo’s closing share 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 new hire grants throughout the year to new NEOs of the Company, in addition to new hire and promotional grants to eligible non-NEO positions.

2018 Decisions Regarding Equity-Based LTI Compensation. In 2018, the Committee awarded LTI compensation for NEOs pursuant to the program described above resulting in the awards identified in the Summary Compensation Table and the 2018 Grants of Plan-Based Awards Table. Included in these tables are grant details associated with Mr. Campanelli’s 2018 annual LTI award, as well as the following, which were reported in the aforementioned tables in 2018 in accordance with SEC rules: (i) the remaining portion of the August 10, 2017 special grant, which was approved by shareholders during the 2018 Annual Meeting and (ii) the year two Adjusted Free Cash Flow performance tranche of the 2017 PSU award tied to 2018 Adjusted Free Cash Flow performance. Please reference the “CEO Equity Compensation” section for additional details associated with Mr. Campanelli’s 2018 reported performance. For grants awarded in 2019 based on 2018 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.

Additional Compensation Components

The Company’s current practice is to limit use of perquisites. In 2018, other than as described below, the only perquisites offered to the NEOs were financial planning services, housing allowances, relocation planning and related services, term life and long-term disability insurance and executive physicals. The Company currently offers two executive retirement programs including the 401(k) Restoration Plan and the Executive Deferred Compensation Plan, each of which is described below. Both plans were effective January 1, 2008, with the 401(k) Restoration Plan and the Executive Deferred Compensation Plan amended and restated in 2014 and 2018, respectively.

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 Section 401(a)(17) amount in the Code (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 Code earnings limit for the qualified 401(k) ($280,000 for 2019). 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 following year’s LTI compensation that is granted in RSUs that settle in shares of our stock.

Deferral of the RSUs delays the imposition of federal and state (as allowed under state laws) taxes, which normally applies when the RSUs vest. The taxable event is delayed 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.

Employment and Change in Control Agreements; Severance Agreements

The Company generally enters into a written employment agreement with each of the 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.

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, to replace his prior agreement, dated April 28, 2015, that expired pursuant to its terms.

On April 24, 2019, the Company entered into a new executive employment agreement with Paul V. Campanelli, which was effective April 24, 2019 and has a term through September 23, 2022, to replace his prior agreement dated September 23, 2016, which had a three-year term.

 

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

The Company also generally enters into a written separation agreement with each of the NEOs upon 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.

Individual Compensation Decisions and Rationale

Key Considerations

Under our compensation structure, the mix of base salary, annual cash incentive compensation and equity-based LTI compensation varies depending on each NEO’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. Details associated with the Committee’s decisions are set forth in the “Individual Compensation Determination” section.

Other key factors considered by the Committee include NEO ownership levels against the Company’s Ownership Guidelines, as well as share utilization priorities and tax deductibility of compensation. These factors are discussed in further detail below.

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

 

 

LOGO

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 members of executive and senior management subject to the Ownership Guidelines are in compliance with the recommended 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 26.3x base salary based on eligible share ownership levels of 2,257,731 shares as of April 12, 2019), strengthening the alignment between management and shareholder interests.

Share Utilization Priorities. The LTI pool is established annually based on the Company’s achievement of goals and objectives, and can vary significantly from year to year. The share pool is also managed in a manner that focuses on optimizing share utilization, while remaining aligned with competitive eligibility and grant practices. Our efforts to proactively manage share utilization levels in 2018 and 2019 are demonstrated by the application of management-recommended 10% and 20% company-wide LTI reduction factors in 2018 and 2019, respectively. In addition, only full value awards were awarded in 2018 and 2019 to LTI recipients, including the Company’s NEOs. 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 adjusted burn rate and overhang are regularly evaluated against external benchmarks, but also considered in the context of the Company’s current business environment.

 

 

LOGO

Tax Deductibility of Compensation. Prior to the enactment of the Tax Cuts and Jobs Act of 2017 (the Tax Act) in December 2017, Section 162(m) of the 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 a 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 by us to any person who was an NEO of the Company since fiscal year 2016 is non-deductible, regardless of whether the compensation is performance-based.

