PRE 14A
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UNITED STATES SECURITY 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. 1)

 

 

Filed by the Registrant

 

  

Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement

 

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

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to Section 240.14a-12

 

  Endo International plc

(Name of Registrant as Specified in Its Charter)

 

         

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

 

Payment of Filing Fee (check the appropriate box):

 

No fee required

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

(1)

 

 

Title of each class of securities to which transaction applies

 

 

 

 

 

(2)

 

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(3)

 

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined)

 

 

 

 

 

(4)

 

Proposed maximum aggregate value of transaction

 

 

 

 

 

(5)

 

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Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

 

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(2)

 

Form, Schedule or Registration Statement No.

 

 

 

 

 

(3)

 

Filing Party

 

 

 

 

 

(4)

 

Date Filed

 

 

 

 


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LOGO

 

 

  2017     

Notice of the

2017 Annual

General Meeting

of Shareholders

and Proxy Statement

 

 

 

 

 

 

June 8, 2017 at 8:00 a.m. local time

Endo International plc

First Floor Minerva House Simmonscourt Road Ballsbridge Dublin 4, Ireland

endo.com


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LOGO

        

Endo International plc

 

First Floor

 

Minerva House

 

Simmonscourt Road

 

Ballsbridge

 

Dublin 4, Ireland

 

endo.com

 

     LOGO   

 

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

Dear Fellow Endo International plc Shareholder:

It is my pleasure to invite you to the Annual General Meeting of Shareholders (the Annual Meeting) of Endo International plc (the Company), which will be held on June 8, 2017 at 8:00 a.m., local time, at First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

At the meeting, we will be voting:

 

(1)

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

 

(2)

To approve the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2017 and to authorize the Board of Directors, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration;

 

(3)

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

 

(4)

To approve, on an advisory basis, the frequency of soliciting an advisory say-on-pay vote (say-on-frequency);

 

(5)

To approve the amendment of the Company’s Memorandum of Association;

 

(6)

To approve the amendment of the Company’s Articles of Association;

 

(7)

To approve the amendment of the Company’s Amended and Restated 2015 Stock Incentive Plan; and

 

(8)

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

During the Annual Meeting, we will also review the Company’s 2016 Irish statutory financial statements. In addition to these formal items of business, we will report on our Company’s performance.

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

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

Thank you for your continued interest in Endo.

Very truly yours,

LOGO

PAUL V. CAMPANELLI

President, Chief Executive Officer and Director

Dublin, Ireland

April 28, 2017

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),

Arthur Joseph Higgins (USA), Nancy June Hutson (USA), Michael Hyatt (USA), Douglas Stephen Ingram (USA),

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


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LOGO

        

Endo International plc

 

First Floor

 

Minerva House

 

Simmonscourt Road

 

Ballsbridge

 

Dublin 4, Ireland

 

endo.com

 

LOGO

TO BE HELD ON JUNE 8, 2017

8:00 a.m., Local Time

First Floor, Minerva House,

Simmonscourt Road, Ballsbridge, Dublin 4, Ireland

Notice is hereby given that the 2017 Annual General Meeting of Shareholders of Endo International plc, an Irish public limited company, will be held on June 8, 2017 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, nine members to our Board of Directors to serve until the next Annual General Meeting of Shareholders;

 

(2)

To approve the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2017 and to authorize the Board of Directors, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration;

 

(3)

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

 

(4)

To approve, on an advisory basis, the frequency of soliciting an advisory say-on-pay vote (say-on-frequency);

 

(5)

To approve the amendment of the Company’s Memorandum of Association;

 

(6)

To approve the amendment of the Company’s Articles of Association;

 

(7)

To approve the amendment of the Company’s Amended and Restated 2015 Stock Incentive Plan; and

 

(8)

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

These proposals, other than proposals (4), (5), and (6), are ordinary resolutions requiring a simple majority of the votes cast at the Annual Meeting. Proposals (5) and (6) are special resolutions requiring the approval of 75% of the votes cast at the Annual Meeting. Proposal (4) does not require a majority vote. The say-on-frequency vote that receives the greatest number of votes—every year, every two years or every three years—will be treated as the frequency approved by shareholders.

The Company’s Irish statutory financial statements for the fiscal year ended December 31, 2016, including the reports of the directors and auditors thereon, will be presented at the Annual Meeting. There is no requirement under Irish law that such statements be approved by the shareholders, and no such approval will be sought at the Annual Meeting. The Annual Meeting also will include a review by the members of the Company’s affairs.

Only shareholders of record at the close of business on April 13, 2017 are entitled to notice of and to vote at the 2017 Annual Meeting and any adjournment thereof.

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


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

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

By Order of the Board of Directors,

 

LOGO

Orla Dunlea

Company Secretary

Dublin, Ireland

April 28, 2017

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),

Arthur Joseph Higgins (USA), Nancy June Hutson (USA), Michael Hyatt (USA), Douglas Stephen Ingram (USA),

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


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LOGO

Proxy Statement for 2017 Annual General Meeting

of Shareholders

 

 

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General Information      1  
Annual General Meeting Admission      1  
Shareholders Entitled to Vote      1  
How to Vote if You Are a Shareholder of Record      1  
Electronic Access to Investor Information      2  
General Information on Voting and Required Vote      2  
Presentation of Irish Statutory Financial Statements      3  
Proposal 1: Election of Directors      4  
Proposal 2: Approval of Appointment of Independent Registered Public Accounting Firm and Authorization to Determine the Firm’s Remuneration      15  
Proposal 3: Advisory Vote on the Compensation of Our Named Executive Officers (“Say-on-Pay”)      17  
Proposal 4: Advisory Vote on the Frequency of Soliciting an Advisory Vote on the Compensation of Our Named Executive Officers (“Say-on-Frequency”)      20  
Proposal 5: Amend the Company’s Memorandum of Association      21  
Proposal 6: Amend the Company’s Articles of Association      21  
Proposal 7: Amend the Endo International plc Amended and Restated 2015 Stock Incentive Plan      23  
Compensation Discussion and Analysis      29  
Compensation of Executive Officers and Directors      50  
Other Information Regarding the Company      63  
No Dissenters’ Rights      65  
Other Matters      65  
Annual Report/Form 10-K      65  
Shareholder Proposals for the 2018 Annual General Meeting      65  
Annex 1      A-1  
Annex 2      B-1  
Annex 3      C-1  


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General Information

We are providing these proxy materials in connection with the solicitation by the Board of Directors of Endo International plc, an Irish public limited company, of proxies to be voted at our 2017 Annual General Meeting (Annual Meeting) to be held on June 8, 2017, 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 our proxy materials (Proxy Statement for Annual Meeting, 2016 Annual Report to Shareholders, 2016 Endo International plc Form 10-K and 2016 Irish Statutory Financial Statements) 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 28, 2017. This Notice of Internet Availability is being mailed in lieu of the printed proxy materials and contains instructions for our shareholders on how they may: (1) access and review our proxy materials on the internet; (2) submit their proxy; and (3) receive printed proxy materials. Shareholders may request to receive printed proxy materials by mail or electronically by e-mail on an ongoing basis by following the instructions in the Notice of Internet Availability. We believe that providing future proxy materials electronically will enable us to save costs associated with printing and delivering the materials and reduce the environmental impact of our annual meetings. A request to receive proxy materials in printed form by mail or by e-mail will remain in effect until such time as the shareholder elects to terminate it.

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

 

 

Annual General Meeting Admission

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

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

 

 

Shareholders Entitled to Vote

Holders of ordinary shares at the close of business on April 13, 2017 (the record date), are entitled to receive this notice and to vote their shares at the Annual Meeting. As of that date, there were [X] issued ordinary shares of Endo entitled to vote.

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

 

 

How to Vote if You Are a Shareholder of Record

 

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

Vote by Internet

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

Vote by Mail

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

Deadline for Voting by Internet or by Mail

If you are a shareholder of record, you may vote by internet or by telephone until 11:59 PM U.S. Eastern Time on June 7, 2017.

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

 

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Vote at the Annual Meeting

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

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

 

 

Electronic Access to Investor Information

 

 

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

  LOGO

 

 

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, the following voting standards apply to the matters considered at the Annual Meeting:

 

  (i)

The majority of the votes cast at the Annual Meeting, in person or by proxy, will be required in order for

   

a nominee to be elected as a director;

   

the Company’s independent registered public accounting firm to be appointed and the Board, acting through the Audit Committee, to be authorized to determine the independent registered public accounting firm’s remuneration;

   

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

   

the amendment of the Company’s Amended and Restated 2015 Stock Incentive Plan to be approved.

 

  (ii)

The say-on-frequency vote that receives the greatest number of votes—every year, every two years or every three years—will be treated as the frequency approved by shareholders.

 

  (iii)

75% of the votes cast at the Annual Meeting, in person or by proxy, will be required in order for:

   

the amendment of the Company’s Memorandum of Association to be approved; and

   

the amendment of the Company’s Articles of Association to be approved.

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:

  (1)

FOR each of the nominees for election as director;

  (2)

FOR the approval of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2017 and the authorization of the Board, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration;

  (3)

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

  (4)

ONE YEAR as the frequency of future say-on-pay votes;

  (5)

FOR the approval of the amendment of the Company’s Memorandum of Association;

  (6)

FOR the approval of the amendment of the Company’s Articles of Association; and

  (7)

FOR the approval of the amendment of the Company’s Amended and Restated 2015 Stock Incentive Plan.

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.

 

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How You May Revoke or Change Your Vote

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

   

sending written notice of revocation to the Company Secretary;

   

timely delivering a valid, later-dated proxy; or

   

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

List of Shareholders

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

Cost of Proxy Solicitation

The Company will pay for preparing, printing and mailing this Proxy Statement and we will pay for the cost of soliciting proxies. Proxies may be solicited on our behalf by directors, officers or employees in person or by telephone, electronic transmission and facsimile transmission. The Company will reimburse banks, brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket costs of sending the proxy materials to our beneficial owners. We have also retained Innisfree M&A Inc. to assist in soliciting proxies. We will pay Innisfree M&A Inc. a base fee of approximately $25,000 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, 2016, including the reports of the directors and auditors thereon, will be presented at the Annual Meeting. There is no requirement under Irish law that such financial statements be approved by shareholders, and no such approval will be sought at the Annual Meeting. The Company’s 2016 Irish Statutory Financial Statements are available, along with the Proxy Statement for Annual Meeting, 2016 Annual Report to Shareholders, 2016 Endo International plc Form 10-K and other proxy materials, at www.proxyvote.com.

 

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Proposal 1: Election of Directors

The Board of Directors

The Company’s Memorandum and Articles of Association provide that the number of directors of the Company shall be not less than five nor more than twelve, the exact number of which shall be fixed from time to time by resolution of the Board of Directors or by a resolution adopted by holders of a majority of the Company’s ordinary shares. In May 2016, the Board resolved that the number of directors be fixed at eleven.

Under the terms of the Company’s Memorandum and Articles of Association, directors need not be shareholders of the Company or residents of Ireland. However, pursuant to the Common Stock Ownership Guidelines (Ownership Guidelines) approved by the Board of Directors, each non-employee director should, but is not required to, have ownership of the Company’s ordinary shares equal in value to at least five times his or her current annual cash retainer to be achieved within five years of joining the Board, as further described in the section below entitled “Common Stock Ownership Guidelines.” Directors are elected for a one-year term and shall retire from office unless re-elected by ordinary resolution at the next following Annual General Meeting. Non-employee Directors receive compensation for their services as determined by the Board of Directors, as further described in the section entitled “Compensation of Executive Officers and Directors—2016 Compensation of Non-Employee Directors.” A vacancy on the Board, or a newly created directorship resulting from any increase in the authorized number of directors, may be filled by a majority of the directors then in office, even though less than a quorum remains. A director appointed to fill a vacancy remains a director until the next following Annual Meeting or his or her earlier death, resignation or removal.

Currently, the Board of Directors consists of eleven members. In September 2016, Rajiv De Silva ceased serving as President, Chief Executive Officer and a member of the Board and Paul V. Campanelli was appointed to such positions. Currently serving as directors are Roger H. Kimmel, Paul V. Campanelli, Shane M. Cooke, Arthur J. Higgins, Nancy J. Hutson, Ph.D., Michael Hyatt, Douglas S. Ingram, William P. Montague, Todd B. Sisitsky, Jill D. Smith and William F. Spengler. All of the current members are nominated by the Board of Directors for re-election as directors of the Company other than Messrs. Higgins and Spengler, who are not standing for re-election. Accordingly, they are not included as nominees for election at the Annual Meeting. In March 2017, the Board has fixed the number of directors at nine, effective June 8, 2017, the date of the Annual Meeting.

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

The Board of Directors has affirmatively determined that ten of its eleven current members are independent directors under the Nasdaq’s listing rules, including Messrs. Kimmel, Cooke, Higgins, Hyatt, Ingram, Montague, Sisitsky and Spengler, Dr. Hutson and Ms. Smith. Mr. Sisitsky’s service as an executive officer of one of Endo’s shareholders was determined not to interfere with his independence. Mr. Campanelli is not independent due to his role as President and Chief Executive Officer of the Company. In determining Mr. Cooke’s independence, the Board considered that Mr. Cooke is the President of Alkermes plc (“Alkermes”), which has a license agreement with one of the Company’s subsidiaries with respect to Megace ES® in the ordinary course of their respective businesses. The total amount of royalty payments made to Alkermes in 2016 was less than $820,000. The Board has determined that this relationship is not material and that it does not impair Mr. Cooke’s independence.

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

As of the date of this Proxy Statement, there are no material proceedings to which any director or executive officer of the Company, or any associate thereof, is a party to that are adverse to the Company or any of its subsidiaries.

Between January 1, 2016 and December 31, 2016, the Board of Directors of the Company as a whole met eight times and did not act by written consent. All members of the Board of Directors attended more than 75% of the aggregate number of meetings of the Board and of the Committees of the Board on which they served in 2016 (that were held during the respective periods in which they served on the Board and related Committees), except for Mr. Higgins, who attended approximately 74% of the aggregate number of meetings of the Board and meetings of the Committees on which he served.

 

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Nominees

There are nine nominees for election as directors of the Company to serve until the 2018 Annual General Meeting of Shareholders of the Company, or until earlier death, resignation or removal. All of the nominees are currently serving as directors of the Company. In addition, eight of those nominees were elected to the Board at the last Annual Meeting. Douglas S. Ingram and Todd B. Sisitsky were identified and recommended to the Board by its Nominating & Governance Committee and appointed by the Board in May 2016. Paul V. Campanelli was appointed to the Board at the time of his appointment as President and Chief Executive Officer of Endo in September 2016.

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

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

 

 

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

  

 

 

 

 

ROGER H. KIMMEL, 70, is Chairman of the Board of Endo and is Chairman of Endo’s Nominating & Governance Committee and an alternate member of Endo’s Audit Committee and Operations Committee. Mr. Kimmel became Chairman of the Board upon the Company’s inception in February 2014. Mr. Kimmel has been Vice Chairman of Rothschild Inc., an investment banking firm, since January 2001. Previously, Mr. Kimmel was a partner of the law firm Latham & Watkins for more than five years. Mr. Kimmel is also a Director of PG&E Corporation, a public energy-based holding company and its subsidiary Pacific Gas and Electric Company, a utility company. Mr. Kimmel was a Director of Schiff Nutrition International until 2012, and was a Director and Chairman of Endo Health Solutions Inc. from July  2000  until  February  2014.   Mr.   Kimmel   also   served   as   the   Chairman   of   the   Board   of

  

LOGO

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

 

 

PAUL V. CAMPANELLI, 55, was appointed President, Chief Executive Officer and a Director of Endo International plc effective September 23, 2016. Mr. Campanelli joined Endo in 2015 as the President of Par Pharmaceutical, leading Endo’s fully integrated U.S. Generics business, following Endo’s acquisition of Par Pharmaceutical. Prior to joining Endo, he had served as Chief Executive Officer of Par Pharmaceutical Companies, Inc. following the company’s September 2012 acquisition by TPG. Prior to the TPG acquisition, Mr. Campanelli served as Chief Operating Officer and President of Par Pharmaceutical, Inc. from 2011 to 2012. At Par Pharmaceutical Inc., Mr. Campanelli had also served as Senior Vice President, Business Development & Licensing; Executive Vice President and President of Par Pharmaceutical, Inc.; and was named a Corporate Officer by its board of directors. He also served 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, 54, has been a member of the Board of Directors since July 2014 and is a member of Endo’s Audit Committee. He is currently President of Alkermes plc based in Dublin, Ireland upon completion of the merger between Elan Drug Technologies (EDT) and Alkermes, Inc. in September 2011. Previously, he was head of EDT and Executive Vice President of Elan from 2007 through the Alkermes merger in 2011 and concurrently served as Chief Financial Officer of Elan Corporation from 2001 to May 2011. Mr. Cooke was appointed director of Elan in May 2005. Prior to joining Elan, he was Chief Executive of Pembroke Capital Limited, an aviation leasing company of which he was a founder. Mr. Cooke also previously held a number of senior positions in finance in the banking and aviation industries.  Mr. Cooke  is  a  chartered  accountant and a graduate of University College Dublin, Ireland.

