UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
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| Preliminary Proxy Statement | ☐ | Confidential, For Use of the Commission Only (as permitted by Rule14a-6(e)(2)) | ||||
| Definitive Proxy Statement | ||||||
| ☐ | Definitive Additional Materials | |||||
| ☐ | Soliciting Material under§240.14a-12 |
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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From Our Chairman of the Board |
Dear Shareholder,
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Dr. Sol J. Barer |
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We
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Although our independent compliance monitor period has ended, our commitment to compliance and good corporate governance is steadfast, from the Board of Directors and its committees through all levels of the organization. A strong emphasis on compliance as part of Teva’s This year Teva published a global economic impact report, showing the billions of dollars saved by our affordable generic medicines. In 2018, Teva’s generic medicines were responsible for Teva believes it has a responsibility as a corporate citizen to play a constructive role along with other stakeholders in addressing the opioid crisis across the United States. Toward the close of 2019, the Board published a report on opioid-related governance measures taken by Teva, in response to feedback from our shareholders that opioid-related risks deserve greater attention from the healthcare industry. We continue to engage with investors on this subject and have settled some initial opioid trials. The legal team is working intensely toward a framework aimed at resolving the remaining litigation in a manner that will truly benefit and improve the lives of people suffering from opioid addiction.
We I would like to personally thank Teva’s many dedicated employees for their
On behalf of the Board of Directors and the management team, we thank you, our shareholders, for your faith and belief in Teva. We would not be able to execute on our important mission without your | ||||||
Sincerely,
Dr. Sol J. Barer Chairman of the Board of Directors April | ||||||
Preliminary Notice of 20182020 Annual Meeting of Shareholders
| DATE AND TIME: | Tuesday, June | |
| PLACE: | Teva’s executive offices at 5 Basel Street Petach Tikva, 4951033 Israel | |
| ITEMS OF BUSINESS: | Proposal 1: To appoint the following persons to the Board of Directors:
Proposal 2: To approve, on anon-binding advisory basis, the compensation for Teva’s named executive officers.
Proposal 3: To
Proposal Proposal 5:To approve an amendment to Teva’s Articles of Association. Proposal 6: To appoint Kesselman & Kesselman, a member of PricewaterhouseCoopers International Ltd., as Teva’s independent registered public accounting firm until
In addition, shareholders will consider Teva’s annual consolidated financial statements for the year ended December 31,
The Board of Directors recommends that you vote FOR
Teva urges all of its shareholders to review its annual report (“Annual Report”) onForm10-K for the year ended December 31, | |
| PRELIMINARY NOTICE UNDER ISRAELI LAW: | This notice serves as a preliminary notice regarding our 2020 annual meeting of shareholders, pursuant to Section 5C of the Israeli Companies Regulations (Notice and Announcement of a General Meeting and a Class Meeting in Public Company and Adding Subjects to the Agenda), 5760-2000. One or more shareholders holding 1% or more of the voting rights of Teva may propose to include any matter appropriate for deliberation at the Annual Meeting by submitting a written proposal within fourteen days of the publication of this preliminary notice,i.e., no later than April 2, 2020, to Teva’s executive offices located at 5 Basel Street, P.O. Box 3190, Petach Tikva 4951033, Israel, Attn: Dov Bergwerk, Company Secretary. Any such shareholder proposal must comply with the requirements of applicable law and our Articles of Association. | |
| RECORD DATE: | Only holders of ordinary shares (or American Depositary Shares representing such ordinary shares) of record at the close of business onApril | |
By Order of the Board of Directors,
Dov Bergwerk
Senior Vice President,
Company Secretary April , 2020 |
Important Notice Regarding the Availability of Proxy Materials for the ShareholderAnnual Meeting to be Held on June 5, 20189, 2020
The accompanying Proxy Statement and our Annual Report are available at www.tevapharm.com/2018proxymaterials.2020proxymaterials. We expect the proxy materials to be mailed and/or made available on or before April 25, 2018., 2020.
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement i
Questions and Answers About the Annual Meeting
The Meeting
When and where will the Annual Meeting be held?
The 20182020 Annual Meeting of Shareholders (the “Meeting” or the “Annual Meeting”) of Teva Pharmaceutical Industries Limited (“we,” “us,” “our”, “Teva” or “the“TevaCompany”) will be held at Teva’s executive offices at 5 Basel Street, Petach Tikva, 4951033 Israel, on Tuesday, June 5, 2018,9, 2020, at 4:30 p.m., localIsrael time.
As part of our precautions regarding the coronavirus orCOVID-19, we are preparing for the possibility that, if necessary, the Annual Meeting may be conducted by means of remote communication. If we take this step, we will announce the decision to do so in advance as well as the manner to participate in such meeting.
Who may attend and vote at the Annual Meeting?
Attendance at the Annual Meeting, including any adjournments or postponements thereof, will be limited to holders of record as of the close of business on April 30, 2020 (the “Record Date”) who hold ordinary shares or American Depositary Shares (“ADSs”), directly in their own name, and beneficial owners who hold ordinary shares or ADSs through a broker, bank or other nominee rather than directly in their own name, and each of their legal proxy holders or their authorized persons. To gain admission to the Annual Meeting, one must have a form of government-issued photograph identification and proof of share ownership as of the Record Date (as defined below).Date. Legal proxy holders and authorized persons will also need to submit a document of appointment, in accordance with Teva’s Articles of Association.
Only holders of record of ordinary shares (or ADSs representing such ordinary shares) as of the close of business on April 26, 2018 (the “Record Date”), or their duly appointed proxies or authorized persons, shall be entitled to participate and vote at the Annual Meeting, and any adjournments or postponements thereof. Beneficial owners who hold ordinary shares or ADSs through a broker, bank or other nominee rather than directly in their own name have the right to direct their broker, bank or other nominee how to vote using the instructions provided by the broker, bank or nominee, but may not vote their shares in person at the Annual Meeting unless they obtain a legal proxy giving them the right to vote their shares at the Annual Meeting from the broker, bank or other nominee holding their shares in street name. Each issued and outstanding ordinary share (or ADS representing such an ordinary share) shall entitle its holder to one vote on each matter properly submitted at the Annual Meeting. Ordinary shares held in treasury will not be entitled to vote at the Annual Meeting.
Holders of our mandatory convertible preferred shares do not have any voting rights or any other rights with respect to the Annual Meeting.
What is a quorum for the Annual Meeting?
A minimum of two holders of ordinary shares (or ADSs representing such ordinary shares) who are present at the Annual Meeting, in person or by proxy or represented by their authorized persons, and who hold in the aggregate twenty-five percent or more of such ordinary shares (or ADSs representing such ordinary shares), will constitute a legal quorum. At the close of business on April 12, 2018, 1,018,220,001March 10, 2020, 1,095,316,221 ordinary shares were outstanding and entitled to vote. Ordinary shares held in treasury will not be included in the calculation to determine if a quorum is present. Abstentions and brokernon-votes will be considered present and entitled to vote for the purpose of determining the presence of a quorum. Should no legal quorum be present one half hour after the scheduled time, the Annual Meeting will be adjourned to one week from that day, at the same time and place. Should such legal quorum not be present one half hour after the time set for the Annual Meeting, as adjourned, any two holders of ordinary shares present, in person or by proxy, who jointly hold twenty percent or more of such ordinary shares (or ADSs representing ordinary shares) will then constitute a legal quorum.
Who may vote at the Annual Meeting?
Ordinary Shares
Holders of record of ordinary shares as of the Record Date may vote at the Annual Meeting.
Beneficial owners who hold ordinary shares through a broker, bank or other nominee rather than directly in their own name have the right to direct their broker, bank or other nominee how to vote using the instructions provided by the broker, bank or nominee, but may not vote their shares in person at the Annual Meeting unless they obtain a legal proxy giving them the right to vote their shares at the Annual Meeting from the broker, bank or other nominee holding their shares in street name.
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 1
Questions and Answers About the Annual Meeting
Voting
How can I vote my ordinary shares or ADSs?
Your vote is very important and we encourage you to vote your shares and submit your proxy regardless of whether or not you plan to attend the Annual Meeting.
Ordinary SharesADSs
Holders of ordinary shares: IfAs an ADS holder, you hold ordinary shares, you have the rightwill not be entitled to (i) vote in person at the Annual Meeting, (ii) vote by submitting your proxy card by mail, (iii) grant your voting proxy to an authorized person, or (iv) ifMeeting. To the extent you are aNon-Registered Holderprovide the Depositary (as defined below), vote by submitting your voting instructions by the electronic voting system of the Israeli Securities Authority.
If you choose to submit your proxy card by mail, mark the enclosed proxy card in accordance with the instructions, date, sign and return it. To be taken into account, your proxy card must be received by Teva by 4:30 p.m., Israel time, on June 1, 2018, unless determined otherwise by the chairman of the Meeting.
If you appoint another person to act as your authorized proxy, such proxy must be written and made known to Teva by 4:30 p.m., Israel time, on June 1, 2018, unless determined otherwise by the chairman of the Meeting.
Non-Registered Holders of ordinary shares: If you held ordinary shares as of the Record Date pursuant to Section 177(1) of the Israeli Companies Law, 5759-1999, as amended (the “Israeli Companies Law”), whose shares are held through a nominee company (a “Non-Registered Holder”), you may submit your vote through the electronic voting system of the Israeli Securities Authority. In order to vote through such electronic voting system, you will need to identify yourself with a personal access code obtained from a member of the Tel Aviv Stock Exchange (“TASE”), which is usually the bank where you held your ordinary shares as of the Record Date. To be taken into account, your vote must be submitted before 10:30 a.m., Israel time, on June 5, 2018. You can access the voting system at https//:votes.isa.gov.il, or through the hyperlink included in Teva’s filing with respect to this Meeting as publicized on MAGNA, the Israeli Securities Authority’s electronic filing system, at www.magna.isa.gov.il, or on the TASE’s website, at maya.tase.co.il. ANon-Registered Holder may contact the TASE member holding the shares for instructions on how to vote the ordinary shares and should carefully follow the voting procedures provided.
ADSs
Record owners of ADSs: If you are a holder of ADSs, you will receive instructions from JPMorgan Chase Bank, N.A., as the depositary (the “Depositary”) for the ordinary shares underlying your ADSs to be voted. If you held ADSs directly as of the Record Date, you have the right to instruct the Depositary how to vote. So long as the Depositary receives your voting instructions by 12:00 p.m., Eastern time, on June 4, 2018, it will, to the extent practicable and subject to Israeli law and the terms of the Deposit Agreement (as defined below), vote the underlying ordinary shares as you instruct, provided that Internet and telephone voting instructions may be provided to the Depositary only through 11:59 p.m., Eastern time, on June 3, 2018.
Beneficial owners of ADSs which are registered in the name of a broker, bank or other agent: If your ADSs are held through a broker, bank or other nominee, such intermediary will provide you instructions on how you may vote the ordinary shares underlying your ADSs. Please check with your broker, bank or other nominee, as applicable, and carefully followwith voting instructions, the voting procedures provided to you.
HowDepositary has advised us that it will myvote the ordinary shares orunderlying your ADSs be voted if I do not vote?in accordance with your instructions.
Ordinary Shares
If you hold ordinary shares and do not (i) vote in person atYou also may exercise the Annual Meeting, (ii) vote by submitting your proxy card by mail, (iii) grant your voting proxy to an authorized person or (iv) as aNon-Registered Holder,
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Questions and Answers About the Annual Meeting
vote through the electronic voting system of the Israeli Securities Authority, your ordinary shares will not be counted as votes cast and will have no effect on the outcome of the vote with respect to any matter.
ADSs
If you are a record holder of ADSs and do not instruct the Depositary howright to vote the ordinary shares underlying your ADSs by surrendering your ADSs to Citibank, N.A., as depositary for the ADSs (the “Depositary”) for cancellation and withdrawal of the corresponding ordinary shares underlying your ADSs will not be counted as votes cast and will have no effect on the outcome of the vote with respectpursuant to any matter.