Individual Compensation Determination

The following summarizes the compensation targets applicable in 2018 and the actual compensation awarded in 2019 by the Committee for the NEOs based on 2018 performance:

 

Name

 

 

Base Salary as of
    December 31, 2018

 

   

2018 Annual
Incentive
Compensation
Target

 

   

2018 Annual
Incentive
Compensation
Actual

 

   

2018 Long-Term
Equity Incentive
Compensation
Target

 

   

 

2018 Long-Term 
Equity Incentive 
Compensation 
Actual (Expected 
Target Value)(1) 

 

 

Paul V. Campanelli

 

$

  950,000

 

 

$

                     1,140,000

 

 

$

  2,231,550

 

 

 

Committee Discretion

 

 

$

  7,200,000 

 

Blaise Coleman

 

$

  600,000

 

 

$

     390,000

 

 

$

                     806,188

 

 

$

  1,800,000

 

 

$

  1,440,000 

 

Terrance J. Coughlin

 

$

  625,000

 

 

$

     437,500

 

 

$

     868,672

 

 

$

  2,187,500

 

 

$

  1,750,000 

 

Matthew J. Maletta

 

$

  575,000

 

 

$

     345,000

 

 

$

     707,781

 

 

$

  1,725,000

 

 

$

  1,380,000 

 

Tony Pera

 

$

  471,500

 

 

$

     259,325

 

 

$

     453,419

 

 

$

     943,000

 

 

$

                    754,400 

 

 

(1)

Award levels established at the time of grant reflect the application of a management-recommended 20% company-wide award reduction to manage share utilization levels and are based on expected target value, which is derived from Endo’s

 

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closing share price at the time of grant for PSUs and RSUs (see Summary Compensation Table’s footnote (2) on page 44 for details regarding LTI valuations under ASC 718 for accounting and proxy reporting purposes). As further described below, based on Mr. Campanelli’s 2018 performance, the Committee approved an award for Mr. Campanelli with an expected target value of $7,200,000 (comprised of 448,318 PSUs and 448,318 RSUs) during the annual grant cycle in 2019.

Each NEO’s target percentage and actual number of PSUs and RSUs granted in 2019, based on 2018 performance, were as follows:

 

                                                                                                  

Name

 

  

 

LTI Target % of
Base Salary

 

    

 

PSUs Actually
Granted

 

    

 

RSUs Actually
Granted

 

 

Paul V. Campanelli

  

 

Committee Discretion

 

  

 

448,318

 

  

 

448,318

 

Blaise Coleman

  

 

300%

 

  

 

89,663

 

  

 

89,663

 

Terrance J. Coughlin

  

 

350%

 

  

 

108,966

 

  

 

108,966

 

Matthew J. Maletta

  

 

300%

 

  

 

85,927

 

  

 

85,927

 

Tony Pera

  

 

200%

 

  

 

46,973

 

  

 

46,973

 

 

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Paul V. Campanelli

President and Chief Executive Officer

 

 

    

 

 

 

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 and secondary executive compensation survey sources specific to the pharmaceutical industry 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 primarily 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 when he discusses his personal performance and the Company’s 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 strong 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 strategic, operating and compliance objectives established for 2018. Specifically, the Committee strongly considered the Company’s financial and operating objectives as summarized in the “Executive Summary” section in CD&A 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 execution against the multi-year turnaround plan established following Mr. Campanelli’s appointment in late 2016 and 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 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 2018 scorecard objectives as noted on page 32, Mr. Campanelli was awarded an annual performance-based bonus equal to approximately 196% of his annual incentive compensation target. The 2018 annual incentive award reflects the Board’s continued 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

 

When Mr. Campanelli was appointed as President and Chief Executive Officer on September 23, 2016, he entered into a new employment agreement with the Company with a three-year term. His agreement did not prescribe a specific LTI target, but instead provided 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 2018 was assessed by the Committee based on a collective group of factors focused on strategic, financial and operational results, which reflects current year performance and drives the Company’s future success as a highly focused generics and specialty branded pharmaceutical company. Based on Korn Ferry Hay Group’s

 

 

 

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Paul V. Campanelli

President and Chief Executive Officer (continued)

 

    

 

analysis of competitive LTI levels, and in consideration of Mr. Campanelli’s outstanding performance and the Committee’s decision to approve management’s recommendation and apply a 20% company-wide reduction in LTI, the Committee approved an equity-based award with an expected target value based on Endo’s closing share price at the time of the 2019 annual grant equal to $7,200,000 (comprised of 448,318 PSUs and 448,318 RSUs). See Summary Compensation Table’s footnote (2) on page 44 for details regarding LTI valuations under ASC 718 for accounting and proxy reporting purposes.