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

 

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NANCY J. HUTSON, Ph.D., 67, has been a member of the Board of Directors since the Company’s inception in February 2014 and is Chairman of Endo’s Operations Committee and a member of Endo’s Nominating & Governance Committee. Dr. Hutson retired from Pfizer, Inc. in 2006 after spending 25 years in various research and leadership positions, most recently serving as Senior Vice President, Pfizer Global Research and Development and Director of Pfizer’s pharmaceutical R&D site, known as Groton/New London Laboratories, the largest R&D site of any pharmaceutical company. At Pfizer, she led 4,500 colleagues (primarily scientists) and managed a budget in excess of $1 billion. She currently is a Director of BioCryst Pharmaceuticals, Inc. Dr. Huston previously served as Director of Cubist Pharmaceuticals until January 2015, and from March 2009 until February 2014, was a Director

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

 

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MICHAEL HYATT, 71, has been a member of the Board of Directors since the Company’s inception in February 2014 and is a member of Endo’s Compensation Committee and an alternate member of the Nominating & Governance Committee. Mr. Hyatt is currently a Senior Advisor to Irving Place Capital, a leading institutional private equity firm focused on making equity investments in middle-market companies. Until 2008, Mr. Hyatt was a Senior Managing Director of Bear Stearns & Co., Inc. Mr. Hyatt previously served as a Director of Schiff Nutrition International until 2012. From July 2000 until February 2014, Mr. Hyatt was a Director of Endo Health Solutions Inc. Mr. Hyatt’s qualifications to serve on the Board of Endo include, among others, his leadership experience in the banking industries, in-depth knowledge of the Company and experience as a board member of a publicly traded company.

 

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DOUGLAS S. INGRAM, 54, was appointed to the Board of Directors in May 2016 and is a member of Endo’s Compensation Committee and a member of the Operations Committee. Mr. Ingram served as the Chief Executive Officer and Director of Chase Pharmaceuticals Corporation, a clinical-stage biopharmaceutical company from December 2015 until November 2016. Prior to joining Chase Pharmaceuticals, Mr. Ingram served as the President of Allergan, Inc. from July 2013 until it was acquired by Actavis in early 2015. At Allergan, he also served as President, Europe, Africa and Middle East from August 2010 to June 2013, and Executive Vice President, Chief Administrative Officer, and Secretary from October 2006 to July 2010, where he led Allergan’s Global Legal Affairs, Compliance, Internal Audit and Internal Controls, Human Resources, Regulatory Affairs and Safety, and Global Corporate Affairs and Public  Relations departments. Mr. Ingram also served as General Counsel of Allergan

from January 2001 to June 2009 and as Secretary and Chief Ethics Officer from July 2001 to July 2010. With the acquisition of Allergan by Actavis, Mr. Ingram consulted as a special advisor to the Chief Executive Officer of Actavis. Mr. Ingram serves as a director of Pacific Mutual Holding Company and also serves on the Audit Committee, the Governance and Nominating Committee, and the Member Interests Committee. Mr. Ingram is also Vice Chairman of Nemus Biosciences. Mr. Ingram received his Juris Doctor from the University of Arizona in 1988 and his Bachelor of Science degree from Arizona State University in 1985. Mr. Ingram’s qualifications to serve on the Board of Endo include, among others, his extensive knowledge of the industry, significant leadership experience at pharmaceutical companies, including service as chief executive officer and president of publicly traded and private companies, and legal experience and expertise.

 

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WILLIAM P. MONTAGUE, 70, has been a member of the Board of Directors since the Company’s inception in February 2014 and is Chairman of Endo’s Compensation Committee, a member of Endo’s Audit Committee and an alternate member of Endo’s Nominating & Governance Committee. Mr. Montague served as Chief Executive Officer of Mark IV Industries, Inc., a leading global diversified manufacturer of highly engineered systems and components for transportation infrastructure, vehicles and equipment, from November 2004 until his retirement in July 2008 and as Director from March 1996. He joined Mark IV Industries in April 1972 as Treasurer/Controller, serving as Vice President of Finance from May 1974 to February 1986, then Executive Vice President and Chief Financial Officer  from   February   1986   to   March 1996   and   then   as   President   from   March 1996   to   November   2004.

  

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Mr. Montague is also a Director of Gibraltar Industries, Inc., a publicly traded manufacturer and distributor of products for the building and industrial markets since 1993, and has served as Chairman of Gibraltar’s Board of Directors since June 2015. From February 2013 until May 2014, Mr. Montague served as a Director of Allied Motion Technologies Inc., a publicly traded company focused exclusively on serving the motion control market. From February 2009 until February 2014, Mr. Montague was a Director of Endo Health Solutions Inc. Mr. Montague’s qualifications to serve on the Board of Endo include, among others, his significant executive and leadership experience at manufacturing companies, including service as chief executive officer and membership on the board of directors of such companies, and financial expertise and experience, including service as a company’s chief financial officer.

 

TODD B. SISITSKY, 45, was appointed to the Board of Directors in May 2016 and is a member of Endo’s Nominating & Governance Committee. Mr. Sisitsky is a Partner of TPG, where he serves as Managing Partner of TPG Capital North America, head of the firm’s global healthcare investing platform, and a member of the firm’s Executive Committee. Mr. Sisitsky serves on the boards of directors of Adare Pharmaceuticals, IASIS Healthcare Corporation, Immucor Inc., and Surgical Care Affiliates, Inc. He previously served on the boards of directors of Aptalis Holdings, Inc. (formerly Aptalis Pharma, Inc.), Biomet Inc., HealthScope Ltd., Fenwal Inc., and Par Pharmaceuticals Companies, Inc. He also serves on the board of the Campaign for Tobacco Free Kids, a global not-for-profit organization, and the   Dartmouth   Medical   School   Board   of   Overseers. Prior to joining TPG in 2003, Mr. Sisitsky worked

  

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

 

JILL D. SMITH, 59, has been a member of the Board of Directors since the Company’s inception in February 2014, and is a member of Endo’s Nominating & Governance Committee and Operations Committee and is an alternate member of the Audit Committee. Ms. Smith has been an international business leader for more than 25 years, including 16 years as a CEO of private and public companies in the technology and information services markets. Since March 2017, Ms. Smith has served as interim CEO of Allied Minds, a life sciences and technology commercialization company, where she has served as a Director since 2016. Previously, Ms. Smith was the Chairman, CEO and President of DigitalGlobe Inc., a leading provider of satellite imagery products and services to governments and companies worldwide. Ms. Smith is also a Director and currently serves on the Board of Hexagon AB, a global pro-

  

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vider of design, measurement and visualization technologies, and has served on the corporate boards of SoundBite Communications, Inc., Germany-based Elster Group and DigitalGlobe (prior to her appointment as Chairman and CEO). Ms. Smith was a Director of Endo Health Solutions Inc. from September 2012 until February 2014. Ms. Smith’s qualifications to serve on the Board of Endo include, among others, her extensive executive- and board-level experience at publicly traded and private companies.

 

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Vote Required

Each nominee for director receiving a majority of the votes cast, in person or by proxy, at the Annual Meeting will be elected.

 

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

Shareholder Communications with Directors

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

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

The Company does not have a policy on director attendance at Annual Meetings. Messrs. Kimmel, Cooke, and Ingram and Dr. Hutson attended the 2016 Annual General Meeting of Shareholders.

Corporate Governance — Board Leadership Structure and Risk Oversight

Board Leadership Structure

We have a board leadership structure under which Mr. Kimmel serves as Chairman of the Board. All of our directors are independent, with the exception of our President and Chief Executive Officer, Mr. Campanelli. In 2016, our Board had five standing committees, each of which has a committee chair, and each of which consists solely of independent directors. In March 2017, the Board of Directors has determined to discontinue the Transactions Committee, effective March 20, 2017. In addition, the Board appoints other committees as the Board considers necessary from time to time.

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

In accordance with the Company’s Memorandum and Articles of Association and our corporate governance guidelines, the Chairman is responsible for chairing Board meetings and setting the agenda for these meetings. 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 for our Company with oversight of company operations, coupled with an experienced independent Board Chairman and experienced independent directors, with separate independent committee chairs, is the appropriate leadership structure for Endo.

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

Risk Oversight

The Board of Directors believes that one of its most important responsibilities is to oversee how management manages the various risks the Company faces and has delegated primary responsibility for overseeing the Company’s Enterprise Risk

 

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

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

Code of Conduct

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

Insider Trading Policy

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

Common Stock Ownership Guidelines

The Board of Directors has adopted share ownership guidelines (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—Corporate Governance—Compensation Committee.” The current Ownership Guidelines provide that non-employee directors should attain Endo share ownership equal in value to at least five times his or her current annual cash retainer within five years of joining the Board.

Review and Approval of Transactions with Related Persons

The Board of Directors has adopted written policies and procedures for review, approval and monitoring of transactions involving the Company and “related persons” (directors and executive officers or their immediate family members, or shareholders owning five percent or greater of the Company’s issued 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).

The following discussion reflects our relationships and related person transactions entered into in connection with the acquisition of Par Pharmaceutical. Todd B. Sisitsky, a member of our Board since May 2016, is affiliated with TPG Capital, which was a shareholder of Par Pharmaceutical.

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

 

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responsibility since that time. He is the brother of Paul Campanelli, President, Chief Executive Officer and Director of Endo. In 2016, Robert Campanelli received $351,925 in total compensation, of which $208,838 was salary, $61,306 was annual and other bonuses and $81,781 was a grant in the Company’s long-term incentive equity plan. In addition, Robert Campanelli is also eligible to participate in the retirement plans, insurance programs, health benefits and other similar employee welfare benefit arrangements available to other employees of comparable level and on substantially similar terms and conditions.

Committees of the Board of Directors

The Board of Directors has a standing Audit Committee, Compensation Committee, Nominating & Governance Committee and Operations Committee. The Board also had a Transactions Committee, which it determined to discontinue, effective March 20, 2017. The following table shows the directors who are currently members or Chairman of each of the current committees. In addition to the committee members listed below, the Board has designated other independent directors as alternate members of the committees who can attend meetings in the stead of appointed members. If the director nominees are elected at the 2017 Annual Meeting, there will be no alternate members of any committees of the Board of Directors.

 

Name   Audit Committee  

Compensation

Committee

  Nominating &
Governance
Committee
  Operations
Committee

Roger H. Kimmel

  Alternate   -   Chairman   Alternate

Paul V. Campanelli (1)

  -   -   -   -

Shane M. Cooke

  Member   -   -   -

Arthur J. Higgins

  -   Member   -   Member

Nancy J. Hutson, Ph.D.

  -   -   Member   Chairman

Michael Hyatt

  -   Member   Alternate   -

Douglas S. Ingram

  -   Member   -   Member

William P. Montague

  Member   Chairman   Alternate   -

Todd B. Sisitsky

  -   -   Member   -

Jill D. Smith

  Alternate   -   Member   Member

William F. Spengler

  Chairman   Alternate   -   Alternate

 

(1)

Appointed as a member of the Board in September 2016.

Audit Committee

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

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

Currently, Messrs. Cooke, Montague and Spengler serve as members of the Audit Committee, with Mr. Spengler serving as its chairman. Mr. Kimmel and Ms. Smith serve as alternate members. Subject to their re-election at the 2017 Annual Meeting, the Board of Directors expects to appoint Mr. Cooke as chairman and Messrs. Kimmel and Montague and Ms. Smith as members, effective June 8, 2017. Between January 1, 2016 and December 31, 2016, the Audit Committee met six times, in each case including periodic meetings held separately with management, the Company’s internal auditors and the independent registered public accounting firm. The Board has determined that Messrs. Cooke, Montague and Spengler are “financial experts,” as defined by the SEC regulations, and each has the related financial management expertise within the meaning of the Nasdaq listing rules. The Board of Directors has determined that this committee’s chairman and its members, as well as its alternate members, are “independent” and financially literate in accordance with the criteria established by the SEC and the Nasdaq.

Compensation Committee

The Compensation Committee of the Board of Directors determines the salaries and incentive compensation of the executive officers of the Company and provides broad guidance regarding the remuneration and incentive compensation of the other employees of the Company. The Compensation Committee also reviews and acts on any recommendations of the Company’s

 

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management for awards granted under the Endo International plc Amended and Restated 2015 Stock Incentive Plan. The Compensation Committee operates pursuant to a written charter adopted by the Board of Directors, which is available on the Company’s website at www.endo.com, under “Investors—Corporate Governance—Compensation Committee.” The charter describes the nature and scope of responsibilities of the Compensation Committee.

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

 

   

evaluating and approving goals and objectives relevant to compensation of the President and Chief Executive Officer and other NEOs, and evaluating the performance of the executives in light of those goals and objectives;

 

   

determining and recommending, for approval by the Board, the compensation level of the President and Chief Executive Officer;

 

   

evaluating and approving compensation levels and all grants of equity-based compensation to the NEOs (and certain other employees), as recommended by the Company’s President and Chief Executive Officer;

 

   

recommending, for approval by the Board, compensation policies for outside directors;

 

   

providing general compensation oversight on significant issues affecting the Company’s compensation philosophy and/or policies;

 

   

providing input to management on whether compensation arrangements for the NEOs (and certain other employees) incentivize excessive risk taking;

 

   

establishing or reviewing performance-based and equity-based incentive plans for the President and Chief Executive Officer, other NEOs, and reviewing other benefit programs and perquisites for the Company’s executive officers;

 

   

reviewing and approving the aggregate amount of dollars, in the case of the annual cash incentive compensation, and performance share units (PSUs), restricted stock units (RSUs), and stock options, in the case of the annual long-term incentive (LTI) compensation, that is available to the Company each year;

 

   

reviewing, at least annually, the Company’s succession plan relating to NEO positions, with a focus on the ongoing evaluation and planning related to succession for the position of President and Chief Executive Officer; and

 

   

reviewing and recommending, for approval by the Board, the annual goals and objectives of the Company as a whole, which in turn serve as the foundation for incentive compensation.

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

 

   

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

 

   

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

 

   

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

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

Currently, Messrs. Higgins, Hyatt, Ingram and Montague serve as members of the Compensation Committee, with Mr. Montague serving as its chairman. Mr. Spengler serves as an alternate member. Subject to their re-election at the 2017 Annual Meeting, the Board of Directors expects to appoint Mr. Montague as chairman and Messrs. Kimmel, Hyatt, Ingram and Sisitsky as members, effective June 8, 2017. Between January 1, 2016 and December 31, 2016, the Compensation Committee met seven times. The Board of Directors has determined that this committee’s chairman and its members, including its alternate member, are “independent” in accordance with the criteria established by the SEC and Nasdaq.

Use of Compensation Consultants

The Compensation Committee retains Korn Ferry Hay Group, a division of Korn Ferry International, as its consultant to provide objective, independent analysis, advice and recommendations with regard to executive compensation including, but not limited to, competitive market data, compensation analysis and recommendations related to our President and Chief Executive Officer, Board and our other senior executives. Korn Ferry Hay Group served as the independent executive compensation consultant to the Compensation Committee for the Company’s entire 2016 fiscal year. The consultant reports to the Chairman of the Compensation Committee and has direct access to the other members of the Compensation Committee. The Compensation Committee also authorizes the consultant to interact with management in certain respects in order to prepare for meetings with, and respond to requests from, the Compensation Committee. The Compensation Committee may retain other consultants and advisors from time to time.

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

 

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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 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 Hay Group and the lead advisor are engaged to provide executive compensation advisory services to the Compensation Committee,

 

   

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 2016, Korn Ferry Hay Group assisted the Compensation Committee with, among other things, (i) performing a review of the Company’s executive and Board compensation programs, including competitive market analyses, assessment of potential risks associated with compensation arrangements, policies and plans and considerations related to Endo’s President and Chief Executive Officer and other senior executives, (ii) determining the appropriate allocation among short-term and long-term compensation, cash and non-cash compensation and the different forms of non-cash compensation, (iii) identifying appropriate Pay Comparator Companies (as defined below in the section entitled “Compensation Discussion and Analysis” (CD&A)) for purposes of benchmarking the Company’s executive compensation in the industry sectors in which Endo competes for talent and (iv) providing competitive market information and an overview of critical issues and trends affecting the executive compensation landscape.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee, during 2016 or as of the date of this Proxy Statement, is or has been an officer or employee of the Company, and no executive officer of the Company served on the compensation committee or board of any company that employed any member of the Company’s Compensation Committee or Board of Directors.

Nominating & Governance Committee

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

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

 

   

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

 

   

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

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

While the Board does not have a formal policy with respect to diversity, the Board of Directors and the Nominating & Governance Committee advocate diversity in the broadest sense. We believe that it is important that nominees for the Board represent diverse viewpoints and have diverse backgrounds. The Nominating & Governance Committee looks at a broad array of qualifications and attributes including: experience, skills, expertise, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, independence and such other relevant factors that the

 

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Nominating & Governance Committee considers appropriate in the context of the needs of the Board of Directors. Although not specified in the charter, the Committee actively considers ethnicity and gender when selecting candidates so that additional diversity may be represented on the Board.