If you are a beneficial owner whose ADSs are held of record by a broker, your broker has “discretionary voting” authority under the New York Stock Exchange (“NYSE”) rules to vote your shares on “routine” matters, such as the ratification of appointment of Kesselman & Kesselman, a member of PricewaterhouseCoopers International Ltd., as our independent registered public accounting firm, even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority absent specific instructions from you to vote on the following“non-routine” matters: the election of directors, the advisory vote on the compensation of our named executive officers, the advisory vote on the frequency of which to hold advisory votes on the compensation of our named executives officers or the approval of the amendment and restatement of the Teva 2008 Employee Stock Purchase Plan for U.S. Employees, in which case a brokernon-vote will occur and your shares will not be voted on these matters.
What are the voting requirements to elect the directors and to approve each of the proposals discussed in this Proxy Statement?
The affirmative vote of the holders of a majority of Teva ordinary shares (including ADSs representing ordinary shares) participating and voting at the Annual Meeting, in person or by proxy or through their representatives, is required to adopt each of the proposals. Cumulative voting is not permitted.
Under the terms ofdescribed in the Second Amended and Restated Deposit Agreement among Teva and JPMorgan Chase Bank, N.A., acting as Depositary (the “Deposit Agreement”), dated as of December 4, 2018, by and among the Company, the Depositary, and the holders and beneficial owners of ADSs. In order to be able to attend, and vote at the Annual Meeting, you must complete the ADS cancellation process and become a holder of the corresponding ordinary shares by the Record Date. However, it is possible that you may not have sufficient time to withdraw your ordinary shares and vote them at the upcoming Annual Meeting as a holder of record of ordinary shares as of the Record Date. Holders of ADSs may incur additional costs associated with the ADS cancellation process.
Voting
How can I vote my ordinary shares or ADSs?
Your vote is very important and we encourage you to vote your shares and submit your proxy regardless of whether or not you plan to attend the Annual Meeting in person. Each issued and outstanding ordinary share (or ADS representing an ordinary share) shall entitle its holder to one vote on each matter properly submitted at the Annual Meeting. Ordinary shares held in treasury by Teva do not entitle Teva to vote in respect thereof at the Annual Meeting.
Ordinary Shares
Record holders of ordinary shares: If you are the record holder of ordinary shares as of the Record Date, you have the right to (i) vote in person at the Annual Meeting, (ii) vote by submitting your proxy card by mail, (iii) grant your voting proxy to an authorized person, or (iv) if you are aNon-Registered Holder (as defined below), vote by submitting your proxy card and proof of ownership by mail or by submitting your voting instructions through the electronic voting system of the Israeli Securities Authority.
If you choose to submit your proxy card by mail, mark the enclosed proxy card in accordance with the instructions, date, sign and return it to Teva. To be taken into account, your proxy card must be received by Teva by 4:30 p.m., Israel time, on June 5, 2020, unless determined otherwise by the chairman of the Annual Meeting.
If you appoint another person to act as your authorized proxy, such proxy must be written and made known to Teva by 4:30 p.m., Israel time, on June 5, 2020, unless determined otherwise by the chairman of the Annual Meeting.
Non-registered holders of ordinary shares: If you held ordinary shares as of the Record Date pursuant to Section 177(1) of the Israeli Companies Law, 5759-1999, as amended (the “Israeli Companies Law”), whose shares are held through a nominee company (a “Non-Registered Holder”), you may submit your vote (i) by submitting your proxy card by mail, together with a proof of share ownership as of the Record Date, by 4:30 p.m., Israel time, on June 5, 2020, unless determined otherwise by the chairman of the Annual Meeting; or (ii) through the electronic voting system of the Israeli Securities Authority. In order to vote through such electronic voting system, you will need to identify yourself with a personal access code obtained from a member of the Tel Aviv Stock Exchange (“TASE”), which is usually the bank where you
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held your ordinary shares as of the Record Date. To be taken into account, your vote must be submitted at least six hours prior to the Annual Meeting (i.e., before 10:30 a.m., Israel time, on June 9, 2020). You can access the voting system at https//:votes.isa.gov.il, or through the hyperlink included in Teva’s filing with respect to this Annual Meeting as publicized on MAGNA, the Israeli Securities Authority’s electronic filing system, at www.magna.isa.gov.il, or on the TASE’s website, at www.maya.tase.co.il. ANon-Registered Holder may contact the TASE member holding the shares for instructions on how to vote the ordinary shares and should carefully follow the voting procedures provided.
ADSs
The Deposit Agreement sets out the rights of ADS holders as well as the rights and obligations of the Depositary. Each ADS represents the right to receive one ordinary share deposited with Citibank Tel Aviv, as custodian for the Depositary under the Deposit Agreement or any successor custodian.
Record holders of ADSs: If you are a record holder of ADSs as of the Record Date, you will receive instructions from the Depositary for the ordinary shares underlying your ADSs to be voted. If you held ADSs directly as of the Record Date, you have the right to instruct the Depositary how to vote. So long as the Depositary receives your voting instructions by 8:00 a.m., Eastern time, on June 8, 2020, it will, to the extent practicable and subject to Israeli law and the terms of the Deposit Agreement, vote the underlying ordinary shares as you instruct.
Beneficial owners of ADSs that are registered in the name of a broker, bank or other agent: If you beneficially own ADSs as of the Record Date through a broker, bank or other nominee, such intermediary will provide you instructions on how you may vote the ordinary shares underlying your ADSs. Please check with your broker, bank or other nominee, as applicable, and carefully follow the voting procedures provided to you.
How will my ordinary shares or ADSs be voted if I do not vote?
Ordinary Shares
If you hold ordinary shares and do not (i) vote in person at the Annual Meeting, (ii) vote by submitting your proxy card by mail, (iii) grant your voting proxy to an authorized person or (iv) as aNon-Registered Holder, vote by submitting your proxy card and proof of ownership by mail or through the electronic voting system of the Israeli Securities Authority, your ordinary shares will not be counted as votes cast and will have no effect on the outcome of the vote with respect to any matter.
ADSs
If you are a record holder of ADSs and do not instruct the Depositary how to vote the ordinary shares underlying your ADSs, the ordinary shares underlying your ADSs will not be counted as votes cast and will have no effect on the outcome of the vote with respect to any matter.
If you are a beneficial owner whose ADSs are held of record by a broker, your broker has “discretionary voting” authority under the New York Stock Exchange (“NYSE”) rules to vote the shares represented by your ADSs on “routine” matters, such as the ratification of appointment of Kesselman & Kesselman, a member of PricewaterhouseCoopers International Ltd., as our independent registered public accounting firm, even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority absent specific instructions from you to vote on the following“non-routine” matters: the election of directors, the advisory vote on the compensation of our named executive officers, the approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan, the approval of an amendment to the terms of office and employment of Teva’s President and Chief Executive Officer and the approval of an amendment to Teva’s Articles of Association, in which case a brokernon-vote will occur and the shares represented by your ADSs will not be voted on these matters.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 3
Questions and Answers About the Annual Meeting
What are the voting requirements to elect the directors and to approve each of the proposals discussed in this Proxy Statement?
According to the Israeli Companies Law, our Articles of Association and the resolutions of Teva’s Board of Directors (the “Board of Directors” or the “Board”) to allow a simple majority for the approval of Proposal 5 (Amendment to Teva’s Articles of Association) pursuant to Article 106 of our Articles of Association, the affirmative vote of the holders of a majority of Teva ordinary shares participating and voting at the Annual Meeting, in person or by proxy or through their representatives, is required to adopt Proposal 5 as well as each of the other proposals. Cumulative voting is not permitted. Under the terms of the Deposit Agreement, the Depositary shall endeavor (insofar as is practicable and in accordance with our Articles of Association) to vote or cause to be voted the number of ordinary shares represented by ADSs in accordance with the instructions provided by the holders of ADSs to the Depositary by the deadline set. If instructions are not received by the Depositary by the deadline, the ordinary shares represented by such uninstructed ADSs shall not be voted at the Annual Meeting. If instructions are signed and timely returned to the Depositary, but no specific voting instruction is marked for a proposal, the holder shall be deemed to have directed the Depositary to give voting instructions “FOR” the unmarked proposal.
Can I change my vote?
Ordinary Shares
If you hold ordinary shares of record and submit your proxy card to vote by mail or appoint a proxy in advance of the meeting,Annual Meeting, you may change your vote by delivering a valid later-dated proxy in a timely manner,within the time limitations set forth above, or voting in person at the Annual Meeting.
If you are aNon-Registered Holder of ordinary shares and vote through the electronic voting system of the Israeli Securities Authority, you may revoke your vote through such voting system at least six hours prior to the Annual Meeting (i.e., before 10:30 a.m., Israel time, on June 5, 2018,9, 2020), or by voting in person at the Annual Meeting. If you are aNon-Registered Holder of ordinary shares and submit your proxy card to vote by mail or appoint a proxy in advance of the Annual Meeting, you may change your vote by delivering a valid later-dated proxy within the time limitations set forth above, or voting in person at the Annual Meeting.
Attendance at the Annual Meeting will not cause your previous vote to be revoked unless you specifically so request.
ADSs
If you are the record owner of ADSs, you must follow the instructions provided by the Depositary in order to change your vote. If you hold your ADSs through a broker, bank or other nominee, you must follow the instructions provided by your broker, bank or other nominee, in order to change your vote. The last instructions you submit prior to the deadline indicated by the Depositary or the broker, bank or other nominee, as applicable, will be used to instruct the Depositary how to vote the ordinary shares underlying your ADSs.
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 3
Questions and Answers About the Annual Meeting
Attendance at the Annual Meeting will not cause your previous vote to be revoked unless you specifically so request.revoked.
Proxy Materials
Why did I receive a “Notice of Internet Availability of Proxy Materials” but no proxy materials?
We distribute our Notice of Annual Meeting of Shareholders, Proxy Statement and Annual Report (collectively, the “proxy materials”) to certain shareholders via the Internet under the “Notice and Access” approach permitted by rules of the SEC.U.S. Securities and Exchange Commission (the “SEC”). This approach conserves natural resources and reduces our distribution costs, while providing a timely and convenient
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method of accessing the materials and voting. On or by April 25, 2018,, 2020, we expect to have mailed a “Notice of Internet Availability of Proxy Materials” to participating shareholders containing instructions on how to access the proxy materials on the Internet.
Can I access the proxy materials on the Internet?
The proxy materials are available on our website at www.tevapharm.com/2018proxymaterials.2020proxymaterials. Information on our website is not part of the proxy materials and is not incorporated into the proxy statement by reference. Record owners of our ADSs may also access the proxy materials at www.proxydocs.com/www.investorvote.com/teva by following the instructions provided by the Depositary. Beneficial owners of our ADSs may also access the proxy materials at www.proxyvote.com by following the instructions provided by your broker, bank or other nominee. Instead of receiving future proxy statements and accompanying materials by mail, most shareholders and ADS holders can elect to receive ane-mail that will provide electronic links to them. Opting to receive your proxy materials online will conserve natural resources and will save us the cost of producing documents and mailing them to you.The proxy materials are also available through Teva’s public filing on MAGNA (the Israeli Securities Authority’s electronic filing system) at www.magna.isa.gov.il, on the TASE’s website at www.maya.tase.co.il, or on the SEC’s website at www.sec.gov.
How do I request paper copies of the proxy materials at no charge?
You may contact Investor Relations in the United States at +1 (215)591-8912 or in Israel at +972 (3)926-7656,by sending an email to TevaIR@tevapharm.com, or by making a request on our website at www.tevapharm.com/InfoRequest, by May 22, 2018.2020.
If you are a record owner of ADSs, you may request proxy materials at www.investorelections.com/www.investorvote.com/teva, by calling toll-free within the U.S. at (866)870-3684641-4276 or by sending an email to paper@investorelections.com,investorvote@computershare.com, by May 22, 20182020 and following the instructions provided by the Depositary.
If you are a beneficial owner of ADSs, you may request proxy materials by following the instructions at www.proxyvote.com or by calling toll free within the U.S. at (800)579-1639 or by sending an email to sendmaterial@proxyvote.com by May 22, 20182020 and following the instructions provided by your broker, bank or other nominee.
Other Questions
Could other matters be decided at the Annual Meeting?