 

Consistent with Endo’s other NEOs, Mr. Campanelli’s 2019 equity award was issued in the form of performance-based equity consisting of 50% PSUs with realizable value dependent upon the delivery of shareholder value and achievement of Adjusted Free Cash Flow objectives over a cumulative three-year performance period and RSUs equal to 50% of Mr. Campanelli’s total LTI award. The combined use of PSUs and RSUs in 2019 supported the Company’s share pool management priorities, and also allowed for a consistent approach for all executive management employees aimed at increasing the level of performance-based LTI. 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 and overall total Direct Compensation levels and pay mix were considered in the context of competitive practices observed among CEOs of both Endo’s Pay Comparator Companies and ISS Peer Group (2018 target Direct Compensation levels ranked below the 50th percentile compared to the Endo Pay Comparator Companies, and slightly above the 50th percentile compared to the ISS Peer Group median). Mr. Campanelli’s 2018 pay structure supports the Company’s pay-for-performance compensation philosophy in that only 9% of the expected target value of Mr. Campanelli’s total Direct Compensation is fixed while 91% is variable and dependent upon performance.

 

 

    

 

 

LOGO

 

 

 

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. Through Mr. Coleman’s strong financial management, the Company ended the year with Adjusted Revenue of $2.952 billion, Adjusted EBITDA Margin of 46.0% and Adjusted Diluted EPS from Continuing Operations of $2.90. Throughout 2018, Mr. Coleman played a key leadership role in executing Endo’s strategic priorities, including the management of capital expenditure investments supporting the Company’s key growth drivers and the management of the Company’s debt commitments. Mr. Coleman also continued to lead the efforts to optimize the Company’s cost structure and expand margins, effectively managing operating expenses and approved commercial and R&D reinvestments. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Coleman’s pay related to Endo’s Pay Comparator Companies, and Mr. Coleman’s operational and strategic performance since his appointment to Executive Vice President and Chief Financial Officer in 2016, the Committee approved an increase to Mr. Coleman’s 2018 performance-based annual cash incentive compensation and equity-based long-term incentive targets from 55% to 65%, and from 250% to 300%, respectively. In recognition of Mr. Coleman’s 2018 performance, the Committee approved a merit increase to Mr. Coleman’s base salary of approximately 2.5% effective February 25, 2019. In consideration of Mr. Coleman’s contributions and the Company’s performance against the 2018 scorecard objectives as noted on page 32, Mr. Coleman was awarded an annual performance-based bonus equal to approximately 207% of his annual incentive compensation target. Based on the performance factors noted on page 34, Mr. Coleman was also awarded an adjusted equity-based award equal to 80% of his LTI target, reflecting the 20% company-wide LTI reduction to manage share pool utilization levels.

 

 

 

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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 2018, Mr. Coughlin played a key leadership role in the strategic and operational oversight of the successful implementation of Endo’s CCH program, achieving positive Phase 3 results for the treatment of cellulite in the buttocks. Within generics research & development, the organization achieved 10 new product launches and progressed high-value generic regulatory filings based on commercial viability determinations. Mr. Coughlin also led the continued execution of the global manufacturing and supply chain optimization initiative, resulting in a comprehensive product portfolio and manufacturing footprint rationalization that successfully repositioned the U.S. Generic Pharmaceuticals business. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Coughlin’s pay related to Endo’s Pay Comparator Companies, and Mr. Coughlin’s operational and strategic performance since his appointment to Executive Vice President and Chief Operating Officer in 2016, the Committee approved an increase to Mr. Coughlin’s 2018 equity-based long-term incentive target from 300% to 350%. 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 2018, the Committee approved a merit increase to Mr. Coughlin’s base salary of approximately 2.6%, effective February 25, 2019. Based on individual performance and Company performance against 2018 scorecard objectives as noted on page 32, Mr. Coughlin was awarded an annual performance-based bonus equal to approximately 198.6% of his annual incentive compensation target. Based on the performance factors noted on page 34, Mr. Coughlin was also awarded an adjusted equity-based award equal to 80% of his LTI target, reflecting the 20% company-wide LTI reduction to manage share pool utilization levels.