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

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

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

Currently, Mr. Kimmel, Dr. Hutson, Mr. Sisitsky and Ms. Smith serve as members of the Nominating & Governance Committee, with Mr. Kimmel serving as chairman. Messrs. Hyatt and Montague serve as alternate members. Subject to their re-election at the 2017 Annual Meeting, the Board of Directors expects to appoint Mr. Hyatt as chairman and Mr. Kimmel, Dr. Hutson and Mr. Sisitsky as members, effective June 8, 2017. Between January 1, 2016 and December 31, 2016, the Nominating & Governance Committee met five times. The Board of Directors has determined that this committee’s chairman and its members, including its alternate members, are “independent” in accordance with the criteria established by the SEC and Nasdaq.

Operations Committee

The Operations Committee of the Board of Directors is responsible for reviewing matters relating to scientific technology, research and development activities and pipeline investments; providing advice and counsel to the Company’s management in connection with management’s decisions regarding the allocation, deployment, utilization of, and investment in the Company’s scientific assets; providing advice and counsel to the Company’s management in connection with decisions regarding acquiring or divesting scientific technology or otherwise investing in research and development programs; assisting the Board by providing oversight of regulatory, compliance, quality and legal matters; and designating a subcommittee to assess and review the Company’s Compliance Program, if necessary. The Operations Committee operates pursuant to a written charter adopted by the Board of Directors, which is available on the Company’s website at www.endo.com, under “Investors—Corporate Governance—Operations Committee.”

Currently, Mr. Higgins, Dr. Hutson, Mr. Ingram and Ms. Smith serve as members of the Operations Committee, with Dr. Hutson serving as its chairman. Messrs. Kimmel and Spengler serve as alternate members. Subject to their re-election at the 2017 Annual Meeting, the Board of Directors expects to appoint Dr. Hutson as chairman and Messrs. Kimmel and Ingram and Ms. Smith as members, effective June 8, 2017. Between January 1, 2016 and December 31, 2016, the Operations Committee met five times.

Transactions Committee

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

Messrs. Kimmel, Cooke, Higgins, Hyatt and Sisitsky served as members of the Transactions Committee, with Mr. Hyatt serving as its chairman. Dr. Hutson and Mr. Montague served as alternate members. Between January 1, 2016 and December 31, 2016, the Transactions Committee met three times.

 

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Audit Committee Report

The Audit Committee has reviewed and discussed the Company’s audited consolidated financial statements as of and for the year ended December 31, 2016 with the management of the Company and PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm. Further, the Audit Committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by the Public Company Accounting and Oversight Board’s (PCAOB) Auditing Standard No. 1301, Communications with Audit Committees, other standards of the PCAOB (United States), rules of the SEC, and other applicable regulations, relating to the firm’s judgment about the quality, not just the acceptability, of the Company’s accounting principles, the reasonableness of significant judgments and estimates, and the clarity of disclosures in the audited consolidated financial statements as of and for the year ended December 31, 2016.

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

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

Based on the reviews, reports and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board approved, that the Company’s audited consolidated financial statements for the year ended December 31, 2016 and management’s assessment of the effectiveness of Endo International plc’s internal control over financial reporting be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, for filing with the SEC. The Audit Committee has selected, and the Board of Directors has approved, subject to shareholder approval, the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2017.

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

Members of the Audit Committee:

William F. Spengler (Chairman)

Shane M. Cooke (Member)

William P. Montague (Member)

Roger H. Kimmel (Alternate)

Jill D. Smith (Alternate)

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

 

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

The Audit Committee of the Board of Directors has selected PricewaterhouseCoopers LLP, an independent registered accounting firm, to audit the books, financial records and internal controls of the Company for the year ending December 31, 2017. The Company is asking its shareholders to approve the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2017 and to authorize the Board of Directors, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration.

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

Fees Paid to the Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP served as the Company’s independent registered public accounting firm for the years ended December 31, 2016 and 2015. The table below summarizes the aggregate fees for services PricewaterhouseCoopers LLP provided during years 2016 and 2015:

 

a      Fees for audit services in 2016 and 2015 consisted of:

      Audit of the Company’s annual financial statements;

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

     Reviews of the Company’s quarterly financial statements;

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

     2016     2015  

Audit Fees(a)

    11,258,000     $ 11,565,000  

Audit-Related Fees(b)

    10,000     $ 639,500  

Tax-Fees(c)

    2,346,904     $         1,373,685  

All Other Fees(d)

    6,662     $ 8,910  
   

 

 

   

 

 

 

Total

  $ 13,621,566     $ 13,587,095  
   

 

 

   

 

 

 
   

 

 

   

 

 

 
 

 

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

 

b      Fees for audit-related services in 2016 and 2015 consisted of:

 

     Attestation services requested by management;

 

     Due diligence services; and

 

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

 

c      Fees for tax services in 2016 and 2015 consisted of:

 

     Tax compliance, planning and advice; and

 

     Statutory tax return preparation and review and advice on the impact of changes in local tax laws.

 

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

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

Pre-Approval Policy

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

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

 

  1.

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

  2.

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

  3.

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

  4.

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

 

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

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

Vote Required

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

 

The Audit Committee and the Board of Directors recommend a vote FOR the approval of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2017 and the authorization of the Board, acting through the Audit Committee, to determine the independent registered public accounting firm’s remuneration.

 

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

Compensation Philosophy

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

 

 

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

 
 

Endo’s executive pay programs incorporate significant amounts of performance-based equity that directly reflects Endo’s share price performance; and

 
 

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

 

Endo’s CEO 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 dependent upon Endo’s financial performance and the delivery of shareholder value.

The Company’s commitment to its pay-for-performance philosophy was demonstrated in 2016, a year in which Endo faced significant external and internal challenges, including unanticipated external headwinds such as changes in prescribing trends for pain treatment products resulting in the adjustment of full-year financial expectations, considerable stock price decline and key executive management changes. In the context of this challenging year, the Compensation Committee remained committed to the Company’s pay-for-performance philosophy, which is reflected in the awarded and realized pay levels for all NEOs. Most significantly impacted were the performance-based annual cash incentive compensation, which is tied to both Company and individual performance, and Endo’s equity-based LTI program, which directly links realized value opportunities with shareholder value creation. Please see the below example for Mr. Campanelli, which compares expected target compensation values with realized values based on actual results (see Summary Compensation Table’s footnote (1) on page 50 for details regarding LTI valuations under ASC 718 for accounting and proxy reporting purposes).

 

LOGO

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

 

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Pay-for-performance Incentive Plan Design

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

 

Pay-for-performance Incentive Plan Design

High concentration on performance-based short- and long-term incentive programs

PSUs and stock options comprise a significant portion of senior management compensation; approximately two-thirds of total LTI value

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

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

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

“Double trigger” change in control provision

Equity plans do not allow for cash buyouts of underwater options

Compensation Committee Governance

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

 

Governance

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

Annual assessments of NEO pay positioning against Pay Comparator Companies

Annual reviews of risks associated with compensation arrangements, policies and practices

Compensation recovery policy (clawback) in the event of a restatement of Company financial results

Hedging and pledging of Company shares is prohibited

Change in Control gross-up payments are prohibited

Employment agreements do not have automatic renewal provisions

Non-employee Directors and executive management subject to ownership guidelines

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

Individual share limitations for non-employee Directors and employees

The Compensation Committee retained and advised by an independent compensation consultant

 

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

 

Pay-For-Performance Enhancements

2014:

   Expanded PSU eligibility while adjusting the equity mix for all Vice President-level positions and above; allowing for a minimum of two-thirds of total LTI value based upon share price growth

2015:

  Expanded stock option eligibility to middle-management positions

  Implemented minimum vesting requirements

  Implemented double-trigger PSU vesting upon a Change In Control

2016:

   Enhanced PSU program to measure three-year performance against relative TSR with maximum award levels also dependent upon Endo achieving absolute stock price performance goals

   Approved a custom index of pharmaceutical companies, including companies in the New York Stock Exchange ARCA Pharmaceutical Index, Endo’s Pay Comparator Companies, and other specialty pharmaceutical companies to determine Endo’s relative TSR performance

2017:

  Incentive compensation program expanded to include Adjusted EBITDA Margin as a third financial performance metric, in addition to Adjusted Revenue and Adjusted Diluted EPS, to align the Company’s performance-based annual cash incentive program with Endo’s financial and operational objectives

  PSU program expanded to include free cash flow as a second performance metric, in addition to relative TSR, to further align the program with the Company’s long-term priorities

   Approved a new common grant date of April 1st, effective with the 2018 annual stock grant; supporting best practices by granting the annual equity awards a sufficient amount of time after Endo’s annual earnings release

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

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

Vote Required

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

 

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

Effect of Proposal

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

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

 

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Proposal 4: Advisory Vote on the Frequency of Soliciting an Advisory Vote on the Compensation of Our Named Executive Officers (“Say-on-Frequency”)

Pursuant to Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, at least once every six years the Company is required to submit for shareholder vote a non-binding resolution to determine whether the advisory shareholder vote on executive compensation shall occur every one, two, or three years.

Vote Required

The say-on-frequency vote that receives the greatest number of votes—either each year, every two years or every three years—will be determined as the frequency approved by shareholders.

After consideration of the various arguments supporting each frequency level, the Board believes that submitting the advisory vote on executive compensation to shareholders on an annual basis is appropriate for Endo and its shareholders at this time.

The proxy card provides shareholders with four choices (every one, two, or three years, or abstain). Shareholders are not voting to approve or disapprove of the Board’s recommendation.

 

The Compensation Committee and the Board of Directors recommends a vote, on an advisory basis, for future shareholder advisory votes on executive compensation to be held every ONE YEAR.

Effect of Proposal

The say-on-frequency vote is non-binding. Shareholder approval of a one, two, or three-year frequency vote will not require the Company to implement an advisory say-on-pay vote every one, two, or three years. The final decision on the frequency of the advisory say-on-pay vote remains with the Board and/or its committees.

The Board values the opinions of the Company’s shareholders as expressed through their votes and other communications. Although the resolution is non-binding, the Board and the Committee will consider the outcome of the say-on-frequency vote and other communications from shareholders when making future decisions regarding the frequency of say-on-pay votes.

 

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Proposals 5 and 6

Proposal 5 sets out certain proposed amendments to the Company’s Memorandum of Association and Proposal 6 sets out certain proposed amendments to the Company’s Articles of Association. Under Irish law, any amendment to a company’s Articles of Association must be voted on separately from any amendment to a company’s Memorandum of Association. For these reasons, we are asking shareholders to separately vote on Proposals 5 and 6, however, given the inextricable link between Proposals 5 and 6, each proposal is subject to and conditioned upon the other proposal being approved by shareholders. If one of these proposals is not adopted, the other proposal will also not be adopted.

 

 

Proposal 5: Amend the Company’s Memorandum of Association

Background

The Companies Act 2014, which consolidates Irish company law, took effect on June 1, 2015. In addition to consolidating pre-existing Irish company law, the Companies Act 2014 amended certain provisions of the pre-existing Irish company law and introduced new provisions.

Proposal 5 is being proposed so that certain administrative amendments can be made to the Company’s Memorandum of Association to account for the adoption of the Companies Act 2014. These proposed updates to the Memorandum of Association in response to the enactment of the Companies Act 2014 will not materially change the rights of the Company’s shareholders.

A copy of the Memorandum of Association in the form proposed to be amended by the special resolution provided below is attached to this proxy statement, as Annex 1. We urge you to read Annex 1 in its entirety before you cast your vote.

Vote Required

At least 75% of the votes cast, in person or by proxy, at the Annual Meeting will be required to approve the amendment of the Company’s Memorandum of Association. In addition, adoption of Proposal 5 is subject to and conditioned upon shareholder approval of Proposal 6.

Accordingly, the Board of Directors is requesting that the shareholders approve the following resolution as a special resolution of the Company:

“RESOLVED as a special resolution that, subject to and conditional upon Proposal 6 being passed, Clauses 2, 3.16, 3.28 to 3.34 and 7 of the Memorandum of Association, in the form produced to the meeting (a copy of which are marked ‘X’ for identification and as shown in Annex 1 of the proxy statement), be adopted in substitution for, and to the exclusion of, the existing Clauses 2, 3.16, 3.28 to 3.34 and 7.”

 

The Board of Directors recommends a vote FOR the amendment of the Company’s Memorandum of Association in the manner described above.

 

 

Proposal 6: Amend the Company’s Articles of Association

Background

The description set forth below is only intended to be a summary of the amendments proposed to be made to the Company’s Articles of Association pursuant to this proposal. A copy of the Articles of Association in the form proposed to be amended by the following special resolution is attached to this proxy statement, as Annex 1. We urge you to read Annex 1 in its entirety before you cast your vote.

As discussed in connection with Proposal 5 above, on June 1, 2015, the Companies Act 2014 became effective in Ireland. Although the changes to Irish company law will not impact the Company’s day-to-day operations, the Board of Directors is proposing to make certain amendments to the Company’s Articles of Association in addition to the proposed amendments to the Company’s Memorandum of Association, in order to confirm that the changes to Irish company law effected by the Companies Act 2014 will not have unintended effects on the application of the Company’s Articles of Association.

For example, the Companies Act 2014 contains optional statutory provisions, which will apply automatically to the Company unless such provisions are explicitly excluded from the Company’s Articles of Association. Because many of these optional statutory provisions are already covered by the Company’s current Articles of Association, to avoid any confusion and to continue the Company’s existing approach of setting out regulations governing the Company rather than relying on statutory defaults, the Board of Directors has proposed the Company explicitly exclude such optional statutory provisions from the Company’s Articles of Association. A summary has been prepared listing the optional provisions in the Companies Act 2014 that the Company is proposing to exclude from the Company’s Articles of Association. Such summary is contained in Part I of Annex 2.

 

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One such optional statutory provision that the Board of Directors is not proposing to exclude is the provision enabling shareholders holding not less than 50% of the paid up share capital of the Company to convene an extraordinary general meeting of the Company. This provision benefits shareholders by providing them the enhanced ability to cause an extraordinary general meeting of the Company by eliminating the requirement that the Board of Directors must call such a meeting.

Part II of Annex 2 contains a summary of the other administrative amendments that the Board of Directors is proposing to make to the Company’s Articles of Association. The majority of these amendments are for the purposes of addressing inconsistencies between the existing Articles of Association and the provisions of the Companies Act 2014. Other amendments are made to update legislative references in keeping with the equivalent provisions of the Companies Act 2014 or to make other clarificatory changes.

A copy of the Articles of Association, in the form proposed to be amended by the following special resolution, and which captures the above two categories of proposed changes, is attached to this proxy statement, as Annex 1. While the tables contained in Parts I and II of Annex 2 are intended to be useful summaries, they are not complete, and therefore, we urge you to consider the full text of the amended Memorandum and Articles of Association contained in Annex 1 before you cast your vote.

Vote Required

At least 75% of the votes cast, in person or by proxy, at the Annual Meeting will be required to approve the amendment of the Company’s Articles of Association. In addition, adoption of Proposal 6 is subject to and conditioned upon shareholder approval of Proposal 5.

Accordingly, the Board of Directors is requesting that the shareholders approve the following resolution as a special resolution of the Company:

“RESOLVED as a special resolution that, subject to and conditional upon Proposal 5 being passed, the Articles of Association of the Company, in the form produced to the meeting (a copy of which are marked ‘X’ for identification and as shown in Annex 1 of the proxy statement), be adopted in substitution for, and to the exclusion of, the existing Articles of Association of the Company.”

 

The Board of Directors recommends a vote FOR the amendment of the Company’s Articles of Association in the manner described above.

 

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Proposal 7: Amend the Endo International plc Amended and Restated 2015 Stock Incentive Plan

Summary

On June 9, 2015, shareholders approved the Endo International plc 2015 Stock Incentive Plan. On June 9, 2016 shareholders approved an amendment that imposed a limit on the value of equity grants that may be made to each non-employee director and provided technical updates to reflect changes in accounting rules.

To ensure that we have the continued ability to grant equity awards to our employees and non-employee directors, which are an integral part of our compensation programs, the Board of Directors, upon recommendation by the Compensation Committee, adopted, subject to shareholder approval, an amendment of the Endo International plc Amended and Restated 2015 Stock Incentive Plan (the “Plan”) to increase the authorized number of shares of Company stock that may be issued with respect to awards under the Plan by ten million (10,000,000) shares. We are also asking shareholders to approve the Plan, as amended, to permit certain awards granted under the Plan to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code, as further discussed below. Finally, we have also updated the Irish statutory references in the Plan to ensure consistency with the Companies Act 2014. The Plan, as amended, otherwise restates the terms and conditions of the prior plan, which was filed as Exhibit 10.3 to our Form 10-Q filed with the SEC on August 9, 2016.

As of April 13, 2017, there were [X] shares available for future grants under the Plan, which became available for reuse in connection with the forfeiture of previously granted awards. You are being asked to approve the Plan to increase the number of shares of Company stock that can be issued under the Plan by ten million (10,000,000) (representing less than [X] of our issued and outstanding shares) bringing the total number of shares available for future grants under the Plan as of April 13, 2017 to [X] and the total number of shares reserved for grant since the adoption of the 2015 Stock Incentive Plan to fifteen million (15,000,000).