The only items of business that our Board of Directors intends to present at the Annual Meeting are set forth in this proxy statement.Proxy Statement. As of the date of this proxy statement,Proxy Statement, no shareholder has advised us of the intent to present any other matter, and we are not aware of any other matter to be presented at the Annual Meeting. However, according and subjectthe Annual Meeting notice attached to this preliminary proxy statement serves as a preliminary notice regarding the Annual Meeting pursuant to Section 5C of the Israeli Companies LawRegulations (Notice and our ArticlesAnnouncement of Association, certaina General Meeting and a Class Meeting in Public Company and Adding Subjects to the Agenda), 5760-2000, and accordingly, one or more shareholders holding 1% or more of the voting rights of Teva are entitled to propose items to the agenda. For more information, please see “Shareholder Proposals for the 20182020 Annual Meeting and the 20192021 Annual Meeting” below.
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Who will pay for the cost of this proxy solicitation?
Teva will bear the entire cost of solicitation of proxies, including preparation, assembly, printing, and mailing of this proxy statement,Proxy Statement, the voting instruction card and any additional information furnished to shareholders. Teva may reimburse brokerage firms and other persons representing beneficial owners of ordinary shares or ADSs for reasonable expenses incurred by them in forwarding proxy soliciting materials
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 5
Questions and Answers About the Annual Meeting
to such beneficial owners. We retained MacKenzie Partners, Inc. to assist with the solicitation of proxies for a fee in the amount of $20,000, plus reimbursable expenses. In addition to solicitation by mail, certain of our directors, officers and regular employees, without additional remuneration, may solicit proxies by telephone, facsimile or personal contact.
Who can I contact if I require further assistance?
If you need assistance in submitting your proxy or have questions regarding the Annual Meeting, please contact our Investor Relations department by email at TevaIR@tevapharm.com or by mail at Teva Pharmaceutical Industries Ltd., 5 Basel Street, Petach Tikva, 4951033 Israel, attention: Investor Relations, or by telephone at +1(215) 591-8912.+972-3-914-8171. You may also contact our proxy solicitor, MacKenzie Partners, Inc., by email at proxy@mackenziepartners.com or by telephone (toll-free)calling toll free within the U.S. at +1 (800)322-2885.322-2885 or outside the U.S. at + 1 (212)929-5500.
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Proposal 1: Election of Directors
In recent years, we strengthened our Board of Directors with the addition of new highly qualified and talented directors, including several directors with global pharmaceutical experience and other qualifications, adding expertise as well as diversity to our Board of Directors. Through these efforts, we have reduced theThe average tenure of our current directors from 5.1is 4.5 years of service prior to the 2017 annual meeting of shareholders to 2.5 years after giving effect to all nominations and departures contemplated herein. We also reduced thetheir average age is 63 years old. We currently have two female directors serving on our Board of our directors from 67 prior to the 2017 annual meeting of shareholders to 61 after giving effect to all nominations and departures contemplated herein.Directors. Dr. Barer, our Chairman of the Board, is an independent director under NYSE regulations. Kåre Schultz, our President and Chief Executive Officer (the “President and CEO”) serves on the Board, which facilitates collaboration between the Board of Directors and management. Corporate governance remains a high priority and we continue to evaluate the size and composition of the Board to ensure that it maintains dynamic, exceptionally qualified leadership.
Following the recommendation of our Corporate Governance and Nominating Committee, and in consideration of Proposal 5 to this Proxy Statement, the Board of Directors recommends that shareholders approve the appointment of Ms. Crane, Mr. LiebermanDr. Sol J. Barer, Jean-Michel Halfon and Prof. Satchi-FainaroNechemia (Chemi) J. Peres to serve as directors to serve until our 20212023 annual meeting of shareholders. Ms. CraneDr. Sol J. Barer, Jean-Michel Halfon and Mr. LiebermanNechemia (Chemi) J. Peres are currently members of the Board of Directors and all nominees qualify as independent directors under NYSE regulations. If reappointed as a director at this Annual Meeting, Dr. Barer is expected to continue to serve as Chairman of the Board of Directors.
In accordance with the Israeli Companies law, all nominees for election as directors at the Annual Meeting have declared in writing that they possess the requisite skills and expertise, as well as sufficient time, to perform their duties as directors.
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The Board of Directors recommends that shareholders vote FOR the appointment of |
6 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Proposal 1: Election of Directors
Directors
The following table sets forth information regarding the directors and director nomineenominees of Teva as of April 25, 2018:, 2020:
Name | Age | Director Since | Term Ends | ||||||||||||
Dr. Sol J. Barer—Chairman
|
| 71
|
|
| 2015
|
|
| 2020
|
| ||||||
Kåre Schultz (1)
|
| 56
|
|
| 2017
|
|
| (2
| )
| ||||||
Rosemary A. Crane
|
| 58
|
|
| 2015
|
|
| 2018
|
| ||||||
Amir Elstein
|
| 62
|
|
| 2009
|
|
| 2019
|
| ||||||
Murray A. Goldberg
|
| 73
|
|
| 2017
|
|
| 2020
|
| ||||||
Jean-Michel Halfon
|
| 66
|
|
| 2014
|
|
| 2020
|
| ||||||
Gerald M. Lieberman
|
| 71
|
|
| 2015
|
|
| 2018
|
| ||||||
Galia Maor*
|
| 75
|
|
| 2012
|
|
| 2018
|
| ||||||
Roberto A. Mignone
|
| 46
|
|
| 2017
|
|
| 2019
|
| ||||||
Dr. Perry D. Nisen
|
| 62
|
|
| 2017
|
|
| 2019
|
| ||||||
Nechemia (Chemi) J. Peres
|
| 59
|
|
| 2017
|
|
| 2020
|
| ||||||
Prof. Ronit Satchi-Fainaro
|
| 46
|
|
| —
|
|
| —
|
| ||||||
Dan S. Suesskind*
|
| 74
|
|
| 2017
|
|
| (3
| )
| ||||||
Gabrielle Sulzberger*
|
| 57
|
|
| 2015
|
|
| 2018
|
| ||||||
Name
| Age
|
Director Since
|
Term Ends
| ||||||||||||
Dr. Sol J. Barer—Chairman
|
|
72
|
|
|
2015
|
|
|
2020
|
| ||||||
Kåre Schultz
|
|
58
|
|
|
2017
|
|
|
(1
|
)
| ||||||
Rosemary A. Crane
|
|
60
|
|
|
2015
|
|
|
2021
|
| ||||||
Amir Elstein
|
|
64
|
|
|
2009
|
|
|
2022
|
| ||||||
Murray A. Goldberg (2)
|
|
75
|
|
|
2017
|
|
|
2020
|
| ||||||
Jean-Michel Halfon
|
|
68
|
|
|
2014
|
|
|
2020
|
| ||||||
Gerald M. Lieberman
|
|
73
|
|
|
2015
|
|
|
2021
|
| ||||||
Roberto A. Mignone
|
|
48
|
|
|
2017
|
|
|
2022
|
| ||||||
Dr. Perry D. Nisen
|
|
64
|
|
|
2017
|
|
|
2022
|
| ||||||
Nechemia (Chemi) J. Peres
|
|
61
|
|
|
2017
|
|
|
2020
|
| ||||||
Prof. Ronit Satchi-Fainaro
|
|
48
|
|
|
2018
|
|
|
2021
|
| ||||||
| (1) |
Mr. Schultz’s term ends contemporaneously with his term as President and CEO. |
Mr. |
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 7
Proposal 1: Election of Directors
Persons Being Considered for Election at this Annual Meeting
Dr. Sol J. Barer Chairman of the Board Independent Director | Dr. Barer became Chairman of the Board of Directors on February 6, 2017, after joining Teva’s Board of Directors in January 2015. Dr. Barer is Managing Partner at SJ Barer Consulting. He also serves as an advisor to the Israel Biotech Fund. From 1987 to 2011, he served in top leadership roles at Celgene Corporation, including as Executive Chairman from 2010 to 2011, Chairman and CEO from 2007 to 2010, CEO from 2006 to 2010, President and Chief Operating Officer from 1994 to 2006 and President from 1993 to 1994. Prior to that, he was a founder of the biotechnology group at the chemical company Celanese Corporation, which was later spun off as Celgene. Dr. Barer serves on the board of directors of Cerecor, Inc. (formerly Aevi Genomic Medicine, Inc.) and on the board of directors of Contrafect as lead director. He served as Chairman of the Board of Edge Therapeutics from 2013 to March 2019, on the board of Aegerion Pharmaceuticals from 2011 to 2016, on the board of Amicus Therapeutics from 2009 to February 2017 and as Chairman of the Board of InspireMD from 2011 to June 2017. Dr. Barer is Founding Chair of the Center for Innovation and Discovery at the Hackensack Meridian Medical School. Dr. Barer received his Ph.D. in organic and physical chemistry from Rutgers University and his B.S. in chemistry from Brooklyn College of the City University of New York. | |
Qualifications: With his long career as a senior pharmaceutical executive and leadership roles in various biopharmaceutical companies, Dr. Barer provides broad and experienced knowledge of the global pharmaceutical business and industry as well as extensive scientific expertise. |
Jean-Michel Halfon Independent Director Committees: – Compliance (Chair) –Corporate Governanceand Nominating | Mr. Halfon joined the Board of Directors in 2014. He currently serves as an independent consultant, providing consulting services to pharmaceutical, distribution, healthcare IT and R&D companies. From 2008 to 2010, Mr. Halfon served as President and General Manager of Emerging Markets at Pfizer Inc., after serving in various senior management positions since 1989. From 1987 to 1989, Mr. Halfon served as Director of Marketing in France for Merck & Co., Inc. Mr. Halfon received a B.S. from Ecole Centrale des Arts et Manufactures and an M.B.A. from Institut Supérieur des Affaires. | |
Qualifications: With his years of experience in senior management at leading pharmaceutical companies, particularly his experience with emerging markets, Mr. Halfon provides expertise in international pharmaceutical operations and marketing. |
8 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 1: Election of Directors
Nechemia (Chemi) J. Peres Independent Director Committees: –Corporate Governanceand Nominating – Human Resources and Compensation | Mr. Peres joined the Board of Directors in July 2017. Mr. Peres serves as the managing general partner andco-founder of Pitango Venture Capital, Israel’s largest venture capital group. Pitango invests in technology companies across technology sectors, from IT to healthcare, with over 220 portfolio company investments since its inception in 1996. Mr. Peres serves on the board of directors of numerous Pitango portfolio companies. Mr. Peres is also the founder of Mofet Israel Technology Fund, one of Israel’s first venture capital funds, founded in 1992. Mr. Peres is chairman of the Peres Center for Peace and Innovation. Heco-founded and chaired the Israel Venture Association (IATI—Israel Advanced Technology Industries) and he chaired the Israel America Chamber of Commerce from 2008 to 2011. He received a Bachelor of Science in industrial engineering and management and an M.B.A. from Tel Aviv University. | |
Qualifications: With his pioneering financial and entrepreneurial background, Mr. Peres provides the Board with a forward-thinking view on financial and strategic matters. |
Continuing Directors
Kåre Schultz Director and President and Chief Executive Officer | Mr. Schultz became Teva’s President and CEO and a member of the Board of Directors on November 1, 2017. From May 2015 to October 2017, Mr. Schultz served as President and Chief Executive Officer of H. Lundbeck A/S. Prior to that, Mr. Schultz worked for nearly three decades at Novo Nordisk, where he served in a number of leadership roles, including Chief Operating Officer, Vice President of Product Supply and Director of Product Planning and Customer Services in the Diabetes Care Division. Mr. Schultz has also held positions at McKinsey and Anderson Consulting. Mr. Schultz has served as a member of the Board of Directors of LEGO A/S since 2007. From 2010 to 2017, he served as Chairman of the Board of Directors of Royal Unibrew A/S and during 2017 he served on the Board of Directors of Bitten og Mads Clausens Fond, the holding vehicle for Danfoss A/S. Mr. Schultz received a master’s degree in economics from the University of Copenhagen. | |
Qualifications: With his leadership positions in various healthcare corporations, including his experience as a chairman and a director of several international corporations and his service as the President and Chief Executive Officer of Teva, Mr. Schultz provides unique global perspective on the healthcare and pharmaceutical industries. |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 9
Proposal 1: Election of Directors
Rosemary A. Crane Independent Director
Committees: –Human Resources andCompensation (Chair) – Science and Technology | Ms. Crane joined the Board of Directors in September 2015. Ms. Crane served as President and Chief Executive Officer of MELA Sciences, Inc. from 2013 to 2014. Ms. Crane was Head of Commercialization and a partner at Appletree Partners from 2011 to 2013. From 2008 to 2011, she served as President and Chief Executive Officer of Epocrates Inc. Ms. Crane served in various senior executive positions at Johnson & Johnson from 2002 to 2008, including as Group Chairman, OTC & Nutritional Group from 2006 to 2008, as Group Chairman, Consumer, Specialty Pharmaceuticals and Nutritionals from 2004 to 2006, and as Executive Vice President of Global Marketing for the Pharmaceutical Group from 2002 to 2004. Prior to that, she held various positions at Bristol-Myers Squibb from 1982 to 2002, including as President of U.S. Primary Care from 2000 to 2002 and as President of Global Marketing and Consumer Products from 1998 to 2000. Ms. Crane has served on the board of directors of Catalent Pharma Solutions, Inc. since 2018 and as Vice Chairman of the Board of Zealand Pharma A/S since 2015. From 2017 to March 2019, she served on the board of directors of Edge Therapeutics. Ms. Crane received an M.B.A. from Kent State University and a B.A. in communications and English from the State University of New York. | |