 

 

 

 

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 has 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, antitrust, finance, commercial and employment law. Throughout 2018, Mr. Maletta played a key leadership role in developing and supporting the advancement of the Company’s overall strategy, which included both legal and operational priorities. Specifically, Mr. Maletta led and advanced the Company’s litigation strategy while providing leadership and advice on a wide range of other significant legal and business matters, including commercial, intellectual property, regulatory, corporate, investor and media relations. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Maletta’s pay related to Endo’s Pay Comparator Companies and Mr. Maletta’s operational and strategic performance since his appointment to Executive Vice President, Chief Legal Officer in 2015, the Committee approved an increase to Mr. Maletta’s 2018 performance-based annual cash incentive compensation and equity-based long-term incentive targets from 55% to 60%, and from 250% to 300%, respectively. 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 2018, the Committee approved a merit increase to Mr. Maletta’s base salary of approximately 4.3%, effective February 25, 2019. Based on individual performance and Company performance against 2018 scorecard objectives as noted on page 32, Mr. Maletta was awarded an annual performance-based bonus equal to approximately 205% of his annual incentive compensation target. Based on the performance factors noted on page 34, Mr. Maletta was also awarded an adjusted equity-based award equal to 80% of his LTI target, reflecting the 20% company-wide LTI reduction to manage share pool utilization levels.

 

 

 

 

Tony Pera

President, Par Pharmaceutical

 
 

 

Mr. Pera serves as President, Par Pharmaceutical, 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 2018, Mr. Pera led the Company’s U.S. Generic Pharmaceuticals and U.S. Branded—Sterile Injectables segments, achieving combined Adjusted Revenue in excess of $1.9 billion, substantially exceeding budgeted revenue and Adjusted EBITDA goals. The generics team also launched several significant new products that resulted in 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 2018, the Committee approved a merit increase to Mr. Pera’s base salary of approximately 2.7%, effective February 25, 2019. Based on individual performance and Company performance against 2018 scorecard objectives as noted on page 32, Mr. Pera was awarded an annual performance-based bonus equal to approximately 175% of his annual incentive compensation target. Based on the performance factors noted on page 34, Mr. Pera was also awarded an adjusted equity-based award equal to 80% of his LTI target, reflecting the 20% company-wide LTI reduction to manage share pool utilization levels. On April 24, 2019, Mr. Pera advised the Company of his decision to retire from his role as President, Par Pharmaceutical, effective August 2, 2019. Following his retirement, Mr. Pera has agreed to serve as a Special Advisor to Mr. Campanelli through December 30, 2019.

 

 

 

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Compensation of Executive Officers

Summary Compensation Table

The following table sets forth the cash and non-cash compensation paid to or earned by our 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 each NEO is included for each of the years ending December 31, 2018, 2017 and 2016 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. Included in the CD&A section above on page 22, under the heading “CEO Equity Compensation,” is additional information on how the expected targeted value of Mr. Campanelli’s 2018 LTI award compares to the amounts in the table below.

 

Name and

Principal Position

 

 

Year

 

   

Salary
($)(1)

 

   

Bonus ($)

 

   

Share
Awards
($)(2)

 

   

Option
Awards
($)(2)

 

   

 

Non-Equity
Incentive Plan
Compensation
($)(3)

 

   

All Other
Compensation
($)(4)

 

   

Total ($)

 

 

 

Paul V. Campanelli
President and Chief
Executive Officer

 

 

 

 

 

2018

2017

2016

 

 

 

 

 

 

$

$

$

 

913,462

  950,000

987,038

 

 

 

 

 

 

$

$

$

 

 

 

 

 

 

 

$

$

$

 

12,928,700

7,783,028

2,179,571

 

 

 

 

 

 

$

$

$

 

 3,857,212

2,996,836

4,590,794

 

 

 

 

 

 

$

$

$

 

2,231,550

  1,815,450

712,500

 

 

 

 

 

 

$

$

$

 

 39,779

57,081

23,007

 

 

 

 

 

 

$

$

$

 

 19,970,703

13,602,395

8,492,910

 

 

 

 

 