Assuming a quorum is present, the affirmative vote of a majority of the Company stock voted on the proposal at the meeting in person or by proxy will be required to approve the Plan.

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

   

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

   

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

   

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

   

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

We need additional shares to help achieve our goals and enable us to continue making long-term equity awards to employees to incentivize them to grow the Company, and to attract and retain key individuals who are essential to the long-term success of the Company. If the shareholders do not approve the Plan, then the terms, conditions and current share reserve of the Plan will continue in effect, but we may not have a sufficient number of shares available for future grants under the Plan.

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

Vote Required

A majority of the votes cast, in person or by proxy, at the Annual Meeting will be required to approve the Plan. Abstentions will not be considered votes cast in respect of the proposal.

 

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

Dilution and Historical Share Usage

Dilution. Subject to shareholder approval of the Plan, [X] shares of Company stock will be reserved for issuance under the Plan as of April 13, 2017, which represents approximately [X] of our issued and outstanding shares. The Board of Directors believes that this number of shares constitutes reasonable potential equity dilution and provides a significant incentive for employees to increase the value of the Company for all shareholders. The closing trading price of each share of Company stock as of the record date was [X].

As of the record date, Endo had: (i) [X] shares of Company stock outstanding; (ii) [X] stock options outstanding (vested and unvested), of which [X] had an exercise price greater than Endo’s stock price as of the record date; and (iii) [X] shares of

 

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unvested restricted stock and restricted stock units outstanding. The new shares available under the Plan would represent an additional potential equity dilution of approximately [X]. Including the proposed additional shares under the Plan, the potential equity dilution from all equity incentive awards outstanding and available for grant under all of our equity plans would result in a maximum potential equity dilution of approximately [X].

Of the new shares reserved for issuance under the Plan, no more than half of such shares will be issued as “full value awards.” The shares may be authorized but unissued Company stock or authorized and issued Company stock held in the Company’s treasury. If any shares subject to an award are forfeited, cancelled, exchanged or surrendered or if an award terminates or expires without a distribution of shares to the participant, the shares of Company stock with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, withholding, termination or expiration, again be available for awards under the Plan except that any shares of Company stock surrendered or withheld as payment of either the exercise price of an award and/or withholding taxes in respect of an award will not again be available for awards under the Plan. In no event may the total number of shares of Company stock subject to awards granted to any one participant during any tax year of the Company, exceed one million five hundred thousand (1,500,000) shares (based on highest levels of performance resulting in maximum payout), subject to adjustment for certain transactions. The maximum fair market value of shares of Company stock subject to awards that may be granted to each non-employee director participant in any consecutive twelve-month period is limited to $750,000.

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

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

 

          Fiscal Year
2016
     Fiscal Year
2015
     Fiscal Year
2014
     Average  
A    Total Shares Granted During Fiscal Year (1)      4,951,749        2,185,578        1,650,984        2,929,437  
B    Basic Weighted Average Common stock Outstanding      222,651,000        197,100,000        146,896,000        188,882,333  
C    Burn Rate (A/B)      2.22      1.11      1.12      1.49

 

(1)

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

Description of Material Features of the Plan

Terms and Provisions. The material terms and provisions of the Plan, assuming this Proposal 7 is approved, are summarized below. Except as discussed in this Proposal 7, no additional changes are being made to the Plan previously approved by shareholders. This description is not intended to be complete and is qualified in its entirety by reference to the Plan, a copy of which is attached as Annex 3 to this Proxy Statement.

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

Eligibility. Awards pursuant to the Plan may be granted to employees of the Company, including officers and directors who are employees, to non-employee directors, and to consultants of the Company. Incentive stock options may only be granted to Company employees (including officers and directors who are also employees). All of our non-employee directors are eligible to participate in the Plan, and the number of employees who participate in the Plan is approximately 760.

Shares Available. As of April 13, 2017, [X] shares of Company stock are reserved for issuance under the Plan, subject to adjustment for a change in capitalization. Of the new shares reserved for issuance under this Plan, no more than half of such shares may be issued as “full value awards.” The shares may be authorized but unissued Company stock or authorized and issued Company stock held in the Company’s treasury. If any shares subject to an award are forfeited, cancelled, exchanged or surrendered or if an award terminates or expires without a distribution of shares to the participant, the shares of stock with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, withholding, termination or

 

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expiration, again be available for awards under the Plan except that any shares of Company stock surrendered or withheld as payment of either the exercise price of an award and/or withholding taxes in respect of an award will not again be available for awards under the Plan. In no event may the total number of shares of Company stock subject to awards granted to any one participant during any tax year of the Company, exceed one million five hundred thousand (1,500,000) shares (based on highest levels of performance resulting in maximum payout), subject to adjustment for certain transactions. Also the maximum fair market value of shares of Company stock subject to awards that may be granted to each non-employee director participant in any consecutive twelve-month period is limited to $750,000.

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

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

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

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

Performance Awards. The Compensation Committee may grant performance awards, alone or in tandem with other awards under the Plan, to acquire shares of Company stock in such amounts and subject to such terms and conditions as the

 

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Compensation Committee may, from time to time in its sole discretion, determine, subject to the terms of the Plan. To the extent necessary to satisfy the short-term deferral exception to Section 409A of the Internal Revenue Code, unless the Compensation Committee will determine otherwise, the Performance Awards will provide that payment will be made within 2 1/2 months after the end of the year in which the Participant has a legally binding vested right to such award. No dividends or dividend equivalents will be paid in respect of unvested performance awards. In the event that the Compensation Committee grants a performance award or other award (other than a nonqualified option or incentive stock option) that is intended to constitute qualified performance-based compensation within the meaning Section 162(m) of the Internal Revenue Code, payments under the award will be made solely on account of the attainment of one or more objective performance goals. The performance goals must be established in writing by the Compensation Committee not later than 90 days after the commencement of the period of service to which the award relates (but in no event after 25 percent of the period of service has elapsed). The performance goal(s) to which the award relates may be based on one or more of the business criteria set forth in the Plan.

Other Stock- or Cash-Based Awards. The Compensation Committee is authorized to grant other stock-based awards or other cash-based awards, as deemed by the Compensation Committee to be consistent with the purposes of the Plan. To the extent necessary to satisfy the short-term deferral exception to Section 409A of the Internal Revenue Code, unless the Compensation Committee will determine otherwise, the awards will provide that payment will be made within 2 1/2 months after the end of the year in which the participant has a legally binding vested right to such award. With respect to other cash-based awards intended to qualify as performance based compensation under Section 162(m) of the Internal Revenue Code, (i) the maximum value of the aggregate payment that any participant may receive with respect to any such other cash-based award that is an annual incentive award is $5,000,000, (ii) the maximum value of the aggregate payment that any participant may receive with respect to any such award that is a long-term cash incentive award is the amount set forth in clause (i) above multiplied by a fraction, the numerator of which is the number of months in the performance period and the denominator of which is twelve, (iii) the achievement of the awards will be based on the business criteria listed under “Performance Awards” above, and (iv) the additional rules described above applicable to awards intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code will apply. The Compensation Committee may establish such other rules applicable to the other stock- or cash-based awards to the extent not inconsistent with Section 162(m) of the Internal Revenue Code.

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

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

   

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

   

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

   

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

   

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

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

 

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Federal Income Tax Consequences of the Company’s Amended and Restated 2015 Stock Incentive Plan

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

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

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

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

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

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

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

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

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

 

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New Plan Benefits

Future grants under the Plan will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable. In addition, benefits under the Plan will depend on a number of factors, including the fair market value of our ordinary shares on future dates and the exercise decisions made by the participants. Consequently, at this time, it is not possible to determine the future benefits that might be received by participants receiving discretionary grants under the Plan. The following table reflects awards made under the Plan in 2016.

 

NEW PLAN BENEFITS

Amended and Restated 2015 Stock Incentive Plan

 
Name and Position   Dollar Value ($)(1)     Number of Units (#)  

Paul V. Campanelli, President and Chief Executive Officer

  $ 6,770,365       504,987  

Blaise Coleman, Executive Vice President and Chief Financial Officer

  $ 481,229       36,352  

Joseph J. Ciaffoni, President, U.S. Branded Pharmaceuticals

  $ 2,403,580       94,328  

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

  $ 1,209,419       32,878  

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

  $ 1,330,364       36,165  

Rajiv De Silva, Former President and Chief Executive Officer

  $ 12,508,681       317,239  

Suketu P. Upadhyay, Former Executive Vice President and Chief Financial Officer

  $ 7,405,718       280,767  

Hemanth J. Varghese, Former President, International Pharmaceuticals and Executive Vice President of Corporate Development

  $ 2,107,506       57,292  

Brian Lortie, Former President, U.S. Branded Pharmaceuticals

  $ 997,726       27,123  

Executive Group (5 persons) (2)

  $ 10,328,053       624,973  

Non-Executive Director Group (9 persons)

  $ 2,850,000       71,032  

Non-Executive Officer Employee Group (745 persons)

  $ 84,163,749       3,464,529  

 

(1)

Award levels established at the time of the grant are based on the grant expected target value, which is derived from Endo’s closing stock price at the time of the grant for RSUs and PSUs and the Black-Scholes valuation model for options. For accounting and proxy reporting purposes, the long term incentive amounts reported above represent the grant date fair value under ASC 718 (see Summary Compensation Table’s footnote (1) for additional details).

(2)

Represents the executive officers disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016

Equity Compensation Plan Information

The following information relates to plans in effect as of December 31, 2016 under which equity securities of Endo may be issued to employees and directors.

 

Plan Category   Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (a)
    Weighted-average
exercise price of
outstanding options,
warrants and rights (b)(1)
    Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a)) (c)
 

Equity compensation plans approved by security holders

    6,179,931     $ 41.70       6,882,341  

Equity compensation plans not approved by security holders

        $        
   

 

 

   

 

 

   

 

 

 

Total

    6,179,931     $ 41.70       6,882,341  
 

 

 

   

 

 

   

 

 

 
(1)

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

Registration with the SEC

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

 

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Compensation Discussion and Analysis

 

 

    Executive Summary

 

 

 

Compensation Philosophy

 

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

 

The Company’s commitment to its pay-for-performance philosophy was demonstrated in 2016, a year in which Endo faced significant external and internal challenges, including unanticipated external headwinds such as changes in prescribing trends for pain treatment products resulting in the adjustment of full-year financial expectations, considerable stock price decline and key executive management changes. In the context of this challenging year, the Compensation Committee remained committed to the Company’s pay-for-performance philosophy, which significantly impacted NEO performance-based annual cash incentive compensation, which is directly tied to Company and individual performance, and equity-based LTI awards which directly links to realized value opportunities with shareholder value creation.

 

The following summarizes Endo’s financial and strategic performance for 2016:

     
   

 

Strategic Vision & Results

 

 
   

 

As a highly focused generics and specialty branded pharmaceutical company, delivering quality medicines to patients through excellence in development, manufacturing and commercialization, Endo’s 2016 strategic vision emphasized the importance of growth in U.S. generic and branded pharmaceutical and select international pharmaceutical markets

 

 
   

 

Build on strengths in generic and branded pharmaceuticals:

 

  Achieved double digit revenue and demand growth for XIAFLEX®

  Showed significant sales growth for key generic brands including sterile injectables

  Secured new patent for Vasostrict® from the U.S. Patent and Trademark Office (PTO), which has an expiration date of January 30, 2035

  Successfully protected OPANA® ER patents, blocking generic versions until two patents expire in 2023

 

Drive organic and sustainable growth through core products:

 

  Continued to grow core assets within the branded Specialty Pharmaceuticals business, including XIAFLEX® and SUPPRELIN® LA

  Launched two first-to-file compounds (generic versions of SEROQUEL® and ZETIA®) in substantial commercial markets

 

Invest prudently in product pipeline in areas with relevance to patients, physicians and customers:

 

  Initiated XIAFLEX® Phase 2b study for the treatment of cellulite and achieved positive results on all study endpoints

  Made substantial progress in the generics pipeline exceeding targets for regulatory submissions and new product launches

  Received FDA approval for Par’s mycophenolate mofetil hydrochloride (HCl) for injection, the first available generic injectable version of Roche’s CellCept®

 

Focus on operational execution:

 

  Began the branded product and asset portfolio assessment resulting in increased investment in core growth brands, while executing the return of BELBUCA™ to BDSI resulting in $90-100 million of annual cost savings

  Completed the generic product portfolio optimization and restructured the manufacturing network, pruning low value products and product families, resulting in an improved cost structure

  Increased focus on careful allocation of capital and cash conversion

 

Create value through differentiated operating model:

 

  Reshaping Company by implementing more cohesive and efficient operating model to enable increased investment in core businesses

  Building portfolio and organizational capabilities that support the generic and branded businesses

 

 

 
     
    

 

Financial Results

 

LOGO

 
          

 

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    Executive Summary (continued)

 

   
 

Program Objectives and Elements of Executive Compensation

 

Our executive compensation program seeks to:

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

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

     Link compensation with Company and individual performance;

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

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

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

 

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

 

Competitive Considerations

 

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

 

The Compensation 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 Compensation Committee’s choice of this target percentile reflects the Company’s consideration for our shareholders’ interests in paying what is competitive to achieve our corporate goals, while conserving cash and equity as much as practicable.

 

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

 

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

 

The Pay Comparator Companies typically have similar executive officer positions; however, the Compensation 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 Compensation Committee uses market comparisons as one factor in making compensation decisions. Among other factors considered when making individual executive compensation decisions include individual contribution and performance, reporting structure, complexity and importance of role and responsibilities, leadership and growth potential.

 

 

 

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    Executive Summary (continued)

 

       
 

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 more 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 Compensation Committee approved Pay Comparator Companies for 2016 are listed in the table below:

 

 
    2016 Pay Comparator Companies     
 

Alexion Pharmaceuticals Inc.

 

Mallinckrodt plc

   
 

Alkermes plc

 

Medivation Inc.

   
 

Allergan plc

 

Mylan NV

   
 

Biogen Inc.

 

Perrigo Co. plc

   
 

BioMarin Pharmaceutical Inc.

 

Regeneron Pharmaceuticals

   
 

Celgene Corporation

 

United Therapeutics Corporation

   
 

Jazz Pharmaceuticals plc

 

Vertex Pharmaceuticals Inc.

   
 

 

Say-on-Pay Consideration

 

In establishing 2017 compensation, the Compensation Committee also considered the results of the most recent shareholder advisory vote on executive compensation (the say-on-pay vote) at the Company’s Annual Meeting held in June 2016, where over 97% of the votes cast on the say-on-pay proposal were voted in favor of the proposal. The Compensation Committee believes this result affirms shareholder support for our executive compensation decisions and policies, and as such, the Compensation Committee did not implement any changes as a result of this vote. The Compensation Committee will continue to consider the results of future say-on-pay votes when making executive compensation decisions and policies.

 

Pay Risk and Governance

 

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

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

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

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

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

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

     Identify business risks that these features could potentially encourage;

    Identify controls and plan features that mitigate the risks identified;

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

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

 

The Compensation 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 Compensation 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 on-going basis by the Company’s management team as new program designs are considered.

 

 

 

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    Executive Summary (continued)

 

 
 

 

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

 

Company Actions

 

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

 

 

 
    Item   Actions
  Competitive

Considerations

 

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

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

  Incentive
Compensation
 

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

   Equity plans prohibit the re-pricing of equity awards without shareholder approval and do not allow for cash buyouts of underwater options;

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

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

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

   Annual equity opportunities for Mr. Campanelli and all Vice President-level positions and above consist of a balanced combination of PSUs, RSUs and stock options to further strengthen the focus on shareholder value creation and preservation;

   Proactive share utilization management, including the use of Long-Term Cash Incentive (LTCI) awards tied to the value of Endo stock, were granted to eligible middle-management and professional level employees in 2017; and

   Approved a new common grant date of April 1st, supporting best practices by granting the annual equity awards a sufficient amount of time after Endo’s annual earnings release.

  Employment

Agreements

 

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

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

  Risk
Management
 

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

  Compensation recovery policy (clawback) relating to repayment of cash incentive awards by an executive in the event of a restatement of the Company’s financial results;

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

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

  Individual share limitations for non-employee Directors and employees; and

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

 

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Executive Compensation Program

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

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

 

 

LOGO

In making decisions with respect to any element of a named executive officer’s compensation, the Compensation 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 Compensation Committee considers the other benefits to which the officer is entitled by the agreement, including compensation payable upon termination of the agreement under a variety of circumstances. The Compensation Committee’s goal is to award compensation that is competitive to attract and retain highly qualified leaders and motivate high business performance. The Compensation Committee believes that its compensation programs align executive and shareholder interests by effectively calibrating compensation payout levels with individual and Company performance.

Base Salary

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

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

   

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

   

the expertise and competencies of the individual executive;

   

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

   

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

   

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

   

individual performance of the NEO, which includes:

   

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

   

performance of day-to-day responsibilities;

   

increases in competencies and skill development;

   

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

   

behaviors aligned with Endo key values.