Qualifications: With over 30 years of experience in commercialization and business operations, primarily in the pharmaceutical and healthcare industries, and more than 25 years of therapeutic and consumer drug launch expertise, Ms. Crane provides broad experience and knowledge of the global pharmaceutical business and industry. |
Amir Elstein Independent Director Committees: – Corporate Governanceand Nominating (Chair) –Audit –Finance and Investment | Mr. Elstein rejoined the Board of Directors in 2009. From January 2014 to July 2014, he served as Vice Chairman of the Board of Directors of Teva. Mr. Elstein serves as Chairman of the Board of Tower Semiconductor Ltd. and Chairman of the Israel Democracy Institute. Mr. Elstein also serves as Chairman or as a member of the board of directors of several academic, scientific, educational, social and cultural institutions. Mr. Elstein served as Chairman of the Board of Governors of the Jerusalem College of Engineering from 2009 to 2018 and as Chairman of the Board of Directors of Israel Corporation from 2010 to 2013. From 2004 to 2008, Mr. Elstein was a member of Teva’s senior management, most recently as Executive Vice President, Global Pharmaceutical Resources. From 1995 to 2004, Mr. Elstein served on Teva’s Board of Directors. Prior to joining Teva as an executive in 2004, Mr. Elstein held a number of executive positions at Intel Corporation, most recently as General Manager of Intel Electronics Ltd., an Israeli subsidiary of Intel Corporation. Mr. Elstein received a B.Sc. in physics and mathematics from the Hebrew University in Jerusalem, an M.Sc. in solid state physics from the Hebrew University and a diploma in senior business management from the Hebrew University. | |
Qualifications: With leadership positions in various international corporations, including his experience as chairman of international public companies and his service as an executive officer at Teva and other companies, Mr. Elstein provides global business management and pharmaceutical expertise. |
10 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 1: Election of Directors
Gerald M. Lieberman Independent Director Committees: –Audit (Chair) –Human Resources and Compensation –Finance and Investment | Mr. Lieberman joined the Board of Directors in September 2015. Mr. Lieberman is currently a special advisor at Reverence Capital Partners, a private investment firm focused on the middle-market financial services industry. From 2000 to 2009, Mr. Lieberman was an executive at AllianceBernstein L.P., where he served as President and Chief Operating Officer from 2004 to 2009, as Chief Operating Officer from 2003 to 2004 and as Executive Vice President, Finance and Operations from 2000 to 2003. From 1998 to 2000, he served as Senior Vice President, Finance and Administration at Sanford C. Bernstein & Co., Inc., until it was acquired by Alliance Capital in 2000, forming AllianceBernstein L.P. Prior to that, he served in various executive positions at Fidelity Investments and at Citicorp. Prior to joining Citicorp, he was a certified public accountant with Arthur Andersen. Mr. Lieberman serves as Chairman of the board of directors of Entera Bio Ltd. He previously served on the board of directors of Forest Laboratories, LLC from 2011 to 2014, Computershare Ltd. from 2010 to 2012 and AllianceBernstein L.P. from 2004 to 2009. Mr. Lieberman received a B.S. Beta Gamma Sigma with honors in business from the University of Connecticut. | |
Qualifications: With his many years of experience as an executive in leading financial services companies, including his knowledge and experience in human capital development, succession planning and compensation, Mr. Lieberman provides finance, risk management, operating and human capital expertise for large, complex organizations. |
Roberto A. Mignone Independent Director Committees: –Finance and Investment (Chair) –Audit –Science andTechnology | Mr. Mignone joined the Board of Directors in July 2017. Mr. Mignone is the Founder and Managing Partner of Bridger Management LLC, a multi-billion dollar investment management firm founded in 2000 and specializing in long-term equity strategies. Since inception, Bridger Management has focused on the healthcare sector and has developed considerable research expertise in support of its investments. In addition to healthcare, Bridger Management invests in global consumer, technology and financial services companies. Prior to Bridger Management, Mr. Mignoneco-founded and served as a partner of Blue Ridge Capital LLC from 1996 to 2000, an investment management firm specialized in health care, technology, media, telecommunications and financial services. Mr. Mignone serves as a trustee and member of the Finance Committee and Nominating Committee of the New York University Langone Medical Center. He received a Bachelor of Arts degree in classics from Harvard College and an M.B.A. from Harvard University Graduate School of Business Administration. | |
Qualifications: With his long career as a global investment professional focused on healthcare, Mr. Mignone provides the Board with finance and management expertise with respect to large, complex pharmaceutical organizations. |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 11
Proposal 1: Election of Directors
Dr. Perry D. Nisen Independent Director Committees: –Science andTechnology(Chair) –Compliance | Dr. Nisen joined the Board of Directors in July 2017. In 2018 he joined Soffinova Investments as Executive Partner, Private Equity. From 2014 to 2017, Dr. Nisen served as Chief Executive Officer and the Donald Bren Chief Executive Chair of Sanford Burnham Prebys Medical Discovery Institute. From 2004 to 2014, Dr. Nisen held various roles at GlaxoSmithKline, most recently as Senior Vice President, Science and Innovation. From 1997 to 2004, Dr. Nisen served as Divisional Vice President, Global Oncology Development, and as Divisional Vice President, Cancer Research, at Abbott Laboratories. Previously, he was the Lowe Foundation Professor of Neuro-Oncology at the University of Texas Southwestern Medical Center. Dr. Nisen has served as a director of Mirna Therapeutics since 2016. He received a B.S. from Stanford University, a Master’s degree in molecular biology, and an M.D. and PhD from Albert Einstein College of Medicine. | |
Qualifications: With extensive experience in medical research and development and management positions in leading pharmaceutical companies, Dr. Nisen provides a unique perspective on business and R&D activities. |
Prof. Ronit Satchi-Fainaro Independent Director Committees: –Science and Technology –Compliance |
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8 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Proposal 1: Election of Directors
| June 2018. Prof. Satchi-Fainaro has
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Qualifications:
With extensive experience in clinical medicine and research, Prof. Satchi-Fainaro providesin-depth knowledge of medicine and
|
As required by Israeli law, all of the foregoing director candidates have declared in writing that they possess the requisite skills and expertise, as well as sufficient time, to perform their duties as a director.
Continuing Directors
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Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 9
Proposal 1: Election of Directors
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10 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Proposal 1: Election of Directors
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Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 11
Proposal 1: Election of Directors
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12 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Proposal 1: Election of Directors
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Directors whose Service is Concluding at the Annual Meeting
After two terms of service, Galia MaorMurray Goldberg has decided not to submit herhis candidacy for reelection at the Annual Meeting. Gabrielle Sulzberger and Dan S. Suesskind have decided not to seek reelection after one term and approximately one year of service, respectively. We sincerely thank themMr. Goldberg for theirhis contribution, leadership and critical efforts on behalf of Teva throughout their respective termshis term of service. The Board will miss their insight and perspective in its deliberations and hope they will remain close to Teva for years to come.
Family Relationships
There are no family relationships among any of our executive officers or directors.
12 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 13
Corporate Governance and Director Compensation
Board and Corporate Governance Highlights
Our Board of Directors continually evaluates Teva’s corporate governance policies and practices, focusing on ensuring effective oversight of Teva’s business and management. We have established a strong and effective framework to monitor the risks of our business.
Board and Corporate Governance
| ∎ | Board refreshment and succession planning (nine new directors appointed over the last five years) |
| ∎ | 10 out of 11 directors are independent |
| ∎ | Rigorous annual Board evaluation process |
Board Oversight of Risk
| ∎ | Full Board and individual Committees focus on understanding and assessing Company risks |
| ∎ | Board reviews risk management policies of our operations and business strategy and Board committees review risk in their areas of expertise |
| ∎ | The Audit Committee assists the Board with the oversight of our financial reporting, independent auditors, internal controls, internal audit function and cybersecurity risks |
| ∎ | The Compliance Committee oversees our policies and practices for legal, regulatory and internal compliance (other than regarding financial reporting) and reviews policies and practices that may seriously impact our reputation |
| ∎ | The Finance and Investment Committee reviews our financial risk management policies, including our investment guidelines, financings and foreign exchange and currency hedging, as well as financial risk of certain transactions |
| ∎ | The Human Resources and Compensation Committee (the “Compensation Committee”) oversees compensation, retention, succession and other human resources-related issues and risks |
| ∎ | The Science and Technology Committee oversees risks relating to our intellectual property and research and development activities |
| ∎ | The Corporate Governance and Nominating Committee oversees risks relating to our governance policies and initiatives |
Director Alignment with Shareholder Interests
| ∎ | In 2019, directors had a perfect meeting attendance of 100% |
| ∎ | In 2019, we established director stock ownership guidelines requiring stock ownership of five times the annual cash fee paid to directors, which must be achieved within the later of six years of first becoming subject to these guidelines and January 1, 2025 |
Shareholder Engagement
| ∎ | Active shareholder engagement efforts, led by our Chairman of the Board and the Chair of the Compensation Committee, are focused on responding to feedback received from shareholders on corporate governance and executive compensation matters |
Social Impact and Responsibility
| ∎ | Teva is committed to helping patients around the world to access affordable medicines and benefit from innovations to improve their health |
| ∎ | Our Social Impact and Responsibility efforts are focused on contributing to healthy communities and leading a responsible business |
| ∎ | In 2019, we improved our performance in most of the leading ESG ratings and rankings, and we will continue to measure our performance going forward |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 13
Corporate Governance and Director Compensation
Board Practices
Under our Articles of Association, the Board of Directors must consist of between three to 18 directors (including our President and CEO and two statutory independent directors, if required). Our Board of Directors currently consists of 1311 persons, including our President and CEO. Subject to election of all of the directors included in Proposal 1, and following the departure of the above-mentioned directors, our Board of Directors will consist of 1110 persons, including our President and CEO. The Board of Directors has determined that all of the directors that currently serve on the Board of Directors, all of the directors that served on the Board during 2017 and all of the directors that will serve on the Board subject to their election atof Directors following the Annual Meeting were and are as applicable, independent, except for Kåre Schultz, Erez Vigodman and Dr. Yitzhak Peterburg, each of whom served, or in the case of Mr. Schultz serves, on the Board of Directors while serving as our President and CEO (or as interim President and Chief Executive Officer, in the case of Dr. Peterburg).CEO.
We currently maintain a policy to have at least threetwo directors qualify as financial and accounting experts under Israeli law. Accordingly, the Board of Directors has determined that of the continuing directors, Murray A. Goldberg, Gerald M. Lieberman and Roberto A. Mignone are financial and accounting experts under such criteria.
Our directors are generally entitled to review and retain copies of our documentation and examine our assets, as required to perform their duties as directors and to receive assistance, in special cases, from outside experts at our expense.