Blaise Coleman
Executive Vice President and
Chief Financial Officer

 

 

 

 

 

2018

2017

2016

 

 

 

 

 

 

$

$

$

 

569,231

545,833

349,308

 

 

 

 

 

 

$

$

$

 

  165,000

100,000

 

 

 

 

 

 

$

$

$

 

1,256,858

1,661,589

291,038

 

 

 

 

 

 

$

$

$

 

1,360,469

190,191

 

 

 

 

 

 

$

$

$

 

806,188

613,203

216,563

 

 

 

 

 

 

$

$

$

 

3,385

4,417

10,819

 

 

 

 

 

 

$

$

$

 

2,635,662

4,350,511

1,157,919

 

 

 

 

 

Terrance J. Coughlin
Executive Vice President and
Chief Operating Officer

 

 

 

 

 

2018

2017

2016

 

 

 

 

 

 

$

$

$

 

597,115

600,000

556,280

 

 

 

 

 

 

$

$

$

 

 

 

 

 

 

 

$

$

$

 

1,659,967

  2,214,791

951,113

 

 

 

 

 

 

$

$

$

 

1,655,854

258,306

 

 

 

 

 

 

$

$

$

 

868,672

800,125

315,000

 

 

 

 

 

 

$

$

$

 

3,692

5,000

8,292

 

 

 

 

 

 

$

$

$

 

3,129,446

5,275,770

2,088,991

 

 

 

 

 

Matthew J. Maletta
Executive Vice President,
Chief Legal Officer

 

 

 

 

 

2018

2017

2016

 

 

 

 

 

 

$

$

$

 

549,038

543,333

504,167

 

 

 

 

 

 

$

$

$

 

 

 

 

 

 

 

$

$

$

 

1,255,826

1,638,825

1,046,244

 

 

 

 

 

 

$

$

$

 

1,347,982

284,120

 

 

 

 

 

 

$

$

$

 

707,781

600,203

210,375

 

 

 

 

 

 

$

$

$

 

38,482

26,991

31,887

 

 

 

 

 

 

$

$

$

 

2,551,127

4,157,334

2,076,793

 

 

 

 

 

Tony Pera (5)
President, Par

 

Pharmaceutical

 

 

 

 

2018

2017

 

 

 

 

 

$

$

 

469,289

460,000

 

 

 

 

 

$

$

 

 

 

 

 

 

$

$

 

842,090

920,046

 

 

 

 

 

$

$

 

692,505

 

 

 

 

 

$

$

 

453,419

409,925

 

 

 

 

 

$

$

 

39,548

39,548

 

 

 

 

 

$

$

 

1,804,346

2,522,024

 

 

 

 

(1)

During 2018, the Company took actions to transition certain employees from a semi-monthly payroll schedule that reflects the current pay period to a bi-weekly payroll schedule paid on a lag. This transition impacted each of the NEOs except for Mr. Pera, who had already been on a bi-weekly payroll schedule. In connection with this change, the impacted NEOs’ 2018 base salary earnings include one-time adjustments required to align historical payroll schedules with the current payroll schedule.

(2)

The amounts shown in these columns represent the grant date fair value of the awards granted in 2018, 2017 and 2016, determined in accordance with ASC 718. During the periods presented above, equity awards granted included both option awards and share awards, including market-based PSUs measured based on the Company’s TSR (referred to as TSR-based PSUs), performance-based PSUs measured based on the Company’s adjusted free cash flow performance (referred to as FCF-based PSUs) and RSUs. Option awards are valued using a Black-Scholes valuation model. 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. RSUs are valued based on the closing price of Endo’s ordinary shares on the date of grant. 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 2018, 2017 and 2016 for the assumptions used in valuing and expensing these awards in accordance with ASC 718. Share awards and option awards that have been issued subject to shareholder approval are considered to have been granted in the period in which such approval is received. The determination of the grant-date(s) underlying FCF-based PSUs depends in part on the date(s) on which each of the performance targets with respect to those PSUs are approved. For example, although FCF-based PSUs are generally only released at the end of a three-year vesting period, the number of ordinary shares earned for FCF-based PSUs issued prior to 2019 is determined based on performance during three successive one-year performance periods for which each year’s performance target is generally established during the first quarter of that year. Therefore, a single FCF-based PSU may give rise to multiple grant dates depending, in part, on the dates on which the respective performance targets are approved. The grant dates for the Company’s outstanding FCF-based PSUs are set forth in the following table.