Base salaries are generally reviewed annually. In reviewing salaries, the Compensation Committee adjusts salaries from time to time to realign salaries with market levels, individual performance and incumbent experience. The Compensation Committee also considers salaries relative to those of others within the Company and may, on occasion, make adjustments to salaries

 

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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 Compensation Committee deems appropriate.

2016 Decisions Regarding Base Salary. In October 2016, as part of the Compensation Committee’s annual review of compensation, Korn Ferry Hay Group provided the Compensation Committee with a market assessment of the competitive compensation for the Company’s executive officers. This assessment included reviewing the Pay Comparator Companies and:

   

establishing a benchmark match for each of the positions;

   

gathering and analyzing competitive compensation from relevant labor markets; and

   

developing competitive market medians of compensation for the positions.

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

Performance-Based Annual Cash Incentive Compensation

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

The Compensation Committee will annually assess each NEO’s achievement against the Company’s annual pre-established and formulaic objectives, while operating within the structure of the Internal Revenue Code Section 162(m) compliant incentive compensation program, which allows for a maximum bonus equal to 225% of the target bonus amount based on the achievement of pre-established consolidated adjusted net income goals. The Committee then applies negative discretion based on quantifiable Company scorecard and individual performance objectives. The following illustrates the mechanics underlying the annual cash incentive calculation:

 

 

LOGO

The respective annual cash incentive compensation target for each named executive officer related to 2016, paid in early 2017, is expressed in the graph below.

 

 

LOGO

Annual incentive compensation targets for our Former Named Executive Officers, as defined in the “Compensation of Executive Officers and Directors” section, were 125%, 60% and 55% for Messrs. De Silva, Varghese and Lortie, respectively, with their annual incentive compensation opportunities governed by the terms of their respective separation agreements. Mr. Upadhyay was not eligible for a 2016 annual incentive compensation bonus per the terms of his employment agreement. Please reference the “Individual Compensation Determination” section for additional information.

Considerations. The annual cash incentive compensation program includes relative incentive levels based on each NEO’s specific position accountabilities, and impact on overall Company strategic and operating performance, with target awards

 

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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 Compensation Committee deems relevant, including (but not limited to) a review of Pay Comparator Company compensation. The annual incentive compensation metrics are aligned with the Company’s business strategy and the use of consolidated adjusted net income, as well as the Company scorecard objectives including adjusted revenue, adjusted diluted EPS, and non-financial metrics, and are supported by practices observed among our Pay Comparator Companies. The Compensation 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 Compensation Committee has discretion, in appropriate circumstances, to pay annual incentive compensation at less than or in excess of target levels (e.g., in determining the extent to which the pre-set performance goals are met for a given period, the Compensation Committee exercises its judgment whether to reflect or exclude the impact of changes in accounting principles and unusual or infrequently occurring events reported in the Company’s public filings, but no more than the lesser of 1) the maximum aggregate amount of the annual incentive pool based on a pre-established fixed percentage of consolidated adjusted net income, or 2) a maximum individual amount of $5,000,000 for the President and Chief Executive Officer and three other highest-paid executive officers (not including the Company’s Executive Vice President & Chief Financial Officer in accordance with Section 162(m) of the Internal Revenue Code), which is the amount approved by shareholders in accordance with Section 162(m) of the Internal Revenue Code under Endo’s Amended and Restated 2015 Stock Incentive Plan. Further, pursuant to each of our NEOs’ employment agreements, target annual incentive compensation as a percentage of annual base salary may subsequently be increased at the discretion of the Compensation Committee. Please reference the “Individual Compensation Determination” section for approved target annual incentive compensation changes.

2016 Decisions Regarding Incentive Compensation. In late 2016, Endo established a new executive management team charged with recommending and implementing a new corporate strategy to drive the long-term success of the Company, as well as determine revised operating goals and objectives. Part of the charter of the executive leadership team was to adjust the cost structure of the business to align with revised financial expectations set on May 5, 2016. Based upon the progress achieved by the new management team and in consideration of Endo shareholders expectations, the Compensation Committee determined that negative discretion used to determine the 2016 bonuses should be based on the revised guidance as discussed below and then reduced to a capped company performance factor of 75%, which determines the actual annual incentive compensation amount paid to Endo’s NEOs.

The following information summarizes the components of the Company’s annual incentive compensation program and the basis for the actual award granted by the Compensation Committee for 2016. With respect to 2016, the annual award for each NEO was based on the achievement of pre-established consolidated adjusted net income goals, with negative discretion derived from corporate scorecard objectives, as well as business segment performance results in the case of Messrs. Ciaffoni, Varghese and Lortie (see the section heading “2016 Financial Information About Segments” for information on business segment performance) and NEO individual performance. While the program’s consolidated adjusted net income performance target remained unchanged in 2016, the underlying corporate scorecard performance objectives for 2016 emphasize the new executive team’s strategic priorities and operating objectives. The performance goals were weighted as follows (specific targets are discussed in the following section entitled “2016 Consolidated Financial Results”):

 

 

LOGO

The above “scorecard” is structured so that objectives allow for a payout opportunity ranging from 0% to 225% of the target bonus opportunity (commensurate with performance), while operating within the structure of the Internal Revenue Code Section 162(m) compliant annual incentive compensation program, which allows for a maximum bonus equal to 225% of the target bonus amount, and the use of negative Committee discretion based on actual performance. The Compensation 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

 

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assessed based on whether the Company achieved the scorecard results considering (1) current healthcare compliance as reflected by a robust internal compliance program and as determined by outcomes of regulatory review and inspections, such as those of the Food and Drug Administration, and (2) progress on health and safety outcomes as determined by other regulatory and environmental matters.

In February 2017, the Compensation Committee approved modifications to the annual incentive compensation program, effective with the 2017 plan year. The modifications include the addition of a new Adjusted EBITDA Margin financial performance metric, and a reallocation of the financial performance weightings between Adjusted Revenue, Adjusted EBITDA Margin and Adjusted Diluted EPS, weighted 25%, 25% and 20%, respectively. The inclusion of Adjusted EBITDA Margin is supported by external practices and designed to measure the Company’s ability to leverage its operating platform to generate cash flow. Under the new scorecard configuration, Endo’s Strategic, Operating and Compliance Priorities will continue to account for 30% of the scorecard results.

2016 Consolidated Financial Results. In 2016, the Company continued to make progress in shaping Endo as a highly focused generics and specialty branded pharmaceutical company with a strong set of assets in both generic and branded pharmaceuticals. Endo also largely delivered on its strategic priorities and operating objectives despite financial headwinds and market factors. The Company also continued to expand the value of the established corporate structure, while succeeding in growing core branded and generic products, progressing key pipeline assets, and successfully defending and progressing key product patents. Further, upon Mr. Campanelli’s appointment to the position of President and CEO of Endo, substantial progress was made in reviewing all aspects of the Company’s business performance and operational objectives. Following the review, decisions were taken to streamline the management structure, eliminate expenses in non-core areas of the business and shift investments to higher value growth assets. On an adjusted basis, the Company achieved the following financial objective results in 2016 compared to prior year financial performance:

Achieved $4.013 billion and $3.292 billion in adjusted revenue in 2016 and 2015, respectively, consisting of $4.010 billion and $3.269 billion of revenue determined in accordance with U.S. generally accepted accounting principles (GAAP), adjusted as described below.

Achieved $4.73 and $4.68 in adjusted diluted EPS from continuing operations in 2016 and 2015, respectively. These amounts consist of $(14.48) and $(1.52) of diluted EPS from continuing operations determined in accordance with GAAP, adjusted as described below.

Fully adjusted amounts are summarized in the graph below (numbers are reported in millions, other than per share information).

 

 

LOGO

 

(1)

Adjusted revenues and adjusted diluted EPS are not prepared in accordance with GAAP. In calculating these amounts, the Company begins with revenue and diluted EPS from continuing operations amounts determined in accordance with GAAP, which are reported in the Company’s Annual Report on Form 10-K. GAAP diluted EPS from continuing operations is then adjusted for certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; excess costs that will be eliminated pursuant to integration plans; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; certain non-cash interest expense and penalty interest; litigation-related and other contingent matters; gains or losses from early termination of debt; foreign currency gains or losses on intercompany financing arrangements; adjustments related to income taxes; and certain other items, including the impact of including dilutive securities if EPS moves from a net loss position to a net income position. This amount is then further adjusted, and

 

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GAAP revenue is also adjusted, in order to keep participants from being advantaged or disadvantaged as a result of certain unplanned and unbudgeted events or changes throughout the performance period. These adjustments include adjustments for unbudgeted acquisitions during the performance period to include deal model base case revenue and EPS commitments in the Company’s performance targets; adjustments for unplanned material changes in share count during the performance period; and adjustments to neutralize foreign exchange impact versus budget during the performance period. These adjustments were applied in 2016, consistent with Endo’s prior year approach.

2016 Financial Information About Segments. We evaluate segment performance based on each segment’s adjusted income (loss) from continuing operations before income tax, which we define as income (loss) from continuing operations before income tax before certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; excess costs that will be eliminated pursuant to integration plans; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; certain non-cash interest expense and penalty interest; litigation-related and other contingent matters; gains or losses from early termination of debt; foreign currency gains or losses on intercompany financing arrangements; and certain other items.

Readers are encouraged to review the reconciliation between the Company’s consolidated income (loss) from continuing operations before income tax, which is determined in accordance with U.S. GAAP, and our total segment adjusted income from continuing operations before income tax, which is included on page F-31 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

The following highlights changes in revenue from continuing operations by reportable segment compared to prior year:

U.S. Generic Pharmaceuticals. Revenues from our U.S. Generic Pharmaceuticals segment in 2016 increased 53% to $2,564.6 million from $1,672.4 million in 2015. This increase was primarily attributable to the acquisition of Par in September 2016 and the resulting growth in our U.S. Generics Base, Sterile Injectables and New Launches and Alternative Doses components, each of which is further described in our Annual Report on Form 10-K for the year ended December 31, 2016. These increases were partially offset by decreases resulting from competitive pressure on commoditized generic products.

U.S. Branded Pharmaceuticals. Revenues from our U.S. Branded Pharmaceuticals segment in 2016 decreased 9% to $1,166.3 million from $1,284.6 million in 2015. This decrease was primarily attributable to decreased Voltaren® Gel, Lidoderm®, OPANA® ER and Frova® revenues related to generic competition.

International Pharmaceuticals. Revenues from our International Pharmaceuticals segment in 2016 decreased 10% to $279.4 million from $311.7 million in 2015. This decrease was primarily attributable to decreases in Litha revenues as a result of its divestiture of non-core assets during the first quarter of 2016 in addition to unfavorable fluctuations in foreign currency rates, partially offset by increased revenues from the acquisition of certain Aspen Holdings assets in the fourth quarter of 2015.

The following highlights changes in adjusted income (loss) from continuing operations before income tax by reportable segment compared to prior year:

U.S. Generic Pharmaceuticals. Adjusted income from continuing operations before income tax in 2016 increased 46% to $1,079.5 million from $741.8 million in 2015. In 2016, revenues and gross margins increased primarily due to the Par acquisition in September 2015. These increases were partially offset by a decrease resulting from competitive pressure on commoditized generic products and increased charges related to excess inventory reserves at our U.S. Generic Pharmaceuticals segment due to the underperformance of certain products.

U.S. Branded Pharmaceuticals. Adjusted income from continuing operations before income tax in 2016 decreased 20% to $553.8 million from $694.4 million in 2015. This decrease is primarily attributable to decreased revenues related to generic competition.

International Pharmaceuticals. Adjusted income from continuing operations before income tax in 2016 increased 3% to $84.3 million from $81.8 million in 2015. This increase was primarily attributable to an increase in gross margin resulting from the divestiture of certain lower margin products in the first quarter of 2016, increased revenues from the Aspen Acquisition and decreased operating expenses, partially offset by unfavorable fluctuations in foreign currency rates.

Overall Company Performance Against Objectives. In addition to the financial results above, other performance goals are established in alignment with the Company’s strategic, operating and compliance priorities. Further, the goals are developed to deliver strong annual operating performance results, while positioning the Company for longer-term success and enhanced shareholder value. Performance goals are set to be challenging, while reasonably attainable given a con-

 

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certed 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 2016 financial objectives, as well as the Company’s strategic, operating and compliance priorities.

The Compensation Committee reviewed the Company’s achievement of the scorecard objectives set forth above for 2016, and made the following performance determination which applies to each NEO.

 

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

Adjusted Revenue

   28%            96.2%      26.9%      

Adjusted Diluted EPS

   42%            83.3%      35.0%      

Strategic/Operating/Compliance Priorities

   30%            81.2%      24.4%      
    

 

       

 

Total

   100%                   86.3%      
  

 

     

 

Details behind the Company performance objectives, relative weighting, and actual results are summarized below from the 2016 Company Performance Scorecard (certain amounts may not recalculate due to rounding):

 

     Objective   2016 Results   Weighting     Achievement
Level
    Contribution
(Weighting x
Achievement)
 
FINANCIAL OBJECTIVES       70.0%       88.5%       61.94%  
Adjusted Revenue Goal (1)   Meet or Exceed May Revenue Guidance Range of $3.87 to $4.03 billion   Revenue at 99.6% of the top end of the guidance range as adjusted for currency with 100% of target payout at high end of the guidance range     28.0%       96.2%       26.94%  
Adjusted Diluted EPS Goal (1)   Meet or Exceed May EPS Guidance Range of $4.50 to $4.80   Adjusted diluted EPS at 98.5% of the high end of the guidance range with 100% payout at high end of guidance     42.0%       83.3%       35.00%  
STRATEGIC, OPERATING AND COMPLIANCE PRIORITIES     30.0%       81.2%       24.35%  
Drive organic growth versus 2015 through core businesses   Achieve underlying revenue growth targets versus 2015 for each of Endo’s primary business segments   Exceeded U.S. Branded Pharmaceuticals and International Pharmaceuticals underlying growth objectives by 3% and 2% respectively     4.5%       43.3%       1.95%  
Continue strong focus on advancing U.S. Branded Pharmaceuticals key products and R&D pipeline   Meet or exceed XIAFLEX® and BELBUCA™ revenue targets, and initiate next XIAFLEX® clinical study for Cellulite indication   Achieved 98.4% of XIAFLEX® revenue objective and achieved positive Phase 2b cellulite results on all study endpoints     4.5%       66.0%       2.97%  
Continue strong focus on U.S. Generics product performance and R&D pipeline value creation   Meet generics financial, synergy, non-financial objectives and product filings (20) and launch (20) goals, and deliver 300 basis points of gross margin improvement by 2019   Delivered on G&A and S&M synergy and integration targets (nearly $60 million) & achieved target cost of revenues improvement, while completing 28 regulatory submissions and 23 product launches including two first-to-file compounds (generic versions of SEROQUEL® and ZETIA®)     4.5%       115.0%       5.18%  
Announce at least 2 value-creating transactions and/or collaborations   Evaluate and announce transactions and/or collaborations aligned with all established deal criteria   Acquired Canadian rights to Nucynta® and XIAFLEX®, completing the sale of select Astora patents and terminating worldwide rights for BELBUCA®     3.0%       100.0%       3.00%  
Continue to reinforce fundamental focus on Quality, Compliance and Risk Management   Maintain and, where appropriate, enhance program to address global regulatory, quality and compliance requirements, achievement of no material weaknesses related to internal financial controls.   Key quality/compliance performance indicators show sustained improvement, with no warning letter received and a reduction in recalls/market withdrawals of ~70% compared to 2015; met all other internal financial controls and DPA/CIA objectives     4.5%       125.0%       5.63%  
Manage capital and distributable cash flow to strengthen balance sheet and enable financial flexibility   Achieve EBITDA Margin, net debt leverage ratio and cash flow from operations objectives   Fell short of full-year objectives     4.5%       —%       —%  
Engage, retain, attract and reward high-performing talent supporting Endo’s Vision and key values   Design and implement a comprehensive talent development and succession strategy   Developed talent strategy including leadership development program and key position succession plan, while reshaping the leadership team and implementing new operating model with a restructured manufacturing network that will reduce the cost structure by more than $100 million     4.5%       125.0%       5.63%  

 

(1)

Refer to the section above entitled “2016 Consolidated Financial Results” for discussion of Adjusted Revenues and Adjusted Diluted EPS.

 

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While the outcome of the scorecard review produced overall Company results near target level performance achievement based on the revised guidance, the Compensation Committee exercised negative discretion and implemented a capped bonus opportunity of 75% for all NEOs in 2016, in response to the financial and market challenges facing Endo during the course of the year (which included Revenue guidance changing from $4.32-4.52 billion to $3.87-$4.03 billion, and EPS guidance changing from $5.85-$6.20 to $4.50-$4.80). This action taken by the Compensation Committee demonstrates the Committee’s use of negative discretion under appropriate circumstances and the Company’s commitment to its pay-for-performance philosophy. The 2016 annual incentive compensation bonus amounts for Endo’s NEOs are set forth in the “Individual Compensation Determination” section. See also below under the heading “Post-Termination Benefits” regarding how each named executive officer with an employment agreement is entitled to annual cash incentive compensation as a percentage of salary under certain circumstances.