Board Diversity*Diversity
  |   |   |
14 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Corporate Governance and Director Compensation
The chart below summarizes the notable skills, qualifications and experience of each of our directors and director nominees (in addition to requisite skills and expertise to perform their duties as directors) and highlights the balanced mix of skills, qualifications and experience of the Board as a whole. These are the same attributes that the Board considers as part of its ongoing director succession planning process. This high-level summary is not intended to be an exhaustive list of each director’s and director nominee’s skills or contributions to the Board.
SKILLS/QUALIFICATIONS/ | S. | K. | R. | A. | M. | J. M. | G. | R. | P. | N. | R. | |||||||||||
Accounting and | ✓ | ✓ | ✓ | |||||||||||||||||||
CEO / executive management leadership skills | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||
Human resource management and executive comp. knowledge and experience | ✓ | ✓ | ✓ | |||||||||||||||||||
Pharmaceutical industry | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||
Commercial and operations management | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||
Risk oversight and risk management | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||
Science / medical | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||
Finance and investment markets | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||||
Academia/Education | ✓ | ✓ | ||||||||||||||||||||
Global perspective, international | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||||||
ADDITIONAL QUALIFICATIONS AND INFORMATION | ||||||||||||||||||||||
Audit committee financial expert / financial expert under Israeli law | ✓ | ✓ | ✓ | |||||||||||||||||||
Other public boards | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||||||||
Director Terms and Education. Our directors are generally elected in three classes for terms of approximately three years. Due to the complexity of our businesses and our extensive global activities, we value the insight and familiarity with our operations that a director is able to develop over his or her service on the Board of Directors. Because we believe that extended service on our Board enhances a director’s ability to make significant contributions to Teva, we do not believe that arbitrary term limits on directors’ service are appropriate. At the same time, it is the policy of the Board that directors should not expect to be renominated automatically.
In recent years, we strengthened our Board of Directors with the addition of new highly qualified and talented directors, adding expertise as well as diversity to our Board of Directors. Through these efforts, we have reduced theThe average tenure of our current directors from 5.1is 4.5 years of service prior to the 2017 annual meeting of shareholders to 2.5 years after giving effect to all nominations and departures contemplated
Age Tenure Gender 5+ 40’s years 2 1 directors 2 directors women 70’s 3 directors 0 - 4 years 50’s 10 directors 60’s 3 director 9 3 directors men
14 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Corporate Governance and Director Compensation
herein. We also reduced the average age is 63 years. We currently have two female directors serving on our Board of our directors from 67 prior to the 2017 annual meeting of shareholders to 61 after giving effect to all nominations and departures contemplated herein.Directors. Our Chairman of the Board is independent under NYSE regulations, and 12 out of 13of our current directors are, and following the election of all of the directors included in Proposal 1 and the departure of the above-mentioned directors 10 out of 11 of the11of our directors will be,are independent under NYSE regulations. Our onlynon-independent director is our President and CEO, which facilitates collaboration between the Board of Directors and management. We continue to evaluate the size and composition of our Board of Directors to ensure it maintains dynamic, exceptionally qualified members.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 15
Corporate Governance and Director Compensation
We provide an orientation program and a continuing education process for our directors, which include business and industry briefings, provision of materials, sessions from leading experts and professionals, meetings with key management and visits to Teva facilities. We evaluate and improve our education and orientation programs on an ongoing basis to ensure that our directors have the knowledge and background needed for them to best perform their duties.
Board Meetings. The Board of Directors holds at least six meetings each year to review significant developments affecting Teva and to consider matters requiring approval of the Board, with additional meetings scheduled when important matters require Board of Directors action between scheduled meetings. A majority of the meetings convened, but not fewer than four, must be in Israel. Members of senior management regularly attend Board meetings to report on and discuss their areas of responsibility. Information regarding the number of Board committee meetings and attendance rates for 20172019 is presented in the table on page 20.below under “—Committee Composition and Board and Committee Attendance in 2019.”
Executive Sessions of the Board. Our directors meet in executive session (i.e., without the presence of management, including our President and CEO) generally in connection with each regularly scheduled Board meeting and additionally as needed. Executive sessions are chaired by Dr. Barer, the Chairman of the Board.
Annual Meetings. We do not have a formal policy requiring members of the Board to attend our annual meetings, although all directors are strongly encouraged to attend. NineAll of our directors attended the 20172019 annual meeting of shareholders.
Board Leadership.The Board of Directors recognizes that one of its key responsibilities is to establish and evaluate an appropriate leadership structure for the Board of Directors so as to provide effective oversight of management. The Board of Directors has separate roles for the Chief Executive Officer and Chairman of the Board of Directors, with Dr. Sol Barer serving as independent Chairman and Mr. Kåre Schultz as President and CEO. Dr. Barer’s long career as a senior pharmaceutical executive and leadership roles in various biopharmaceutical companies, as well as his extensive scientific expertise and knowledge of the global pharmaceutical business, have made him an invaluable resource to both the Board of Directors and the Chief Executive Officer. The Board of Directors has determined that this leadership structure is appropriate for Teva at this time.
Board of Directors Role in Risk Oversight. Management is responsible for assessing and managing risk, subject to oversight by the Board of Directors. Our annual risk assessment process includes both atop-down review of strategic risks and abottom-up review of operational risks, which are presented to the Board of Directors. The Board of Directors fulfills its oversight responsibility for risk assessment and management by reviewing risk management policies and the risk appetite of our operations and business strategy and by instructing its committees to assist and advise in their areas of expertise, as described below. Each committee provides regular updates to the full Board regarding its activities.
| ∎ | The Board oversees our risk management policies and risk appetite, including operational risks and risks relating to our business strategy and transactions. Various committees of the Board assist the Board in this oversight responsibility in their respective areas of expertise. |
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 15
Corporate Governance and Director Compensation
| ∎ | The Audit Committee assists the Board with the oversight of our financial reporting, independent auditors, internal controls, |
| ∎ | The Compliance Committee oversees our policies and practices for legal, regulatory and internal compliance (other than regarding financial reporting) and reviews policies and practices that may seriously impact our reputation. |
16 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Corporate Governance and Director Compensation
| ∎ | The Finance and Investment Committee reviews our financial risk management policies, including our investment guidelines, financings and foreign exchange and currency hedging, as well as financial risk of certain transactions. |
| ∎ | The |
| ∎ | The Science and Technology Committee oversees risks relating to our intellectual property and research and development activities. |
| ∎ | The Corporate Governance and Nominating Committee oversees risks relating to our governance policies and initiatives. |
Director Service Contracts. Except for equity awards that accelerate upon termination, we do not have any contracts with any of ournon-employee directors that provide for benefits upon termination of services. Information regarding director compensation can be found under“Non-Employee Director Compensation” below.
Communications with the Board. Shareholders, employees and other interested parties can contact any director or committee of the Board of Directors by writing to them care of Teva Pharmaceutical Industries Ltd., 5 Basel Street, Petach Tikva, 4951033, Israel, Attn: Company Secretary or Internal Auditor. Comments or complaints relating to our accounting, internal controls or auditing matters may also be referred to members of the Audit Committee, as well as other appropriate Teva bodies.departments. The Board of Directors has adopted a global “whistleblower” policy, which provides employees and others with an anonymous means of communicating with the Audit Committee.
Nominees for Directors. In accordance with the Israeli Companies Law, a nominee for service as a director must submit a declaration to us, prior to his or her election, specifying that he or she has the requisite qualifications to serve as a director and the ability to devote the appropriate time to performing his or her duties as such and that he or she is not restricted from serving as director under the Israeli Companies Law. All of our directors, including those nominated for appointment as directors at the Annual Meeting, have provided such declaration. A director who ceases to meet the statutory requirements to serve as a director must notify us to that effect immediately and his or her service as a director will terminate upon submission of such notice.
Our Board of Directors believes that it should be composed of directors with diverse, complementary backgrounds and that directors should, at a minimum, exhibit proven leadership capabilities and possess experience at a high level of responsibility within their chosen fields. When considering a candidate for director, our Corporate Governance and Nominating Committee considers whether the directors, both individually and collectively, can and do provide the experience, judgment, commitment, skills and expertise appropriate to lead Teva in the context of its industry. In addition, our Corporate Governance and Nominating Committee considers a nominee’s expected contribution to the diversity of skills, background, experiences and perspectives, as well as whether such nominee could provide added value to any of the committees of the Board of Directors, given the then existing composition of the Board of Directors as a whole. When seeking new candidates, the Corporate Governance and Nominating Committee also strives to maintain gender diversity on Teva’s Board of Directors. Our Corporate Governance and Nominating Committee also provides input and guidance regarding the independence of directors, for formal review and approval by our Board of Directors.
16 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Corporate Governance and Director Compensation
When seeking candidates for director,directorships, our Corporate Governance and Nominating Committee may solicit suggestions from incumbent directors, management, shareholders and others. Additionally, the Board of Directors has in the past used and may continue to use the services of third party search firms to assist in the identification and analysis of appropriate candidates. After conducting an initial evaluation of a
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 17
Corporate Governance and Director Compensation
prospective candidate, members of the Board of Directors will interview that candidate if they believe the candidate may be suitable. The Chairman of the Board of Directors may also ask the candidate to meet with certain members of executive management.
If our Corporate Governance and Nominating Committee believes a director should bere-approved or a candidate would be a valuable addition to the Board of Directors, it may recommend to the Board of Directors that candidate’s appointment or election, who, in turn, can submit the candidate for consideration by the shareholders.
The Israeli lawCompanies Law provides a process by which one or more shareholders holding 1% or more of the voting rights of Teva may propose the nomination of a candidate to the Board of Directors for consideration by Teva’s Corporate Governance and Nominating Committee.Directors. See “Shareholder Proposals for the 20182020 Annual Meeting and the 20192021 Annual Meeting” below.
Non-Employee Director Compensation
As required by the Israeli Companies Law, we have adopted a Compensation Policy for Executive Officers and Directors (the “Compensation Policy”), which is presented for shareholder approval at least once every three years.Pursuant to the Israeli Companies Law and regulations promulgated thereunder, any arrangement between Teva and a director relating to his or her compensation as a director or other position with Teva must generally be consistent with Teva’s Compensation Policy and approved by the Compensation Committee, the Board and by a simple majority of Teva’s shareholders. Shareholder approval is not required in certain instances, for example, for the compensation granted to a director for the period following his or her appointment until the next general meeting of shareholders, provided such compensation is approved by the Compensation Committee and the Board, is consistent with the Compensation Policy and is on similar or less favorable terms than those of such person’s predecessor.
As approved at our 20152019 annual general meeting of shareholders, each of ournon-employee director annual compensation program (applicable to allnon-employee directors from time to time (other than ourexcept for the Chairman of the Board) is entitled to annual compensation comprised of:
| (i) | an annual Board membership fee of |
| (ii) | additional annual cash fees for service on Board |
| a. | $20,000 |
| b. | $15,000 per annum to serve as a member of the Compensation |
| c. | $20,000 per annum to serve as a member on |
| d. | $10,000 per annum to serve as a member of any other |
| (iii) | an annual equity-based award in the form of restricted share units |
asAs approved at our 2017 annual general meeting of shareholders,
Our 20172019 annual general meeting of shareholders, approved anthe annual fee of $567,000compensation for ourthe Chairman of the Board. This feeBoard is in addition tocomprised of:
| (i) | an annual Board membership fee of $255,000 paid in cash; |
| (ii) | an annual equity-based award in the form of RSUs with an approximate aggregate grant date fair value of $285,000 and a one year cliff vesting; and |
| (iii) | office and secretarial services at Teva’s offices. |
The Chairman of the annual equity-based award in the form of RSUs our ChairmanBoard is not entitled to with an approximate fair market value of $378,000 on the date of grant, as approved at our 2015 annual general meeting of shareholders. Our Chairman is also entitled to certain secretarial and other services and benefits.
All of our current directors waived 50% of the cash component of his or her annual Board membership fee, effective as of January 1, 2018 and until December 31, 2018. Giving effect to such waiver, theadditional annual cash feefees for theirservice on Board membership in 2018 will be $80,000.