 

 

 

  Date
  FCF-Based

  PSU Award
  was

  Issued

 

 

  Performance Period(s) Underlying FCF-Based PSU
  Award

  Grant Dates with Respect to the Performance Periods
Ending December 31,
 
  2017     2018     2019     2020     2021  

 

21-Feb 17

 

 

 

Calendar years 2017-2019 (separate one-year periods)

 

 

 

 

21-Feb 17

 

 

 

 

 

 

01-Mar 18

 

 

 

 

 

 

08-Mar 19

 

 

   

 

02-Apr 18

 

 

 

Calendar years 2018-2020 (separate one-year periods)

   

 

 

 

02-Apr 18

 

 

 

 

 

 

08-Mar 19

 

 

 

 

 

 

TBD in 2020

 

 

 

 

31-Jul 18

 

 

 

Calendar years 2018-2020 (separate one-year periods)

   

 

 

 

31-Jul 18

 

 

 

 

 

 

08-Mar 19

 

 

 

 

 

 

TBD in 2020

 

 

 

 

29-Mar 19

 

 

 

 

Calendar years 2019-2021 (one three-year period)

         

 

 

 

29-Mar 19

 

 

 

31-Mar 19

 

Calendar years 2019-2021 (one three-year period)

 

         

 

 

 

31-Mar 19

 

 

 

44


Table of Contents

For additional information on the current year amounts included in the Summary Compensation Table, refer to the “2018 Grants of Plan-Based Awards” table below.

(3)

The amounts shown in this column represent cash amounts earned pursuant to the Company’s annual incentive compensation program with respect to 2018, 2017 and 2016 performance. These amounts were approved by the Compensation Committee on February 14, 2019, February 13, 2018 and February 21, 2017, respectively.

(4)

The amounts shown in this column for 2018 include the items summarized in the table that follows:

 

  Name

 

 

Perquisites &
Other Personal
Benefits(a)

 

   

 

Registrant
Contributions to
Defined
Contribution
Plans(b)

 

   

Life Insurance
Premiums(c)

 

   

Other(d)

 

   

Total

 

 

Paul V. Campanelli

 

$

29,490

 

 

$

5,846

 

 

$

                     2,860

 

 

$

                     1,583

 

 

$

                   39,779

 

Blaise Coleman

 

$

 

 

$

3,385

 

 

$

 

 

$

 

 

$

3,385

 

Terrance J. Coughlin

 

$

 

 

$

3,692

 

 

$

 

 

$

 

 

$

3,692

 

Matthew J. Maletta

 

$

27,482

 

 

$

11,000

 

 

$

 

 

$

 

 

$

38,482

 

Tony Pera

 

$

36,010

 

 

$

3,538

 

 

$

 

 

$

 

 

$

39,548

 

 

  (a)

Mr. Campanelli and Mr. Pera received $29,490 and $36,010, respectively, for housing allowances. Mr. Maletta received $15,348 and $12,134 for financial planning and relocation planning services, respectively.

  (b)

Represents the employer’s 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.

 

(5)

On April 24, 2019, Mr. Pera advised the Company of his decision to retire from his role as President, Par Pharmaceutical, effective August 2, 2019. Following his retirement, Mr. Pera has agreed to serve as a Special Advisor to Mr. Campanelli through December 30, 2019.

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 CD&A section above.

 

45


Table of Contents

2018 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, 2018.

 

               

 

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)

 

 

  Name

 

 

Grant
Date(1)

 

   

Action
Date(1)

 

   

Threshold
($)

 

   

Target
($)

 

   

Maximum
($)

 

   

Threshold
(#)

 

   

Target
(#)

 

   

Maximum
(#)

 

 

 

Paul V. Campanelli(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

             —

 

 

 

 

 

 

1,140,000

 

 

 

 

 

 

2,565,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

01-Mar 18

 

 

 

21-Feb 17

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

37,907

 

 

 

75,814

 

 

 

 

 

 

 

 

$

 

 

$

247,533

 

 

 

02-Apr 18

 

 

 

13-Feb 18

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

200,000

 

 

 

400,000

 