Equity-Based Long-term Incentive Compensation

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

The Company believes that a combination of PSUs, RSUs, and 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 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 2016, senior management’s targeted annual equity mix was calibrated to assign a higher portion of performance-based equity compensation, specifically through the expanded use of PSUs. For Mr. Campanelli, PSUs account for 50% of his overall LTI value, with the remaining portion awarded in the form of stock options and RSUs. For all senior leaders including Mr. Campanelli, 75% of the annual equity award was valued based upon share price growth through the granting of PSUs and stock options. This practice was intentionally designed to motivate senior management to increase the creation and preservation of shareholder value. The annual equity mix for senior management, including Mr. Campanelli is reflected in the graph below.

 

 

LOGO

In determining the annual LTI grants for the NEOs, the Compensation 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.

In 2017, the Compensation Committee approved changes to the equity mix, effective with the 2017 annual grant. The intention was to recalibrate the allocation of PSUs, RSUs and stock options in a manner that is supported by practices observed among Endo’s Pay Comparator Companies, but also to motivate management through a balanced approach aimed at enhancing realized value opportunities for Endo’s executives, while creating and preserving shareholder value. Each NEO, including Mr. Campanelli, received an equally weighted allocation of PSUs, RSUs and stock options during the 2017 annual grant cycle, each award accounting for one-third of the NEO’s overall LTI value. Considering that Mr. Campanelli has a sizable personal investment in the success of Endo, the Compensation Committee strongly believes the approved LTI equity mix is appropriate. Please reference the “Individual Compensation Determination” section for additional information regarding Mr. Campanelli’s LTI recommendation.

 

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The equity-based LTI compensation target for each named executive officer related to 2016, to be granted in early 2017, is reflected in the graph below.

 

LOGO

Note: LTI for Paul V. Campanelli determined at the

discretion of the Compensation Committee

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

 

Development of a long-term vision for the Company and the successful execution of the overall business strategy   Strengthening the balance sheet by effectively managing capital and cash flow conversion
Focus on operational execution and the achievement of operating objectives and overall financial performance   Progress in the development and expansion of the Company’s product portfolio and pipeline
Success in forging the Company for long-term sustainable revenue and profitability growth   Advancement of the Company’s performance-oriented culture and efficient operating model
Achievement of quality and compliance objectives   Relative shareholder value creation and preservation

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

Discretion. Mr. Campanelli’s employment agreement did not prescribe a specific LTI target but instead provided that his LTI compensation would be determined at the sole discretion of the Compensation 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 Compensation Committee by the CEO and approved by the Compensation Committee). The Compensation 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 NEOs’ employment agreements, target LTI as a percentage of annual base salary may subsequently be increased at the discretion of the Compensation Committee. Please reference the “Individual Compensation Determination” section for approved target LTI changes.

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

In February 2016, the Compensation Committee approved modifications to the PSU program, effective with the 2016 grants to eligible Vice President-level and above positions, including the Company’s NEOs. To better align the program with the program’s objectives, including alignment with competitive practices and the Company’s focus on increasing shareholder value, the Committee approved the implementation of a single performance measure based on relative three-year TSR performance with maximum award levels also dependent upon Endo achieving 20% annual share price CAGR over the three-year performance period. The number of PSUs awarded to each executive is based on a targeted percentage of the executive’s base salary with the actual number of shares awarded adjusted to between zero and 300% of the target award amount depending upon achievement of the pre-determined TSR performance goals.

 

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Holders of PSUs will be entitled to receive a number of shares of the Company equal to a multiple of the award based on the Company’s TSR relative to the TSR of a custom index of companies. The custom index utilized for the 2016 grant is initially comprised of a statistically meaningful group of forty pharmaceutical companies, which include companies in the New York Stock Exchange ARCA Pharmaceutical Index, Endo’s Pay Comparator Companies, and other specialty pharmaceutical companies. For purposes of determining the final relative TSR performance measurement, each company in the custom index will be included only if they are publicly-traded at both the beginning and end of the performance period. Under the new design, the PSU awards will not vest unless the three-year TSR results reach the 40th percentile minimum threshold, while the maximum attainment multiple of 3x can only be achieved if the Company’s percentile rankings is at or above the 90th percentile, and the annual share price CAGR is at least 20% 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 2016 annual awards began on February 23, 2016 and ends on February 23, 2019, and will be assessed at the end of the performance cycle based on a beginning Per Share Price of $53.81. Payouts with respect to these PSUs, if any, will be made in ordinary shares of the Company once the performance attainment levels have been approved by the Compensation Committee, following the end of the three-year performance cycle and are therefore not eligible for earlier acceleration of vesting if target TSR attainment levels are achieved prior to the end of the three-year performance cycle. In determining the extent to which the pre-set performance measures are met for a given period, the Compensation Committee may exercise its judgment whether to reflect or exclude the impact of changes in accounting principles and unusual or infrequently occurring events reported in the Company’s public filings. The determination of TSR, and CAGR performance, if applicable, will be made at the sole discretion of the Compensation Committee. The Committee also has discretion to accelerate the vesting of all or a portion of a participant’s PSU based upon the overall performance of the Company and/or the participant, or based upon any change in business conditions, provided that the exercise of such discretion would not cause a PSU that would otherwise be deductible as “performance-based” compensation within the meaning of Section 162(m) of the Internal Revenue Code to become non-deductible.

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

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

“CAGR” means the compounded annual growth rate of the Company’s ordinary shares, which will be determined based on the appreciation of the Per Share Price during the performance period, plus any dividends paid on the shares during the performance period. The determination of the three-year CAGR attainment levels will be made by the Compensation Committee following an independent third-party confirmation of the results.

 

 

LOGO

In February 2017, the Compensation Committee approved further modifications to the PSU program, effective with the 2017 grants, to eligible Vice President-level and above positions, including the Company’s NEOs. The plan will be based upon two discreet measures, relative TSR performance and adjusted free cash flow. The addition of a new free cash flow performance metric, which accounts for 50% of the PSU award at grant, demonstrates its importance to the success and sustainability of the Company and will be measured annually over the performance cycle which spans over a three-year period. The remaining

 

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50% of the PSU award is tied exclusively to relative TSR performance which will be measured against the three-year TSR of the custom index of companies. In addition to meeting the performance conditions required by both the TSR and free cash flow portions of the awards, grant recipients are also subject to being employed by the Company following the completion of the three-year performance period in order to receive the awards. The changes to the PSU program were implemented to further align the program with the Company’s long-term priorities.

The number of PSUs awarded to each executive continues to be based on a targeted percentage of the executive’s base salary, with the actual number of shares awarded adjusted based on relative TSR and free cash flow performance. Effective with the 2017 awards, PSU awards will be adjusted between zero and 200% of the target award amount (reduced from the previous award opportunity of 300% of the target award for previous plan years) dependent upon achievement of the pre-determined relative TSR & free cash flow performance goals. The performance schedule for the new 2017 awards is shown in the charts below:

 

 

LOGO   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 have generally vested ratably over four years, with 2017 RSUs vesting ratably over a three-year period.

Stock Options. Stock options represent the third element of our equity-based LTI compensation package, and are designed to reward NEOs only if the share price increases. The LTI program calls for stock options to be granted with exercise prices of not less than the closing price of our shares as quoted on the Nasdaq on the date of grant and generally to vest ratably over four years. The Compensation 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.

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

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

 

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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. In an effort to proactively manage share utilization levels in 2017, LTCI awards were granted to eligible middle-management and professional level employees. LTCI awards vest ratably over a three-year period, can only be settled in cash and are tied to the value of Endo stock at the time of vesting. Key dilution metrics such as burn rate and overhang are regularly evaluated against external benchmarks, but also considered in the context of the Company’s current business environment.

 

LOGO

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

   

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

   

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

   

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

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

2016 Decisions Regarding Equity-Based LTI Program. In 2016, the Compensation Committee awarded LTI compensation for NEOs pursuant to the program described above resulting in the awards of PSUs, RSUs, and stock options identified in the Summary Compensation Table and the 2016 Grants of Plan-Based Awards Table. For grants awarded in 2017 based on 2016 performance, the Compensation 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.

 

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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 individuals subject to the Ownership Guidelines are in compliance with the established guidelines.

Periodic Review

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

Individual Compensation Determination

Under our compensation structure, the mix of base salary, annual cash incentive compensation and equity-based LTI compensation varies depending on each named executive officer’s level. Annual compensation determinations by the Compensation Committee are based on factors including the Company’s performance, individual performance, and the competitiveness of each NEO’s pay as reported by the Compensation Committee’s consultant, Korn Ferry Hay Group. The Compensation Committee made no decision in 2017 with respect to Messrs. De Silva, Varghese and Lortie, whose 2016 compensation is governed by their separation agreements, which provide for annual compensation based on actual Company performance as measured against the Company’s original operating plan targets (on a pro rata basis for Messrs. De Silva and Lortie who left the Company prior to December 31, 2016). Mr. Upadhyay was not eligible for a 2016 bonus per the terms of his employment agreement. The following summarizes the compensation decisions made in 2017 by the Compensation Committee for the named executive officers based on 2016 performance:

 

Name  

Base Salary as

of

December 31,

2016

    2016 Annual
Incentive
Compensation
Target
    2016 Annual
Incentive
Compensation
Actual
    2016 Long-Term
Equity Incentive
Compensation
Target
   

2016 Long-

Term Equity
Incentive
Compensation
Expected Target

Value (1)

 

Paul V. Campanelli

  $             950,000     $             950,000     $             712,500       Committee Discretion     $               9,000,000  

Blaise Coleman

  $ 525,000     $ 288,750     $ 216,563     $               1,312,500     $ 1,312,500  

Joseph J. Ciaffoni

  $ 575,000     $ 345,000     $ 207,000     $ 1,437,500     $  

Terrance J. Coughlin

  $ 600,000     $ 420,000     $ 315,000     $ 1,800,000     $ 2,250,000  

Matthew J. Maletta

  $ 510,000     $ 280,500     $ 210,375     $ 1,275,000     $ 1,275,000  

 

(1)

Award levels established at the time of grant are based on the grant expected target value which is derived from Endo’s closing stock price at the time of grant for RSUs and PSUs and the Black-Scholes valuation model for options (see Summary Compensation Table’s footnote (1) on page 50 for details regarding LTI valuations under ASC 718 for accounting and proxy reporting purposes).

Each named executive officer’s target percentage and actual number of PSUs, RSUs and stock options granted in 2017, based on 2016 performance, were as follows:

 

Name   LTI Target % of
Base Salary
    PSUs Actually
Granted
    RSUs Actually
Granted
    Options Actually
Granted
 

Paul V. Campanelli

    Committee Discretion                               227,445       227,445       510,204  

Blaise Coleman

                250%                   33,169                                  33,169                                  74,404  

Joseph J. Ciaffoni

    250%                    

Terrance J. Coughlin

    300%       56,861       56,861       127,551  

Matthew J. Maletta

    250%       32,221       32,221       72,278  

 

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Paul V. Campanelli

President and Chief Executive Officer

 

 

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

 

The Committee’s assessment of Mr. Campanelli’s performance was based on the successful development and advancement of Endo’s strategic imperatives, the Company’s overall financial results, and the achievement of operating performance objectives. Mr. Campanelli’s performance was evaluated based upon the Company’s overall financial performance and the achievement of annual operating objectives in place at the time of his appointment as President and Chief Executive Officer on September 23, 2016. Specifically, the Committee strongly considered the Company’s financial and operating objectives as summarized in the Compensation Discussion & Analysis “Executive Summary” and further detailed within the “Performance-Based Annual Cash Incentive Compensation” section. In addition, the Committee considered Mr. Campanelli’s performance based upon his successful transition into the CEO role, the progress made in beginning the transformation of Endo with the completion of a new management structure, the advancements achieved progressing the Company’s growth assets, and the implementation of a more efficient cost structure and operating model. In aggregate, the Committee assessed Mr. Campanelli’s individual contributions prior to his selection as President and Chief Executive Officer in late September as well as his accomplishments is his new role after his appointment to CEO.

 

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 performance-based compensation, Mr. Campanelli’s annual base salary compensation remained unchanged at $950,000. The Compensation Committee also assessed Mr. Campanelli’s achievement against the Company’s annual pre-established and formulaic objectives, while operating within the structure of Endo’s Internal Revenue Code Section 162(m) compliant annual incentive compensation program, which allows for a maximum bonus equal to 225% of the target bonus amount and the use of negative Committee discretion based on actual performance. While the outcome of the Company scorecard assessment produced an annual incentive payout equal to 86.3% of the target award amount, the Compensation Committee exercised negative discretion and implemented a capped bonus payout of 75% of the target bonus for Mr. Campanelli and all NEOs in light of the Company’s financial performance and market challenges confronted in 2016. The Compensation Committee used negative discretion under these circumstances to support the Company’s commitment to its pay-for-performance philosophy. Specific to Mr. Campanelli, in recognition of his leadership and contributions in 2016, the Compensation Committee approved an annual incentive compensation payment equal to 75% of Mr. Campanelli’s target bonus.

 

 

 

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

 

LOGO

 

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

 

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Paul V. Campanelli

President and Chief Executive Officer (continued)

 

 

Mr. Campanelli’s performance in 2016 was assessed by the Committee based on a collective group of factors focused on strategic, financial and operational strategic results, which drives the Company’s future success as a highly focused generics and specialty branded pharmaceutical company. Based on Korn Ferry Hay Group’s analysis of competitive LTI levels, and in consideration of Mr. Campanelli’s performance, which was also based on his individual contributions prior to his appointment as President and Chief Executive Officer in late September, Mr. Campanelli was granted an equity-based award with an expected target value equal to approximately $9.0 million, based on Endo’s closing stock price at the time of grant for PSUs and RSUs and the Black-Scholes valuation model for options. The award is highly consistent with median actual LTI levels awarded by Endo’s Pay Comparator Companies (see Summary Compensation Table’s footnote (1) on page 50 for details regarding LTI valuations under ASC 718 for accounting and proxy reporting purposes).

 

Consistent with Endo’s other NEOs, Mr. Campanelli’s equity award was issued in the form of RSUs equal to one-third of Mr. Campanelli’s total LTI award, and performance-based equity consisting of one-third PSUs and one-third stock options, with any realizable value dependent upon the delivery of shareholder value. In addition to Company awarded equity as part of annual compensation, 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 (15%) percent 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. Considering the fact that 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 [X]x base salary as of April 13, 2017), the Compensation Committee strongly believes the approved LTI equity mix and use of RSUs is appropriate. This grant was approved in recognition of Mr. Campanelli’s overall performance relative, but not limited to, the following factors adopted by the Committee for all applicable NEO LTI assessments:

 

 

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

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

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

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

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

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

Achievement of quality and compliance objectives

   Relative shareholder value creation and preservation
 

 

Mr. Campanelli’s equity-based award allows his total Direct Compensation levels and pay mix to be highly consistent with practices observed among CEOs of both Endo’s Pay Comparator Companies and ISS Peer Group (2017 total Direct Compensation levels ranked at approximately the 25th and 50th percentiles, respectively). Mr. Campanelli’s 2017 pay structure supports the Company’s pay-for-performance compensation philosophy in that only 9% of Mr. Campanelli’s total Direct Compensation is fixed while 91% is dependent upon performance.

 

LOGO

 

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Blaise Coleman

Executive Vice President and Chief Financial Officer

 

 

Mr. Coleman serves as Executive Vice President and Chief Financial Officer and also oversees information technology. Mr. Coleman was appointed to the role of Interim Chief Financial Officer on November 22, 2016, and later announced as the Company’s new Executive Vice President and Chief Financial Officer on December 19, 2016. Mr. Coleman has broad-based leadership skills, financial expertise and business acumen related to strategic and financial matters. For 2016, the Company ended the year with adjusted revenue of $4.013 billion from continuing operations and adjusted diluted EPS from continuing operations of $4.73. Throughout 2016, Mr. Coleman played a key leadership role in executing Endo’s strategic priorities, including the advancement of the Company’s 2017 strategy and operational priorities, significant progress in reshaping the operating model of the Company with the goal of investing in the Company’s growth assets and optimizing the business cost structure. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Coleman’s pay related to Endo’s Pay Comparator Companies, and in recognition of Mr. Coleman’s 2016 performance, which was also based on his individual contributions prior to his appointment as Chief Financial Officer in late December, the Committee approved a merit increase to base salary of 4.8% effective March 1, 2017. In consideration of Mr. Coleman’s contributions before and after his recent appointment as the Company’s new Chief Financial Officer on December 19, 2016, and the Company’s performance against the 2016 scorecard objectives as noted on page 38, Mr. Coleman was awarded an annual performance-based bonus equal to 75% of his annual incentive compensation target. Based on the performance factors noted on page 40, Mr. Coleman was also awarded an equity-based award equal to 100% of his LTI target.