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 17
Corporate Governance and Director Compensation
Committees.
Fees for Board and committee service are payable over the period of time during which the individual serves as anon-employee director. In the event that anon-employee director serves as a member of the
18 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Corporate Governance and Director Compensation
Board during only a portionpart of the period from one annual meeting to the next,year, apro-rated amount of the annual board membership fee and standing committee fees and equity award will be paid. In the event of an appointment to the Board between annual meetings of shareholders, the annual equity-based award shall be prorated. Upon completion of anon-employee director’s service as a director, other than removal pursuant to a shareholder resolution due to a breach of fiduciary duties, any unvested awards granted to such director inby virtue of such position and held by such director will immediately become vested.
We purchase directors’ and officers’ liability insurance for our directors and executive officers, as approved by our shareholders and consistent with the Compensation Policy. In addition, we release our directors from liability and indemnify them to the fullest extent permitted by law and our Articles of Association, and provide them with indemnification and release agreements for this purpose, substantially in the form approved by our shareholders at our 2012 annual meeting.
In addition, Teva reimburses or covers its directors fornon-employee directors’ expenses (including travel expenses) incurred in connection with attending meetings of the Board and its committees or in performing other services for Teva in their capacity asnon-employee directors, in accordance with Israeli law and the Compensation Policy. Directors, including
Any director elected to serve as a member of our Board and all directors currently serving on our Board will be compensated in the Chairman ofmanner described above and will benefit from the Board, are also entitled to certain perquisites having an aggregate monetary value of no more than $10,000 per year per director.
VAT, if applicable, is added to the above director compensation, in accordance with applicable law.insurance, indemnification and release discussed above.
No additional compensation is received for attendance at a Board or Committeecommittee meeting.
2017Director Stock Ownership Guidelines
In 2019, we established director stock ownership guidelines requiring ownership of five times the annual cash fee paid to directors for board membership (excluding committees fees), which must be achieved within the later of six years of first becoming subject to these guidelines and January 1, 2025.
2019 Director Compensation
Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2) | Total ($) | ||||||||||||
Dr. Sol J. Barer (3) | 243,389 | 454,884 | 698,273 | ||||||||||||
Roger Abravanel (4) | 104,445 | 0 | 104,445 | ||||||||||||
Dr. Arie Belldegrun (5) | 12,110 | 0 | 12,110 | ||||||||||||
Rosemary A. Crane | 201,681 | 130,001 | 331,682 | ||||||||||||
Amir Elstein | 190,592 | 130,001 | 320,593 | ||||||||||||
Murray A. Goldberg (6) | 85,957 | 130,001 | 215,958 | ||||||||||||
Jean-Michel Halfon | 198,116 | 130,001 | 328,117 | ||||||||||||
Gerald M. Lieberman | 208,343 | 130,001 | 338,344 | ||||||||||||
Galia Maor | 196,417 | 130,001 | 326,418 | ||||||||||||
Roberto A. Mignone (6) | 81,712 | 130,001 | 211,713 | ||||||||||||
Dr. Perry D. Nisen (6) | 81,712 | 130,001 | 211,713 | ||||||||||||
Joseph Nitzani (7) | 163,397 | 32,500 | 195,897 | ||||||||||||
Nechemia J. Peres (6) | 83,753 | 130,001 | 213,754 | ||||||||||||
Ory Slonim (8) | 106,103 | 0 | 106,103 | ||||||||||||
Dan S. Suesskind (9) | 50,357 | 103,889 | 154,246 | ||||||||||||
Gabrielle Sulzberger | 196,788 | 130,001 | 326,789 | ||||||||||||
Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2) | Total ($) | |||||||||
Dr. Sol J. Barer (3) | 255,000 | 285,003 | 540,003 | |||||||||
Rosemary A. Crane | 170,000 | 159,999 | 329,999 | |||||||||
Amir Elstein | 180,509 | 159,999 | 340,508 | |||||||||
Murray A. Goldberg | 170,000 | 159,999 | 329,999 | |||||||||
Jean-Michel Halfon | 160,453 | 159,999 | 320,452 | |||||||||
Gerald M. Lieberman | 195,000 | 159,999 | 354,999 | |||||||||
Roberto A. Mignone | 180,000 | 159,999 | 339,999 | |||||||||
Dr. Perry D. Nisen | 160,000 | 159,999 | 319,999 | |||||||||
Nechemia (Chemi) J. Peres | 195,763 | 159,999 | 355,762 | |||||||||
Prof. Ronit Satchi-Fainaro | 150,425 | 159,999 | 310,424 | |||||||||
| (1) | The amounts shown include the paid cash portion of the annual fee for the Chairman of the Board and Board membership fees and committee service fees for othernon-employee directors. |
| (2) | In |
18 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 19
Corporate Governance and Director Compensation
| of RSUs computed in accordance with FASB Accounting Standards Codification Topic 718 (“Topic 718”). Valuations of RSUs were determined based on the fair market value of a Teva share on the grant date, less the net present value of dividends. For information regarding assumptions, factors and methodologies used in our computations pursuant to Topic 718, see note 14c. to our consolidated financial statements set forth in our Annual Report on Form10-K for the year ended December 31, |
| (3) | During his service as Chairman of the Board, Dr. Barer is entitled to an annual fee of |
Mr. Schultz was not and will not be entitled to any compensation in his capacity as a member of the Board or any committee thereof.
We purchase directors’ and officers’ liability insurance for our directors and executive officers, as approved by our shareholders and consistent with the Compensation Policy. In addition, we release our directors from liability and indemnify them to the fullest extent permitted by law and our Articles of Association, and provide them with indemnification and release agreements for this purpose, substantially in the form approved by our shareholders at our 2012 annual meeting.
Any director elected at the Meeting would be remunerated in the manner described above, and would benefit from the insurance, indemnification and release discussed above.
Committees of the Board
Our Articles of Association provide that the Board of Directors may delegate its powers to one or more committees as it deems appropriate to the extent such delegation is permitted under the Israeli Companies Law. The Board of Directors has appointed the standing committees listed below, as well asad-hoc committees appointed from time to time for specific purposes determined by the Board.
We have adopted charters for all of our standing committees, formalizing the committees’ procedures and duties. These committee charters are available on our website at www.tevapharm.com.
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 19
Corporate Governance and Director Compensation
Current Committee Composition and Board and Committee Attendance in 2019
Name
| Audit
| Human and
| Corporate
| Finance and
| Compliance
| Science and
| ||||||
Rosemary A. Crane
| Chair
| ∎
| ||||||||||
Amir Elstein
| ∎
| Chair
| ∎
| |||||||||
Murray A. Goldberg
| ∎
| ∎
| ||||||||||
Jean-Michel Halfon
| ∎
| ∎
| Chair
| |||||||||
Roberto A. Mignone
| ∎
| ∎
| ||||||||||
Dr. Perry D. Nisen
| ∎
| Chair
| ||||||||||
Nechemia (Chemi) J. Peres
| ∎
| ∎
| ||||||||||
Gerald M. Lieberman
| Chair
| ∎
| ||||||||||
Galia Maor*
| ∎
| Chair
| ||||||||||
Gabrielle Sulzberger*
| ∎
| ∎
| ||||||||||
Dan S. Suesskind*
| ∎
| ∎
| ||||||||||
No. of meetings in 2017
| 10
| 11
| 6
| 6
| 2
| 4
| ||||||
Average attendance rate
| 96%
| 92%
| 92%
| 97%
| 100%
| 95%
| ||||||
* Ms. Maor, Mr. Suesskind and Ms. Sulzberger have each decided not to submit their candidacy for reelection at the Annual Meeting.
Name
| Audit
| Human and
| Corporate
| Finance and
| Compliance
| Science and
| ||||||
Rosemary A. Crane
| Chair
| ∎
| ||||||||||
Amir Elstein
| ∎
| Chair
| ∎
| |||||||||
Murray A. Goldberg
| ∎
| ∎
| ∎
| |||||||||
Jean-Michel Halfon
| ∎
| Chair
| ||||||||||
Roberto A. Mignone
| ∎
| Chair
| ∎
| |||||||||
Dr. Perry D. Nisen
| ∎
| Chair
| ||||||||||
Nechemia (Chemi) J. Peres
| ∎
| ∎
| ||||||||||
Gerald M. Lieberman
| Chair
| ∎
| ∎
| |||||||||
Prof. Ronit Satchi-Fainaro
| ∎
| ∎
| ||||||||||
No. of meetings in 2019
| 8
| 7
| 4
| 5
| 4
| 5
| ||||||
Average attendance rate
| 100%
| 100%
| 100%
| 100%
| 100%
| 100%
| ||||||
In 2017,2019, our Board of Directors met 169 times, with an average attendance rate of 94%100%. In 2017,2019, each of our current directors attended at least 80%100% of the meetings of the Board and Board committees on which he or she served. In 2017, the2019, our Board of Directors and various Board committees met frequently to review and approve the important strategic activities throughout the year.
We had a
20 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Corporate Responsibility Committee, which was dissolved effective as of September 1, 2017, when we established our Compliance Committee. The Corporate Responsibility Committee met twice during 2017 until dissolved, with an attendance rate of 90%.Governance and Director Compensation
Audit Committee
The Israeli Companies Law mandates publicly held Israeli companies to appoint an audit committee. As a NYSE-listed company, Teva’s Audit Committee must be comprised solely of independent directors, as defined by SEC and NYSE regulations.
The responsibilities of our Audit Committee include, among others: (a) identifying flaws in the management of our business and making recommendations to the Board of Directors as to how to correct them and providing for arrangements regarding employee complaints with respect thereto; (b) making determinations and considering providing approvals concerning certain related party transactions and certain actions involving conflicts of interest; (c) reviewing the internal auditor’s performance and approving the internal audit work program and examining our internal control structure and processes; (d) examining the independent auditor’s scope of work and fees and providing the corporate body responsible for determining the independent auditor’s fees with its recommendations;fees; and (e) providing for arrangements regarding employee complaints regarding questionable accounting or auditing matters and monitormonitoring compliance with and investigateinvestigating alleged violations and enforceenforcing provisions of the Company’sTeva’s Code of Conduct. Furthermore, the Audit Committee discusses the financial statements and the disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the “MD&A”) and presents to the Board of Directors its recommendations with respect to the proposed financial statements and MD&A.
20 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Corporate Governance and Director Compensation
In accordance with the Sarbanes-Oxley Act and NYSE requirements, the Audit Committee is directly responsible for the appointment, compensation and oversight of the work of our independent auditors. In addition, the Audit Committee is responsible for assisting the Board of Directors in monitoring our financial statements, the effectiveness of our internal controls and our compliance with legal and regulatory requirements. The Audit Committee also discusses our policies with respect to risk assessment and risk management with respect to financial reporting and risks that may be material to us and major legislative and regulatory developments that could materially impact Teva’s contingent liabilities and risks.
The Audit Committee charter sets forth the scope of the committee’s responsibilities, including its structure, processes and membership requirements; the committee’s purpose; its specific responsibilities and authority with respect to, among others, registered public accounting firms; complaints relating to accounting, internal accounting controls or auditing matters; and its authority to engage advisors as determined by the Audit Committee.
The Audit Committee also reviews and receives briefings concerning Teva’s information security and technology risks, including cybersecurity, and has been briefed on Teva’s information security and risk management programs. Teva’s information security office leads our cybersecurity risk management program.
All of the Audit Committee members have been determined to be independent as defined by SEC and NYSE regulations.
The Board of Directors has determined that, of the current directors on this committee, Gerald M. Lieberman (chair), Murray and Roberto A. Goldberg, Galia Maor and Dan S. SuesskindMignone are “audit committee financial experts” as defined by applicable SEC regulations. Ms. Maor and Mr. Suesskind have each decided not to submit their candidacy for reelection at the Annual Meeting.
Human Resources and Compensation Committee
Publicly held Israeli companies are required to appoint a compensation committee. Our Compensation Committee includes only independent directors, as defined by SEC and NYSE regulations.
The Compensation Committee is responsible for establishing annual and long-term performance goals and objectives for our executive officers, as well as reviewing our compensation philosophy and policies (including our Compensation Policy).