 

 

 

 

 

 

 

$

 

 

$

1,609,000

 

 

 

02-Apr 18

 

 

 

13-Feb 18

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

900,000

 

 

 

 

 

$

 

 

$

5,103,000

 

 

 

07-Jun 18

 

 

 

10-Aug 17

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

971,590

 

 

$

7.55

 

 

$

3,857,212

 

 

 

07-Jun 18

 

 

 

10-Aug 17

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120,039

 

 

 

 

 

$

 

 

$

937,505

 

 

 

31-Jul 18

 

 

 

31-Jul 18

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

64,549

 

 

 

129,098

 

 

 

 

 

 

 

 

$

 

 

$

1,418,141

 

 

 

 

31-Jul 18

 

 

 

 

 

 

31-Jul 18

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

290,476

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

3,613,521

 

 

 

 

Blaise Coleman

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

390,000

 

 

 

 

 

 

877,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

01-Mar 18

 

 

 

21-Feb 17

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

5,528

 

 

 

11,056

 

 

 

 

 

 

 

 

$

 

 

$

36,098

 

 

 

02-Apr 18

 

 

 

13-Feb 18

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

36,375

 

 

 

72,750

 

 

 

 

 

 

 

 

$

 

 

$

292,638

 

 

 

 

02-Apr 18

 

 

 

 

 

 

13-Feb 18

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

163,690

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

928,122

 

 

 

 

Terrance J. Coughlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

437,500

 

 

 

 

 

 

984,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

01-Mar 18

 

 

 

21-Feb 17

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

9,477

 

 

 

18,954

 

 

 

 

 

 

 

 

$

 

 

$

61,885

 

 

 

02-Apr 18

 

 

 

13-Feb 18

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

47,618

 

 

 

95,236

 

 

 

 

 

 

 

 

$

 

 

$

383,086

 

 

 

 

02-Apr 18

 

 

 

 

 

 

13-Feb 18

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

214,285

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

1,214,996

 

 

 

 

Matthew J. Maletta

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

345,000

 

 

 

 

 

 

776,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

01-Mar 18

 

 

 

21-Feb 17

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

5,370

 

 

 

10,740

 

 

 

 

 

 

 

 

$

 

 

$

35,066

 

 

 

02-Apr 18

 

 

 

13-Feb 18

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

36,375

 

 

 

72,750

 

 

 

 

 

 

 

 

$

 

 

$

292,638

 

 

 

 

02-Apr 18

 

 

 

 

 

 

13-Feb 18

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

163,690

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

928,122

 

 

 

 

Tony Pera

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

259,325

 

 

 

 

 

 

583,481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

01-Mar 18

 

 

 

21-Feb 17

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

3,875

 

 

 

7,750

 

 

 

 

 

 

 

 

$

 

 

$

25,304

 

 

 

02-Apr 18

 

 

 

13-Feb 18

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

24,337

 

 

 

48,674

 

 

 

 

 

 

 

 

$

 

 

$

195,791

 

 

 

 

02-Apr 18

 

 

 

 

 

 

13-Feb 18

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109,523

 

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

$

 

620,995

 

 

 

 

(1)

The grant date is determined in accordance with ASC 718. The action date is the date on which the Board took action to issue such awards.

(2)

The amounts shown in these columns represent the target and maximum annual incentive compensation program payouts approved by the Compensation Committee for 2018 performance as described under the “Performance-Based Annual Cash Incentive Compensation” heading in the CD&A section above. There is no threshold for this award. The actual non-equity incentive compensation payment for 2018 performance has been made according to the metrics described in the CD&A 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 vesting period of PSUs deemed to have been granted in accordance with ASC 718 during 2018. There are no thresholds for these awards and the release of any shares assumes achievement of performance objectives, as described under the “Equity-Based Long-term Incentive Compensation” heading in the CD&A section above. Refer to footnote (2) to the Summary Compensation Table above for additional information on the grant dates and grant date fair values of FCF-based PSUs. The PSUs granted in 2018 were granted according to the metrics described above and are included in the Summary Compensation Table in the column titled “Share Awards.” The PSUs granted on March 1, 2018 represent the portion of the PSUs issued in 2017 based on the Company’s 2016 LTI compensation payout for which performance targets were approved in 2018. The PSUs granted on April 2, 2018 and July 31, 2018 were based on the Company’s 2017 LTI compensation payout. Refer to footnote (6) below for additional information on the July 31, 2018 grant.