 

 

 

Joseph J. Ciaffoni

President, U.S. Branded Pharmaceuticals

 

 

Until December 31, 2016, Mr. Ciaffoni served as President, U.S. Branded Pharmaceuticals after joining Endo on August 15, 2016. Prior to joining Endo, Mr. Ciaffoni served as Senior Vice President, Global Specialty Medicines Group for Biogen, where he led the development and execution of all aspects of global strategy across the value chain for marketed and pipeline products. Since joining Endo, Mr. Ciaffoni was responsible for leading the Company’s U.S. Branded Pharmaceuticals business, which offers an extensive range of specialty products in the areas of pain management, urology, orthopedics and endocrinology. In 2016, Mr. Ciaffoni was instrumental in finalizing the agreement with BioDelivery Sciences International, Inc. (BDSI), to return the BELBUCA™ (buprenorphine) buccal film product to BDSI resulting in approximately $90 to $100 million in annual run rate pre-tax gross cost savings in 2017. Mr. Ciaffoni’s employment agreement provided that the Committee would award him a prorated annual performance-based bonus equal to approximately 60% of his current annual incentive compensation target, subject to the attainment of minimum net income targets established by the Committee, and Mr. Ciaffoni’s continued employment through December 31, 2016. On December 21, 2016, the Company announced that Mr. Ciaffoni had elected to leave Endo to pursue other opportunities.

 

 

 

Terrance J. Coughlin

Executive Vice President and Chief Operating Officer

 

 

Mr. Coughlin serves as Endo’s Executive Vice President and Chief Operating Officer with responsibility for global research & development and worldwide manufacturing. Mr. Coughlin was appointed as the Company’s new Executive Vice President and Chief Operating Officer on November 1, 2016, and previously 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 product development and supply operations. Throughout 2016, Mr. Coughlin played a key leadership role in executing Endo’s strategic priorities, exceeding the Company’s established goals for regulatory filings and new product launches, including two first to file generic entries. Following his appointment as the Company’s Chief Operating Officer, Mr. Coughlin led the implementation of Endo’s new enterprise-wide quality, manufacturing and research and development structures in support of the Company’s 2017 strategy and operational priorities. Based on individual performance and Company performance against 2016 scorecard objectives as noted on page 38, Mr. Coughlin was awarded an annual performance-based bonus equal to approximately 75% of his annual incentive compensation target. Based on the performance factors noted on page 40, Mr. Coughlin was also awarded an equity-based award equal to 125% of his LTI target.

 

 

 

Matthew J. Maletta

Executive Vice President, Chief Legal Officer

 

 

Mr. Maletta has served as the Company’s Executive Vice President, Chief Legal Officer since May 4, 2015. Mr. Maletta brings two decades of legal experience and organizational leadership in the specialty pharmaceutical industry and with private law firms, including extensive experience in M&A, corporate, securities, finance, commercial and employment law. Throughout 2016, Mr. Maletta has played a key leadership role in supporting the advancement of the Company’s strategy which included both legal and operational priorities. Mr. Maletta has led the Company’s product liability and litigation strategy, while providing advice on a wide range of significant legal and business matters, including product patent protection, regulatory matters, and corporate structure considerations. Based on Korn Ferry Hay Group’s analysis of the competitiveness of Mr. Maletta’s pay related to Endo’s Pay Comparator Companies, and in recognition of Mr. Maletta’s performance and contributions in 2016, the Committee approved a merit increase to base salary of 7.8%, effective March 1, 2017. Based on individual performance and Company performance against 2016 scorecard objectives as noted on page 38, Mr. Maletta was awarded an annual performance-based bonus equal to approximately 75% of his annual incentive compensation target. Based on the performance factors noted on page 40, Mr. Maletta was also awarded an equity-based award equal to 100% of his LTI target.

 

 

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Additional Compensation Components

The Company’s current practice is to limit use of perquisites. In 2016, other than as described below, the only perquisites provided to the NEOs were financial planning services, use of a Company car or car services and term life insurance.

Retirement Benefits

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

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

The amount in any individual’s 401(k) Restoration Plan account will be paid to such individual at termination of employment or following the elected specified payment date. Actual 401(k) Restoration Plan participation will begin when an executive’s total cash compensation exceeds the Internal Revenue Code earnings limit for the qualified 401(k) ($270,000 for 2017). Individuals who elect to defer their eligible pay under the 401(k) Restoration Plan will defer federal and state (to the extent allowed by state law) taxes until the account is paid to the individual.

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

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

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

Post-Termination Benefits

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

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

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

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

Each employment agreement sets forth the benefits to be received upon termination of employment by each of the respective named executive officers. If any of the named executive officers terminates his current employment agreement for good reason or if the Company terminates him without cause (each as defined in the respective employment agreement), the Company will (i) pay a prorated bonus for the year of termination (based on actual results), (ii) pay a lump sum equal to two times his then current salary and target incentive compensation for the year in which the termination is effective and (iii) continue to provide such named executive officer with medical and life insurance benefits for twenty-four (24) months. Pursuant to his new agreement, if Mr. Campanelli is terminated for other than cause or quits for good reason, then he will be entitled to accelerated vesting of initial stock options awarded to him on September 26, 2016 in connection with his appointment as President and Chief Executive Officer. Pursuant to his new agreement, if Mr. Campanelli is terminated other than for cause or quits for good reason within twenty-four (24) months of a change in control (as defined in his employment agreement), then he will be entitled to the same payments and benefits, except that severance will be calculated using a multiple of three times and his medical and life insurance benefits will continue for three years. Each named executive officer’s employment agreement contains restrictive covenants.

 

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

Other Compensation Practices and Policies

Tax Deductibility of Compensation

Section 162(m) of the Internal Revenue Code precludes a public corporation from taking a tax deduction for certain compensation in excess of $1.0 million in any one year paid to its Chief Executive Officer or any of its three other highest-paid executive officers (not including the Company’s Chief Financial Officer), unless certain specific and detailed criteria are satisfied. However, certain qualifying “performance-based” compensation (i.e., 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) is not subject to the $1.0 million deduction limit. While the Compensation Committee considers the applicable rules regarding deductibility when making awards, it reserves the right to make nondeductible payments when it deems appropriate.

Company Policy on Parachute Payments

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

Recovery of Compensation

In 2009, the Compensation Committee adopted a compensation recovery policy relating to repayment of cash incentive awards by an executive in the event of a restatement of the Company’s financial results.

Specifically, if the Company issues a restatement of its reported financial results, or if it is determined that there was executive misconduct in a prior period that impacted the financial results for that period, the Compensation Committee will determine whether the restatement was material, and if so, to what extent “covered payments” should be returned to the Company to the extent that such payments were overstated as a result of the change in financial condition. Restatements of financial results that are the direct result of changes in accounting standards will not result in recovery of covered payments.

“Covered payments” are those payments that are eligible to be recovered by the Company under this policy including, without limitation, policies adopted to comply with applicable law, and include cash incentives paid to the NEOs for performance during the restated fiscal year(s). In addition, the Compensation Committee reserves the discretion to recover covered payments from other Company senior management employees, including all vice presidents and above, if the Compensation Committee deems it appropriate.

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, 2016.

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

Members of the Compensation Committee:

William P. Montague (Chairman)

Arthur J. Higgins (Member)

Michael Hyatt (Member)

Douglas S. Ingram (Member)

William F. Spengler (Alternate)

 

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Compensation of Executive Officers and Directors

Summary Compensation Table

The following table sets forth the cash and non-cash compensation paid to or earned by our current President and Chief Executive Officer, current Executive Vice President and Chief Financial Officer and the other three most highly compensated executive officers of the Company who were serving as executive officers at the end of the last completed fiscal year (collectively, the NEOs) for the years ending December 31, 2016, 2015 and 2014. The table also makes reference to, and includes compensation details for “Former Named Executive Officers,” including our former President and Chief Executive Officer, former Executive Vice President and Chief Financial Officer and two additional former executive officers of the Company required to be included based on their compensation. For a complete understanding of the table, please read the footnotes and narrative disclosures that follow the table.

 

Name and Principal Position   Year     Salary ($)     Bonus
($)
    Share
Awards
($)(1)
    Option
Awards
($)(1)
    Non-Equity
Incentive Plan
Compensation
($)(2)
    All Other
Compensation
($)(3)
    Total ($)  
Current (as of 12/31/16) Named Executive Officers:                                

  Paul V. Campanelli (4)

    2016     $ 987,038     $     $ 2,179,571     $   4,590,794     $ 712,500     $ 23,007     $ 8,492,910  

  President and Chief Executive

  Officer

    2015     $ 272,376     $     $ 3,664,071     $ 949,733     $   1,064,000     $ 3,977     $ 5,954,157  

  Blaise Coleman

  Executive Vice President and

  Chief Financial Officer

    2016     $ 349,308     $ 100,000     $ 291,038     $ 190,191     $ 216,563     $ 10,819     $ 1,157,919  

  Joseph J. Ciaffoni

  President, U.S. Branded

  Pharmaceuticals

    2016     $ 217,837     $   250,000     $   2,003,490     $ 400,090     $ 207,000     $ 1,944,150     $ 5,022,567  

  Terrance J. Coughlin

  Executive Vice President and

  Chief Operating Officer

    2016     $ 556,280     $     $ 951,113     $ 258,306     $ 315,000     $ 8,292     $ 2,088,991  

  Matthew J. Maletta

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

  Executive Vice President, Chief

  Legal Officer

    2015     $ 322,148     $     $ 1,466,873     $ 628,989     $ 338,894     $ 88,667     $ 2,845,571  
Former Named Executive Officers:                                

  Rajiv De Silva (5)

  President and Chief Executive

  Officer

    2016     $ 840,337     $     $ 10,016,368     $ 2,492,313     $ 220,953     $ 5,606,505     $ 19,176,476  
    2015     $   1,145,833     $     $ 6,104,449     $ 1,969,160     $ 1,687,110     $ 8,173     $ 10,914,725  
    2014     $ 1,079,167     $     $ 3,623,783     $ 1,822,746     $ 2,819,608     $   12,726,292     $   22,071,596  

  Suketu P. Upadhyay (5)

  Executive Vice President and

  Chief Financial Officer

    2016     $ 581,555     $     $ 5,886,668     $ 1,519,050     $     $ 140,998     $ 8,128,271  
    2015     $ 625,000     $     $ 2,406,241     $ 750,057     $ 486,936     $ 221,547     $ 4,489,781  
    2014     $ 595,833     $ 240,000     $ 1,470,210     $ 402,488     $ 708,840     $ 2,182,270     $ 5,599,641  

  Hemanth J. Varghese (5)

  President, International

  Pharmaceuticals and Executive

  Vice President of Corporate

  Development

    2016     $ 544,333     $     $ 1,657,397     $ 450,109     $ 264,825     $ 2,781,998     $ 5,698,662  

  Brian Lortie (5)

  President, U.S. Branded

  Pharmaceuticals

    2016     $ 363,250     $     $ 784,636     $ 213,090     $ 42,225     $ 1,642,829     $ 3,046,030  

 

  (1)

The amounts shown in this column represent the grant date fair value of the awards determined in accordance with ASC 718. Option awards are valued using a Black-Scholes valuation model. RSUs are valued based on the closing price of Endo’s ordinary shares on the date of grant. PSUs are valued using a Monte-Carlo variant valuation model, which considered a variety of potential future share prices for Endo as well as our peer companies in a selected market index. See further discussion of the provisions of our PSUs in the “Performance Share Units” section above. 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 2016, 2015 and 2014 for the assumptions we used in valuing and expensing these awards in accordance with ASC 718.

  (2)

The amounts shown in this column represent cash amounts earned pursuant to the Company’s annual incentive compensation program with respect to 2016, 2015 and 2014 performance, respectively. These amounts were awarded by the Committee on February 21, 2017, February 23, 2016 and February 24, 2015, respectively.

 

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  (3)

The amounts shown in this column for 2016 include the items summarized in the table below:

 

Name  

Perquisites

& Other

Personal

Benefits (a)

   

Registrant
Contributions to
Defined
Contribution

Plans (b)

    Life Insurance
Premiums (c)
    Other (d)     Total  

Paul V. Campanelli

  $ 11,855     $ 7,950     $ 3,202     $     $ 23,007  

Blaise Coleman

  $     $ 10,250     $ 569     $     $ 10,819  

Joseph J. Ciaffoni

  $ 82,632     $     $ 315     $ 1,861,203     $ 1,944,150  

Terrance J. Coughlin

  $     $ 7,950     $ 342     $     $ 8,292  

Matthew J. Maletta

  $ 20,447     $ 10,600     $ 840     $     $ 31,887  

Rajiv De Silva

  $ 16,250     $ 10,600     $ 840     $ 5,578,815     $ 5,606,505  

Suketu P. Upadhyay

  $ 13,743     $ 10,600     $ 770     $ 115,885     $ 140,998  

Hemanth J. Varghese

  $ 36,616     $     $ 840     $ 2,744,542     $ 2,781,998  

Brian Lortie

  $ 15,117     $ 10,600     $ 810     $ 1,616,302     $ 1,642,829  

 

  (a)

Mr. Campanelli received $11,355 for housing allowances and $500 for gym membership. Mr. Ciaffoni received $45,271 for housing allowances, $33,663 for relocation assistance and $3,698 in legal services. Mr. Maletta received $20,447 for financial planning services. Mr. De Silva received $16,250 in legal services. Mr. Upadhyay received $6,376 for financial planning services and $7,367 in legal services. Mr. Varghese received $27,886 for housing allowances and $8,730 in legal services. Mr. Lortie received $15,117 for financial planning services.

  (b)

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

  (c)

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

  (d)

Mr. Ciaffoni received severance payments equal to $1,840,000 and accrued vacation payout of $21,203. Mr. De Silva received severance payments equal to $5,197,500, accrued vacation payout of $248,769, a payment of $94,932 in lieu of 30-day contractual “Notice of Termination” per his employment agreement and health and welfare benefits of $37,614. Mr. Upadhyay received accrued vacation payout of $115,885. Per the terms of his separation agreement, Mr. Varghese received severance payments equal to $2,050,000, tax equalization benefits for services as an expatriate of $599,497, accrued vacation payout of $55,000 and health and welfare benefits of $40,045. Mr. Lortie received severance payments equal to $1,509,700, accrued vacation payout of $104,982 and health and welfare benefits of $1,620.

  (4)

During 2016, the Company took actions to transition certain employees, including Mr. Campanelli, from a bi-weekly payroll schedule which was paid on a lag, to a semi-monthly payroll schedule which reflects the current pay period. In connection with this change, Mr. Campanelli’s base salary earnings includes a one-time adjustment required to align his payroll schedule with the current pay period.

  (5)

For each of the Former Named Executive Officers, all option awards outstanding as of December 31, 2016 had no intrinsic value because the closing price of Endo’s ordinary shares was lower than the corresponding exercise prices. The option expiration dates for the Former Named Executive Officers are reflected in the table below under the heading “Outstanding Equity Awards at December 31, 2016.” The market values of their unvested share awards include $23,865 for Mr. Varghese, $127,099 for Mr. Lortie and no value for Messrs. De Silva and Upadhyay. The value attributable to the acceleration of awards upon their respective termination events includes $24,000 for Mr. Varghese, $155,498 for Mr. Lortie and no value for Messrs. De Silva and Upadhyay, each in accordance with the terms and provisions of their respective employment and/or separation agreements.

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

 

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2016 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, 2016.

 

Name       Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (2)
    Estimated Future Payouts Under
Equity Incentive Plan Awards (3)
    All Other
Stock
Awards
(number of
shares of
stock or
units)
(#)(4)
    All Other
Option
Awards
(number of
securities
underlying
options)
(#)(4)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
   

Grant Date
Fair Value
of Stock &
Option
Awards

($)(5)

 
  Grant
Date (1)
  Threshold
($)
   

Target

($)

    Maximum
($)(6)
    Threshold
(#)
    Target
(#)
    Maximum
(#)(7)
         

Current (as of 12/31/16) Named Executive Officers:

 

               

Paul V.

Campanelli

  23 Feb 16   $     $ 950,000     $ 2,137,500                               39,875     $ 50.22     $ 591,916  
  23 Feb 16   $     $     $             23,645       70,935                 $     $ 1,585,870  
  23 Feb 16   $     $     $                         11,822           $     $ 593,701  
  26 Sep 16   $     $     $                               429,645     $ 21.99     $ 3,998,878  

Blaise

Coleman

  23 Feb 16   $     $ 288,750     $ 649,688                               5,063     $ 50.22     $ 75,157  
  23 Feb 16   $     $     $             1,501       4,503                 $     $ 100,672  
    23 Feb 16   $     $     $                         1,501           $     $ 75,380  
    16 May 16   $     $     $                               20,246     $ 14.30     $ 115,034  
    16 May 16   $     $     $                         8,041           $     $ 114,986  

Joseph J.

Ciaffoni

  16 Aug 16   $     $ 345,000     $ 776,250                               41,972     $ 22.92     $ 400,090  
  16 Aug 16   $     $     $             34,904       104,712                 $     $ 1,603,490  
    16 Aug 16   $     $     $                         17,452           $     $ 400,000  

Terrance J.

Coughlin

  23 Feb 16   $     $ 420,000     $ 945,000                               17,401     $ 50.22     $ 258,306  
  23 Feb 16   $     $     $             10,318       30,954                 $     $ 692,028  
    23 Feb 16   $     $     $                         5,159           $     $ 259,085  

Matthew J.