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 21
Corporate Governance and Director Compensation
The Compensation Committee is responsible for reviewing plans for the succession of our directors, our chief executive officer and other senior members of executive management.
The Compensation Committee also evaluates the performance of our chief executive officer and other executive officers, makes recommendations to the Board of Directors regarding the compensation of our executive officers and directors, reviews any organizational restructuring pertaining to the roles, responsibilities and selection of executive officers and oversees our labor practices.
Corporate Governance and Nominating Committee
The role of our Corporate Governance and Nominating Committee is to (i) identify individuals who are qualified to become directors; (ii) recommend to the Board of Directors director nominees for each annual meeting of shareholders; and (iii) assist the Board of Directors in establishing and reviewing Teva’s statement of corporate governance principles and promoting good corporate governance in Teva.
All of the committee members must be, and have been determined to be, independent as defined by NYSE regulations.
Finance and Investment Committee
The role of our Finance and Investment Committee is to assist the Board of Directors in fulfilling its responsibilities with respect to our financial and investment strategies and policies, including determining policies on these matters and monitoring implementation. It is also authorized to approve certain financial
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 21
Corporate Governance and Director Compensation
transactions (such as material loans and other financing arrangements), review our financial risk management policies and evaluate the execution, financial results and integration of Teva’s completed acquisitions, as well as various other finance-related matters, including our global tax structure and allocation policies. According to the committee’s charter, at least one of the committee’s members must be qualified as a financial and accounting expert under SEC regulations and/or the Israeli Companies Law.
The Board of Directors has determined that, of the current directors on this committee, Galia Maor, Murray A. Goldberg,Gerald M. Lieberman and Roberto A. Mignone and Dan S. Suesskind are financial and accounting experts under Israeli law. Ms. Maor and Mr. Suesskind have each decided not to submit their candidacy for reelection at the Annual Meeting.
Compliance Committee
The role of our Compliance Committee is to oversee our: (i) policies and practices for complying with laws, regulations and internal procedures; (ii) policies and practices regarding issues that have the potential to seriously impact our business and reputation; (iii) global public policy positions; and (iv) social responsibility and community outreach.
A majority of committee members must be determined to be independent as defined by NYSE regulations. The chairperson of the Audit Committee shall be invited by the committee chairperson to participate in the Compliance Committee, as deemed relevant to the committee’s agenda.
Science and Technology Committee
The Science and Technology Committee oversees our overall strategic direction and investment in research and development and technological and scientific initiatives. As part of this responsibility, it reviews scientific and R&D strategy and priorities, scientific aspects of business development activities and technological trends. It assists the Board of Directors in risk management oversight relating to R&D and our intellectual property, advises on our intellectual property strategy, reviews new technology in which Teva is, or is considering, investing and reviews the efficacy and safety profile of new pharmaceuticals.
All of the committee members must be determined to have scientific, medical or other related expertise. A majority of committee members must be determined to be independent as defined by NYSE regulations.
22 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Corporate Governance and Director Compensation
Code of Business Conduct
Teva has adopted a code of business conduct applicable to its directors, executive officers, and all other employees. A copy of the code is available to every Teva employee on Teva’s internet site, upon request to its human resources department, and to investors and others on Teva’s website at www.tevapharm.com or by contacting Teva’s investor relations department, legal department or the internal auditor. If we make any amendment or grant any waiver to this code that applies to our chief executive officer, chief financial officer, chief accounting officer or controller, or persons performing similar functions, and that relates to an element of the SEC’s “code of ethics” definition, then we will disclose the nature of the amendment or waiver on Teva’s website. The Board of Directors has approved a whistleblower policy which functions in coordination with Teva’s code of business conduct and provides an anonymous means for employees and others to communicate with various bodiesdepartments of Teva, including the Audit Committee. Teva has also implemented a training program for new and existing employees concerning the code of business conduct and whistleblower policy.
Principles of Corporate Governance
We have adopted a set of corporate governance principles, which is available on our website at www.tevapharm.com. We place great emphasis on maintaining high standards of corporate governance and continuously evaluate and seek to improve our governance standards. These efforts are expressed in
22 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Corporate Governance and Director Compensation
our corporate governance principles, our committee charters and the policies of our Board of Directors. Teva is in compliance with all corporate governance standards currently applicable to Teva under Israeli and U.S. laws, SEC regulations and NYSE listing standards.
Insider Trading Policy
Our directors, executive officers and employees, as well as their immediate family members, persons living in their home and entities controlled by any of the foregoing persons are subject to Teva’s insider trading policy (the “Policy”). The Policy prohibits insider trading and certain speculative transactions (including short sales, buying put and selling call options and other hedging or derivative transactions in Teva’s securities), and establishes a regular blackout period schedule during which directors, executive officers and certain employees may not trade in Teva’s securities. In addition, the Policy establishespre-clearance procedures that directors and executive officers must observe prior to effecting any transaction in Teva’s securities. The Policy applies not only to Teva’s ADSs and ordinary shares, but also to its debt securities and other securities for which Teva securities serve as underlying assets.
Board Evaluation Process
Our Board of Directors is committed to continuous improvement and recognizes the fundamental role a robust Board of Directors and committee evaluation process play in ensuring that our Board of Directors maintains optimal composition and functions effectively.
TheIn the annual self-evaluation process, the members of the Board of Directors conduct a confidential oral assessment of the performance, risk oversight and composition of the Board and any committees of which he or she is a member with the Company Secretary. As part of the evaluation process, the Board of Directors, in conjunction with the Corporate Governance and Nominating Committee, conducts an annual self-evaluationreviews the effectiveness and overall composition, including director tenure, board leadership structure, diversity and skill sets, of its effectivenessthe Board of Directors to ensure the Board of Directors serves the best interests of shareholders and positions the company for future success. The results of the oral assessments are then summarized and communicated back to each committee, committee chair and the entire Board of Directors. After the evaluations, each committee, committee chair and the entire Board of Directors and management work to improve upon any issues presented during the evaluation process and to identify opportunities where an enhancement or change in practicesthat may lead to further improvement. The Corporate Governance and Nominating Committee also uses this process to assess and determine the characteristics and skills required of prospective candidates for election to the Board of Directors.
The following table sets forth information regarding our executive officers as of April 25, 2018:
Name
| Age
| Executive
| Position
| |||||||||
Kåre Schultz
|
| 56
|
|
| 2017
|
| President and Chief Executive Officer
| |||||
Iris Beck-Codner
|
| 52
|
|
| 2014
|
| Executive Vice President, Global Brand and Communications
| |||||
Richard Daniell
|
| 51
|
|
| 2017
|
| Executive Vice President, European Commercial
| |||||
Sven Dethlefs
|
| 49
|
|
| 2017
|
| Executive Vice President, Global Marketing & Portfolio
| |||||
Dr. Hafrun Fridriksdottir
|
| 56
|
|
| 2017
|
| Executive Vice President, Global R&D
| |||||
Michael McClellan
|
| 48
|
|
| 2017
|
| Executive Vice President, Chief Financial Officer
| |||||
Gianfranco Nazzi
|
| 49
|
|
| 2017
|
| Executive Vice President, Growth Markets Commercial
| |||||
Dr. Carlo de Notaristefani
|
| 61
|
|
| 2012
|
| Executive Vice President, Global Operations
| |||||
Brendan O’Grady
|
| 51
|
|
| 2017
|
| Executive Vice President, North America Commercial
| |||||
Mark Sabag
|
| 48
|
|
| 2013
|
| Executive Vice President, Global Human Resources
| |||||
David M. Stark
|
| 49
|
|
| 2016
|
| Executive Vice President, Chief Legal Officer
| |||||
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 23
Corporate Governance and Director Compensation
Effective November 1, 2017, Kåre Schultz joined Teva as PresidentShareholder Engagement
Similar to 2018, in 2019 and CEO and was also appointed toearly 2020, the Board engaged with our shareholders in order to demonstrate our commitment to strong corporate governance and our effort to gather input from our shareholders, which we believe enables us to better understand the perspectives of Directors. He succeeded Dr. Yitzhak Peterburg, who servedour shareholders. During this time, we contacted shareholders representing approximately 36% of our outstanding shares, as Interim Presidentwell as the research teams at proxy advisory firms Institutional Shareholder Services Inc. and Chief Executive OfficerGlass Lewis & Co. Our Chairman of the Board and the Chair of our Compensation Committee participated in discussions with shareholders representing approximately 23% of our outstanding shares. In addition, we participated in a discussion with one of the proxy advisory firms.
The Board and management continue to engage regularly in dialogue with many of the Company’s largest shareholders, and the Compensation Committee will continue to consider shareholder feedback and the results of the advisory vote on executive compensation in connection with its determinations of executive compensation. Through our shareholder outreach, we have established important feedback channels that provide a valuable way to receive ongoing input from February to October 31, 2017.
On November 27, 2017, Michael McClellan was appointed Executive Vice President, Chief Financial Officer, after serving as Interim Chief Financial Officer since July 1, 2017. He succeeded Eyal Desheh who served as Group Executive Vice President, Chief Financial Officer since 2008.our shareholders.
In response to feedback from our shareholders that opioid-related risks deserve greater attention from the healthcare industry, we published a report related to opioid-related governance measures taken by the Company in November 2017, we announced2019.
See also “Executive Compensation—Compensation Discussion & Analysis—2019Say-on-Pay Vote and Shareholder Engagement.”
Social Impact and Responsibility
Teva is committed to helping patients around the world to access affordable medicines and benefit from innovations to improve their health. We have a new organizational structurerich history of providing innovative, high-quality generic and leadership changesspecialty drugs, and health solutions to enable strategic alignment acrosspatients around the world. At Teva, Social Impact means aligning our portfolios, regionscorporate resources and functions. In December 2017, we announced a comprehensive restructuring plan intendedexpertise with relevant areas of social need. We are dedicated to significantly reduce our cost base, unifypromoting health and simplify our organization and improve business performance, profitability, cash flow generation and productivity.increasing access to treatment for patients. Teva has participated in the United Nations Global Compact since 2010, which encourages companies around the world to adhere to principles of responsible business.
We are committed to partnering with others to help achieve the UN Sustainable Development Goals (“SDG”), which were adopted by all United Nations member states in 2015. As a resultpharmaceutical company, we have decided to strategically focus our efforts in advancing the achievement of “SDG 3 – good health and well-being,” by prioritizing two main targets: “SDG 3.4 – reduce premature mortality fromnon-communicable diseases (“NCDs”),” and “SDG 3.8 – ensure access to quality essential health-care services and access to safe, effective, quality and affordable essential medicines.” We are focusing on these changes, Dr. Michael Hayden, Dr. Rob Koremansareas through our portfolio and Dipankar Bhattacharjee stepped down fromglobal health efforts, including those focused on people with multiple chronic conditions.
We remain actively engaged with our shareholders and other key stakeholders on our Environmental, Social and Governance (“ESG”) performance relative to our financial results. Based on engagement with key stakeholders and our internal analysis, we strategically prioritized the improvement of our ESG performance and transparency. Our Board of Directors remains actively engaged on these issues with oversight of our social impact and responsibility initiatives by our Compliance Committee.
Our Social Impact and Responsibility efforts are focused in the following areas, among others:
Contributing to Healthy Communities. For Teva, a healthy community is one in which individuals have access to resources and conditions that enable them to live their healthiest lives. Cultivating healthier
24 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Corporate Governance and Director Compensation
communities allows us to support people around the world on their individual paths toward wellness, thereby creating value for society and our business.
Leading a Responsible Business. At Teva, a responsible business is one that enacts and enforces strong practices and controls to ensure all activities are carried out reliably, ethically, and transparently. As a global company that influences the health and safety of millions of people, we recognize our responsibility to conduct our business with integrity. Operating in this manner helps ensure our long-term sustainability, allowing us to focus on what matters most—improving health.
Reporting and Disclosures. Teva reports its Social Impact and Responsibility efforts using the Global Reporting Initiative (GRI) Standards and publishes the results of such efforts in our annual Social Impact reports.
In 2019, we improved our performance in most of the leading ESG ratings and rankings, and we will continue to measure our performance going forward. We also achieved external recognition for our social impact programs to address NCDs and help patients with multiple chronic conditions.