 

46


Table of Contents
(4)

The options and RSUs granted in 2018 are included in the Summary Compensation Table in the columns titled “Option Awards” and “Share Awards,” respectively. The options and RSUs granted on April 2, 2018 and July 31, 2018 were based on the Company’s 2017 LTI compensation payout. For additional information on the options and RSUs granted on June 7, 2018 and July 31, 2018, refer to footnote (6) below. Details of the 2018 LTI compensation payouts, which were approved by the Compensation Committee in March 2019, are set forth for each of the eligible NEOs in the following table:

 

  Name   

 

2018 Annual
Long-Term
Equity Incentive
Compensation:
PSUs and RSUs
(#)(a)

 

    

 

Grant Date

Fair Value of 2018
Annual Long-Term
Equity  Incentive
Compensation
($)(b)

 

 

Paul V. Campanelli

  

 

896,636

 

  

$

7,731,244

 

Blaise Coleman

  

 

179,326

 

  

$

1,546,237

 

Terrance J. Coughlin

  

 

217,932

 

  

$

1,879,119

 

Matthew J. Maletta

  

 

171,854

 

  

$

1,481,810

 

Tony Pera

  

 

93,946

 

  

$

810,048

 

 

  (a)

The Compensation Committee approved a 50% allocation of PSUs and a 50% allocation of RSUs for each NEO for these grants. Of the PSUs, 50% were TSR-based and 50% were FCF-based. For additional information, refer to the tabular disclosure in the CD&A 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 (2) of the Summary Compensation Table for additional details on how the grant dates and grant date fair values are determined.

(5)

The amounts shown in this column represent the grant date fair values of the awards determined in accordance with ASC 718. Refer to footnote (2) of the Summary Compensation Table for additional details.

(6)

On August 10, 2017, the Compensation Committee approved a special grant of RSUs and stock options to the NEOs to improve the competitive positioning of NEO pay, while addressing the Company’s need to increase each NEO’s direct ownership equity stake. Due to a 1.5 million share maximum individual grant limitation under the then-current LTI program (referred to in this footnote as the Share Cap Limitation), a portion of this grant to Mr. Campanelli, comprising 120,039 RSUs and 971,590 stock options, remained subject to shareholder approval until June 7, 2018 when shareholders approved such awards with over 94% of the votes cast favoring such approval. These awards were considered to have been granted in accordance with ASC 718 upon receipt of such approval and were therefore required to be reported as compensation expense in 2018, although viewed by the Compensation Committee as 2017 awards. Additionally, on February 13, 2018, as part of the Company’s 2017 LTI compensation payout and in consideration of Mr. Campanelli’s 2017 performance, the Compensation Committee approved an annual award for Mr. Campanelli of PSUs and RSUs that exceeded the Share Cap Limitation in place under the then-current LTI program. As a result, Mr. Campanelli’s 2017 LTI compensation payout was made in two parts, with the issuance of: (i) on April 2, 2018, 300,000 PSUs (200,000 of which PSUs were considered to have been granted under ASC 718 on this date) and 900,000 RSUs (ii) on July 31, 2018, 96,825 PSUs (64,549 of which PSUs were considered to have been granted under ASC 718 on this date) and 290,476 RSUs. The Share Cap Limitation was removed following shareholder approval of the amendment and restatement of the Amended and Restated 2015 Stock Incentive Plan on June 7, 2018, which allowed the second part of the grant to be made on July 31, 2018.

See the CD&A section above regarding the material terms, determining amounts payable, vesting schedule and other material conditions of these grants, including pages 35 to 36 summarizing performance conditions associated with Endo’s PSU awards.

 

47


Table of Contents

Outstanding Equity Awards at December 31, 2018

The following table summarizes the number of securities underlying outstanding plan awards for the NEOs at December 31, 2018. 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
(#)(2)

 

   

Market Value of
Shares or Units
of Stock That
Have Not
Vested ($)(3)

 

   

 

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)(2)

 

   

Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested ($)(4)

 

 

 

Paul V. Campanelli

 

 

 

 

323,864

 

 

 

 

 

 

647,726