Maletta

  23 Feb 16   $     $ 280,500     $ 631,125                               19,140     $ 50.22     $ 284,120  
  23 Feb 16   $     $     $             11,350       34,050                 $     $ 761,245  
    23 Feb 16   $     $     $                         5,675           $     $ 284,999  

Former Named Executive Officers:

 

               

Rajiv De

Silva

  23 Feb 16   $     $   1,443,750     $   3,248,438                               167,897     $ 50.22     $ 2,492,313  
  23 Feb 16   $     $     $             149,342       448,026                 $     $   10,016,368  

Suketu P.

Upadhyay

  23 Feb 16   $     $ 393,000     $ 884,250                               47,599     $ 50.22     $ 706,574  
  23 Feb 16   $     $     $             28,225       84,675                 $     $ 1,893,051  
    23 Feb 16   $     $     $                         14,112           $     $ 708,705  
    11 Aug 16   $     $     $                               84,900     $ 23.01     $ 812,476  
  11 Aug 16   $     $     $             35,310       105,930                 $     $ 1,659,923  
  11 Aug 16   $     $     $                         70,621           $     $ 1,624,989  

Hemanth J.

Varghese

  23 Feb 16   $     $ 330,000     $ 742,500                               30,322     $ 50.22     $ 450,109  
  23 Feb 16   $     $     $             17,980       53,940                 $     $ 1,205,919  
    23 Feb 16   $     $     $                         8,990           $     $ 451,478  

Brian

Lortie

  23 Feb 16   $     $ 267,850     $ 602,663                               14,355     $ 50.22     $ 213,090  
  23 Feb 16   $     $     $             8,512       25,536                 $     $ 570,900  
    23 Feb 16   $     $     $                         4,256           $     $ 213,736  

 

  (1)

The grant date of all awards is the date of the Board of Directors’ action in which such award is approved.

  (2)

The amounts shown in these columns represent the range of annual incentive compensation program payouts targeted for 2016 performance as described in the section titled “Performance-Based Annual Cash Incentive Compensation” in “Compensation Discussion and Analysis”, above. There is no threshold for this award. The bonus payment for 2016 performance has been made according to the metrics described and is shown in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation.”

 

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  (3)

The amounts shown in these columns represent the range of shares that may be released at the end of the three-year performance period applicable to our PSUs assuming achievement of the relevant performance objectives, as described in the section titled “Equity-Based Long-term Incentive Compensation” in “Compensation Discussion and Analysis”, above. There is no threshold for this award. The PSU awards granted in 2016 were made according to the metrics described and are included in the Summary Compensation Table in the column titled “Share Awards.” The PSUs granted on February 23, 2016 were based on the Company’s 2015 LTI compensation payout. On August 16, 2016, Mr. Ciaffoni received a special off-cycle PSU equity award at the commencement of his employment with Endo International plc. On August 11, 2016, Mr. Upadhyay received a discretionary PSU award in conjunction with the renewal of his employment agreement with the Company.

  (4)

The options and RSUs granted on February 23, 2016 as reflected in the table above were based on the Company’s 2015 LTI compensation payout. On May 16, 2016, Mr. Coleman was awarded a discretionary option and RSU award in recognition of his contributions to Endo International plc. On August 16, 2016, Mr. Ciaffoni received a special off-cycle option and RSU equity award at the commencement of his employment with Endo International plc. On September 26, 2016, Mr. Campanelli received a special off-cycle option equity award at the commencement of his appointment as President and Chief Executive Officer of the Company. On August 11, 2016, Mr. Upadhyay received a discretionary option and RSU award in conjunction with the renewal of his employment agreement with the Company.

The 2016 equity incentive grant was made in February 2017. The following table shows grant details for eligible NEOs:

 

Name   2016 Long-Term Equity
Incentive Compensation:
Number of Securities
Underlying Stock Options
(#)
    Exercise or Base Price of
Option Awards ($/Sh)(a)
    2016 Long-Term Equity
Incentive Compensation:
Restricted Stock Units
(RSU) and Performance
Share Units (PSU) (#)(b)
    Grant Date Fair Value of
RSU, PSU & Option Awards
($)(c)
 

Paul V. Campanelli

    510,204     $ 13.19       454,890     $ 8,461,706  

Blaise Coleman

    74,404     $ 13.19       66,338     $ 1,233,987  

Terrance J. Coughlin

    127,551     $ 13.19       113,722     $ 2,115,416  

Matthew J. Maletta

    72,278     $ 13.19       64,442     $ 1,198,722  

 

  (a)

The exercise price is equal to the closing price on the date of grant, which was February 21, 2017.

  (b)

The amounts shown in this column represent 50% PSUs and 50% RSUs for all individuals.

  (c)

The amounts shown in this column represent the grant date fair value of the awards determined in accordance with ASC 718. Option awards are valued using a Black-Scholes valuation model. RSUs are valued based on the closing price of Endo’s ordinary shares on the date of grant. The PSU grants reflected in this table include both market-based (TSR) and performance-based (adjusted free cash flow) measurement conditions. PSUs with TSR conditions are valued using a Monte-Carlo variant valuation model, while those with adjusted free cash flow conditions are valued taking into consideration the probability of achieving the specified performance goal. Because the PSUs with free cash flow conditions are measured against annual performance targets, and those performance targets with respect to the 2018 and 2019 annual performance periods have not yet been established, no fair value has been ascribed to the 2018 and 2019 annual performance periods in accordance with ASC 718.

  (5)

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

  (6)

For the current NEOs, the amounts shown in this column represent the maximum annual incentive compensation payout as approved by the Board.

  (7)

For the current NEOs, the amounts shown in this column represent the maximum number of shares related to our PSUs that could ultimately be released at the end of the three-year performance period.

See “Compensation Discussion and Analysis” above regarding the material terms, determining amounts payable, vesting schedule and other material conditions of these grants, including pages 40 to 42 summarizing performance conditions associated with Endo’s PSU awards.

 

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Outstanding Equity Awards at December 31, 2016

The following table summarizes the number of securities underlying outstanding plan awards for the NEOs at December 31, 2016:

 

     Option Awards     Stock Awards  
Name   Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(1)
   

Equity
Incentive

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

    Option
Exercise
Price
($/Sh)
    Option
Expiration Date
   

Number

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

    Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)(9)
   

Equity

Incentive
Plan Awards:
Number of
Unearned

Shares, Units
or Other
Rights That
Have Not
Vested (#)

    Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
($)(10)
 

Paul V.

Campanelli

          429,645           $ 21.99       26-Sep-2026           $           $  
          39,875           $ 50.22       23-Feb-2026           $           $  
      14,230       42,690           $ 61.82       28-Sep-2025           $           $  
                      $             23,347(2)     $ 384,525           $  
                      $                 $       129,111(2)     $ 2,126,458  

Blaise

Coleman

          20,246           $ 14.30       16-May-2026           $           $  
          5,063           $ 50.22       23-Feb-2026           $           $  
                      $             12,621(3)     $ 207,868           $  
                    $                 $       3,260(3)     $ 53,692  

Joseph J.

Ciaffoni

    27,982                 $ 22.92       31-Dec-2017           $           $  
                    $             11,635(4)     $ 191,628           $  

Terrance J.

Coughlin

          17,401           $ 50.22       23-Feb-2026           $           $  
    4,494       13,480           $ 61.82       28-Sep-2025           $           $  
                      $             13,298(5)     $ 219,018           $  
                      $                 $       29,523(5)     $ 486,244  

Matthew J.

Maletta

          19,140           $ 50.22       23-Feb-2026           $           $  
    4,349       13,045           $ 61.22       31-Dec-2025           $           $  
      3,351       10,052           $ 86.54       29-Apr-2025           $           $  
                      $             11,991(6)     $ 197,492           $  
                      $                 $       23,883(6)     $ 393,353  

Rajiv De

Silva

    21,312                 $ 85.25       22-Sep-2019           $           $  
    51,642                 $ 63.82       22-Sep-2019           $           $  
      135,899                 $ 30.42       22-Sep-2019           $           $  

Suketu P.

Upadhyay

    8,118                 $ 85.25       20-Feb-2017           $           $  
    9,453                 $ 79.33       20-Feb-2017           $           $  

Hemanth J.

Varghese

    3,247                 $ 85.25       31-Dec-2017           $           $  
    16,020                 $ 63.25       31-Dec-2017           $           $  
                      $             1,449(7)     $ 23,865           $  

Brian Lortie

    2,415                 $ 85.25       30-Sep-2018           $           $  
      3,171                 $ 79.33       30-Sep-2018           $           $  
      6,450                 $ 30.80       30-Sep-2018           $           $  
      10,945                 $ 34.70       30-Sep-2018           $           $  
      11,098                 $ 33.98       30-Sep-2018           $           $  
      15,427                 $ 20.61       30-Sep-2018           $           $  
      32,521                 $ 18.62       30-Sep-2018           $           $  
                      $             7,717(8)     $ 127,099           $  

 

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Table of Contents
  (1)

The vesting dates of each non-fully vested option grant are listed in the table below by expiration date:

 

Expiration Date   Vesting Date   Expiration Date   Vesting Date

26-Sep-2026

 

33% on September 26, 2017

 

31-Dec-2025

 

25% on December 31, 2016

   

33% on September 26, 2018

   

25% on December 31, 2017

   

33% on September 26, 2019

   

25% on December 31, 2018

       

25% on December 31, 2019

16-May-2026

 

33% on May 16, 2017

 

28-Sep-2025

 

25% on September 28, 2016

   

33% on May 16, 2018

   

25% on September 28, 2017

   

33% on May 16, 2019

   

25% on September 28, 2018

       

25% on September 28, 2019

23-Feb-2026

 

25% on February 23, 2017

 

29-Apr-2025

 

25% on April 29, 2016

   

25% on February 23, 2018

   

25% on April 29, 2017

   

25% on February 23, 2019

   

25% on April 29, 2018

   

25% on February 23, 2020

     

25% on April 29, 2019

 

  (2)

These amounts are comprised of 11,525 RSUs granted on September 28, 2015 and 11,822 RSUs granted on February 23, 2016 (both of which vest ratably over a four-year period on each of the first, second, third and fourth anniversaries of the date of grant); and 30,734 PSUs granted on September 28, 2015, 72,632 PSUs granted on November 3, 2015, 2,100 PSUs granted on November 11, 2015 and 23,645 PSUs granted on February 23, 2016 (all of which vest on the third anniversary of the date of grant).

  (3)

These amounts are comprised of 3,079 RSUs granted on January 28, 2015 (which vest ratably over a two-year period on each of the first and second anniversaries of the date of grant), 1,501 RSUs granted on February 23, 2016 (which vest ratably over a four-year period on each of the first, second, third and fourth anniversaries of the date of grant) and 8,041 RSUs granted on May 16, 2016 (which vest ratably over a three-year period on each of the first, second and third anniversaries of the date of grant); and 1,759 PSUs granted on February 24, 2015 and 1,501 PSUs granted on February 23, 2016 (both of which vest on the third anniversary of the date of grant).

  (4)

This amount is comprised of 11,635 RSUs granted on August 16, 2016. The vesting of these RSUs was accelerated as part of Mr. Ciaffoni’s termination from the Company, effective December 31, 2016, and will be released to Mr. Ciaffoni six months from his termination date of December 31, 2016.

  (5)

These amounts are comprised of 8,139 RSUs granted on September 28, 2015 and 5,159 RSUs granted on February 23, 2016 (both of which vest ratably over a four-year period on each of the first, second, third and fourth anniversaries of the date of grant); and 9,705 PSUs granted on September 28, 2015, 9,500 PSUs granted on November 10, 2015 and 10,318 PSUs granted on February 23, 2016 (all of which vest on the third anniversary of the date of grant).

  (6)

These amounts are comprised of 2,708 RSUs granted on April 29, 2015, 3,608 RSUs granted on December 31, 2015 and 5,675 RSUs granted on February 23, 2016 (all of which vest ratably over a four-year period on each of the first, second, third and fourth anniversaries of the date of grant); and 7,222 PSUs granted on April 29, 2015, 500 PSUs granted on November 11, 2015, 4,811 PSUs granted on December 31, 2015 and 11,350 PSUs granted on February 23, 2016 (all of which vest on the third anniversary of the date of grant).

  (7)

This amount is comprised of 1,449 RSUs granted on April 29, 2014. The vesting of these RSUs was accelerated as part of Mr. Varghese’s termination from the Company, effective December 31, 2016, and will be released to Mr. Varghese six months from his termination date of December 31, 2016.

  (8)

This amount is comprised of 649 RSUs granted on February 27, 2013, 850 RSUs granted on February 26, 2014, 1,962 RSUs granted on February 24, 2015 and 4,256 RSUs granted on February 23, 2016. The vesting of these RSUs was accelerated as part of Mr. Lortie’s termination from the Company, effective September 30, 2016, and were released to Mr. Lortie six months from his termination date of September 30, 2016.

  (9)

Value calculated by multiplying the number of unvested units by the closing price of $16.47 per share on December 31, 2016.

  (10)

Value calculated by multiplying the number of unvested units by the closing price of $16.47 per share on December 31, 2016. The values shown in this column are based on the number of units that would be earned at target performance. These amounts could range from zero to three times the amounts listed in this column depending on performance in relation to the terms of the PSUs, which are discussed in detail above the section titled “Equity-Based Long-term Incentive Compensation” in the “Compensation Discussion and Analysis.”

 

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Table of Contents

Option Exercises and Stock Vested in 2016

The following table summarizes the stock option exercises by the NEOs and share vestings during the year ended December 31, 2016.

 

     Option Awards     Stock Awards  
Name   Number of Shares
Acquired on Exercise (#)
    Value Realized on
Exercise ($)(1)
    Number of Shares
Acquired on Vesting (#)
    Value Realized on Vesting
($)(2)
 

Paul V. Campanelli

        $       3,842     $ 85,907  

Blaise Coleman

        $       3,079     $ 169,191  

Joseph J. Ciaffoni (3)

        $       11,635     $ 191,628  

Terrance J. Coughlin

        $       2,713     $ 60,663  

Matthew J. Maletta

        $       2,106     $ 44,194  

Rajiv De Silva

        $       198,606     $ 7,591,822  

Suketu P. Upadhyay

        $       8,607     $ 299,573  

Hemanth J. Varghese (4)

        $       3,778     $ 107,886  

Brian Lortie (5)

        $       18,063     $ 629,105  

 

  (1)

Amounts in this column generally are calculated by determining the difference between the market price of the underlying securities at exercise and the exercise price of the options and then multiplying that amount by the number of options exercised.

  (2)

Amounts in this column were calculated by determining the market price of the underlying securities on the vesting date and multiplying this amount by the number of awards vested.

  (3)

Mr. Ciaffoni was granted 11,635 RSUs on August 16, 2016. The vesting of these RSUs was accelerated as part of Mr. Ciaffoni’s termination from the Company, effective December 31, 2016, and will be released to Mr. Ciaffoni six months from his termination date.

  (4)

Mr. Varghese was granted 1,449 RSUs granted on April 29, 2014. The vesting of these RSUs was accelerated as part of Mr. Varghese’s termination from the Company, effective December 31, 2016, and will be released to Mr. Varghese six months from his termination date.

  (5)

Mr. Lortie was granted 649 RSUs granted on February 27, 2013, 850 RSUs granted on February 26, 2014, 1,962 RSUs granted on February 24, 2015 and 4,256 RSUs granted on February 23, 2016. The vesting of these RSUs was accelerated as part of Mr. Lortie’s termination from the Company, effective September 30, 2016, and were released to Mr. Lortie six months from his termination date.

 

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Table of Contents

2016 Non-Qualified Deferred Compensation

The following table summarizes deferral activity during 2016 and account balances in our non-qualified savings and deferral plans for our NEOs. These plans include the 401(k) Restoration Plan and Executive Deferred Compensation Plan, and are available to employees who satisfy certain eligibility requirements, including the NEOs. The 401(k) Restoration and Executive Deferred Compensation Plans are non-qualified under the Internal Revenue Code and do not provide for guaranteed returns of Plan contributions. Under the 401(k) Restoration Plan, NEOs may defer eligible pay after their compensation has exceeded the earnings maximum in the Company’s 401(k) Plan. Under the Executive Deferred Compensation Plan, NEOs may defer up to 100% of the portion of the following year’s LTI compensation that is in the form of RSUs, and up to 50% of the annual incentive compensation award. See “Compensation Discussion and Analysis” above for additional detail on the 401(k) Restoration and Executive Deferred Compensation Plans.

 

Name   Executive
Contributions in
2016 ($)(1)
    Registrant
Contributions in
2016 ($)(2)
    Aggregate
Earnings in 2016
($)(3)
    Aggregate
Withdrawals /
Distributions ($)
    Aggregate Balance
at December 31,
2016 ($)(4)
 

Paul V. Campanelli

  $     $     $     $     $  

Blaise Coleman

  $     $           $     $  

Joseph J. Ciaffoni

  $     $     $     $     $  

Terrance J. Coughlin

  $     $     $     $