For more information about Teva’s Social Impact and Responsibility practices, including our most recent annual Social Impact report, as well as positions and policy statements on issues relating to ESG issues, please see Teva’s website athttps://www.tevapharm.com/our-impact/. Information on our website is not part of the proxy materials and is not incorporated into the proxy statement by reference.
Executive Officers
The following table sets forth information regarding our executive roles at officers as of April , 2020:
Name
| Age
| Executive
| Position
| |||||||
Kåre Schultz
|
| 58
|
|
| 2017
|
| President and Chief Executive Officer
| |||
Richard Daniell
|
| 53
|
|
| 2017
|
| Executive Vice President, European Commercial
| |||
Sven Dethlefs
|
| 51
|
|
| 2017
|
| Executive Vice President, Global Marketing & Portfolio
| |||
Eric Drapé
|
| 58
|
|
| 2019
|
| Executive Vice President, Global Operations
| |||
Dr. Hafrun Fridriksdottir
|
| 58
|
|
| 2017
|
| Executive Vice President, Global R&D
| |||
Eli Kalif
|
| 47
|
|
| 2019
|
| Executive Vice President, Chief Financial Officer
| |||
Gianfranco Nazzi
|
| 51
|
|
| 2017
|
| Executive Vice President, International Markets Commercial
| |||
Brendan O’Grady
|
| 53
|
|
| 2017
|
| Executive Vice President, North America Commercial
| |||
Mark Sabag
|
| 50
|
|
| 2013
|
| Executive Vice President, Chief Human Resources Officer and Global Communications and Brand
| |||
David M. Stark
|
| 51
|
|
| 2016
|
| Executive Vice President, Chief Legal Officer
| |||
Teva on November 27, 2017.Pharmaceutical Industries Ltd. 2020 Proxy Statement 25
Corporate Governance and Director Compensation
Kåre Schultz
President and Chief Executive Officer | The biography of Kåre Schultz, our President and Chief Executive Officer, and one of our directors, appears under “—Directors” above. | |
| ||
Richard Daniell
Executive Vice President, European Commercial | Mr. Daniell was appointed Executive Vice President, European Commercial in November 2017. From December 2016 to November 2017, he served as President and CEO, Teva Europe Generics. From 2015 to 2016, he served as Chief Integration Officer, leading the integration of the Actavis Generics business into Teva. From 2015 to 2016, he served as Chief Operating Officer, Growth | |
Sven Dethlefs
Executive Vice President, Global Marketing & Portfolio | Mr. Dethlefs was appointed Executive Vice President, Global Marketing & Portfolio in November 2017. From 2016 to 2017, he served as Global Head of Respiratory Medicines, at Teva’s Global Specialty | |
Eric Drapé Executive Vice President, Global Operations | Mr. Drapé was appointed Executive Vice President, Global Operations in October 2019. From 2015 to 2019, he served as Teva’s Executive Vice President and Chief Quality Officer. From 2014 to 2017 he also served as head of Teva’s Biologics Operations, and from 2014 to 2015 he served as Senior Vice President, Technical Operations Steriles, Respiratory and Biologics at Teva. Prior to joining Teva, Mr. Drapé served as Executive Vice President, Technical Operations of Ipsen Pharma and in several leading positions at Novo Nordisk. Mr. Drapé holds a Doctorate degree in Pharmacy and a DESS in Analytical Control of Drugs from the Université Paris XI. He also received his Executive MBA from the Scandinavian International Management Institute in Copenhagen. | |
Dr. Hafrun Fridriksdottir
Executive Vice President, Global R&D | Dr. Fridriksdottir became Executive Vice President, Global R&D in November 2017. From February 2017 to November 2017, she served as Executive Vice President, President of Global Generics R&D, after serving as Senior Vice President and President of Global Generics R&D from 2016. Prior to joining Teva, from 2015 to 2016, Dr. Fridriksdottir served as Senior Vice President and | |
24 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Corporate Governance and Director Compensation
| President of Global Generics R&D in Allergan plc. From 2002 to 2015, she held positions of increasing responsibility within the Actavis Group, including Senior Vice President, R&D. From 1997 to 2002, Dr. Fridriksdottir served as Divisional Manager of Development at Omega Pharma, until its merger with Actavis. Dr. Fridriksdottir received an MS degree in pharmacy and a Ph.D. in physical pharmacy from the University of Iceland. |
26 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Corporate Governance and Director Compensation
Executive Vice President, Chief Financial Officer | Mr. | |
Gianfranco Nazzi
Executive Vice President, Commercial | Mr. Nazzi was appointed Executive Vice President, | |
| ||
Brendan O’Grady
Executive Vice President, North America Commercial | Mr. O’Grady was appointed Executive Vice President, North America Commercial in November 2017. From 2016 | |
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 25
Corporate Governance and Director Compensation
Mark Sabag
Executive Vice President, Officer and Global Communications and Brand | Mr. Sabag became Executive Vice President, Global Human Resources in November | ||
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 27
Corporate Governance and Director Compensation
David M. Stark
Executive Vice President, Chief Legal Officer | Mr. Stark became Executive Vice President, Chief Legal Officer in November 2017. From November 2016 to November 2017, he served as Group Executive Vice President, Chief Legal Officer. From 2014 to 2015, Mr. Stark was Senior Vice President and General Counsel, Global Specialty Medicines. Since joining Teva in 2002, Mr. Stark served in a series of roles with increasing responsibilities in Teva North America and Teva Americas, including as Senior Director, Deputy General Counsel, and Vice President and General Counsel. Prior to joining Teva, Mr. Stark was an associate attorney in the litigation departments at Willkie Farr & Gallagher LLP between 1998 and 2002, Chadbourne & Parke between 1997 and 1998 and Haight, Gardner, Poor & Havens between 1994 and 1997. Mr. Stark received a J.D. from New York University School of Law and a B.A. in political science from Northeastern University, summa cum laude. |
2628 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
This compensation discussion and analysis (“CD&A”) describes the philosophy, objectives, process, components and additional aspects of our 20172019 executive compensation program. This CD&A is intended to be read in conjunction with the tables that immediately follow this section, which provide further historical compensation information for the following named executive officers (“NEOs”):
| Position | |
Kåre Schultz (1)
|
President and Chief Executive Officer (“CEO”)
| |
|
Executive Vice President, Chief Financial Officer (“CFO”) | |
|
| |
Dr. Hafrun Fridriksdottir
|
Executive Vice President, Global R&D
| |
|
Executive Vice President,
| |
| Executive Vice President, International Markets Commercial
| |
|
Former Executive Vice President,
| |
Dr.
|
Former |
| (1) | Mr. Schultz, in addition to his role as President and CEO, performed the functions of the CFO from the date of Mr. McClellan’s departure on November 8, 2019 until Mr. Kalif began employment with the Company on December 22, 2019. |
| (2) |
Mr. Kalif commenced employment with the Company on December 22, 2019. |
| (3) | Mr. McClellan resigned as CFO on November 8, 2019. |
| (4) | Dr. |
| |
|
de Notaristefani stepped down from this role effective October 2, 2019. |
Quick CD&A Reference Guide
Executive Summary
|
Section I
| |
Compensation
|
Section II
| |
Compensation
|
Section III
| |
|
Section IV | |
Components of Our Compensation Program | Section V
| |
Additional Compensation Policies and Practices
|
Section
|
I. Executive Summary
OverviewCompensation Objectives
The core objectives of our executive compensation programs are to (i) link pay to performance over both the short- and long-term; (ii) align executive officers’ interests with those of Teva and its shareholders over the long-term, generally by including grants of the Company’s equity as a significant component in our executive compensation program; (iii) encourage balanced risk management; and (iv) provide a competitive compensation package that motivates executive officers. Consistent with these objectives, our compensation plans are designed to reward our executive officers for generating performance that achieves Company, business and individual goals, and for increasing shareholder returns. When we do not achieve Company, business and individual goals, our executive officers’ compensation reflects that performance.
2017 was a year of transition for Teva. Both our generic medicines business and our specialty medicines business faced significant challenges. In order to position Teva for the future,accomplish our key corporate objectives, we made changesmust attract, motivate and retain highly skilled and experienced people to execute our leadership structure. Ourcorporate strategy and lead our team. To that end, our executive officer compensation program is designed to support our strategy, especially during this period of transition.to:
| (i) | link pay to performance; |
| (ii) | align executive officers’ interests with those of Teva and its shareholders over the long term; |
| (iii) | provide competitive compensation to attract and retain talent; and |
| (iv) | encourage balanced risk management. |
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 27
Executive Compensation
2017 Select Business Highlights
|
|
28 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
|
Components of Compensation and Target Pay Mix
The Compensation Committee, Board and shareholders selected the components of compensation set forth below to achieve our stated executive officer compensation objectives. The majority of the compensation of each executive officer is variable and at risk. We consider compensation to be “at risk” if it is subject to performance-based payment or vesting conditions or if its value depends on share price appreciation.
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 29
Executive Compensation
Compensation of2019 Select Business Highlights
In 2019, we made significant progress on our executive officers generally consists of annual base salary, annual cash incentivesstrategic plan to reduce costs and annual equity-based compensation. As required by the Israeli Companies Law, we have adopted the Compensation Policy, which is presented for shareholder approval at least once every three years. Under the Compensation Policy, our target range for the pay mix between the annual base salary, annual cash incentives and annual equity-based compensation of our executive officers isreturn to growth, as follows:detailed below.
Strategic Developments |
| ∎ | We successfully achieved our goal of reducing our total spend base by $3 billion as a result of our comprehensivetwo-year restructuring plan. |
| ∎ | In connection with the restructuring plan, we have reduced our global headcount by approximately 13,000 full-time-equivalent employees, reduced the number of manufacturing facilities by 13, with 10 more in process, and reduced the number of additional offices and laboratories by 40, all while maintaining full operational capacity. |
| ∎ | We reduced our net debt by 21% to $24.9 billion at the end of 2019, compared to $31.5 billion at the end of 2017. |
| ∎ | Sales of AUSTEDO® for Huntington’s disease and other movement disorders continue to grow rapidly, with $412 million in revenues in the U.S. in 2019, an increase of 102% compared to 2018. |
| ∎ | After we launched AJOVY® for the preventive treatment of migraines in adults in the U.S. in 2018, we launched it in Europe in 2019, and we secured auto-injector approval in the U.S and Europe. |
| ∎ | In November 2019, we launched TRUXIMA®, our first oncology biosimilar product in the U.S. and the first rituximab biosimilar to be approved in the U.S. |
Financial Results |
| ∎ | Our revenues in 2019 were $16.9 billion, a decrease of 8% in U.S. dollars, or 5% in local currency terms, compared to 2018, which was above our February 2019 financial guidance (when adjusted for the revision related to the Israeli distribution business. See note 1b to our consolidated financial statements set forth in our Annual |
| ∎ | Operating loss was $443 million in 2019, compared to an operating loss of $1.6 billion in 2018, mainly due to higher impairment charges recorded in 2018. |
| ∎ | As of December 31, 2019, our gross debt was $26.9 billion, compared to $28.9 billion as of December 31, 2018. This decrease was mainly due to senior notes repaid at maturity or prepaid with cash generated during the year. |
| ∎ | GAAP Loss Per Share was $0.91 in 2019, compared to GAAP Loss Per Share of $2.35 in 2018;non-GAAP Earnings Per Share (“EPS”) were $2.40 in 2019, compared tonon-GAAP EPS of $2.92 in 2018. Please see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—SupplementalNon-GAAP Income Data” of our Annual Report on Form10-K for the year ended December 31, 2019 for a reconciliation ofnon-GAAP EPS. |
| ∎ | During 2019, we generated free cash flow of $2.05 billion, which we define as comprising $748 million in cash flow generated from operating activities, $1.5 billion in beneficial interest collected in exchange for securitized trade receivables and $343 million in proceeds from sale of property, plant and equipment and intangible assets, partially offset by $525 million in cash used for capital investments. |
Executive Compensation
Leadership Transitions |
| ∎ | On December 22, 2019, Eli Kalif joined Teva as Executive Vice President, CFO. He succeeded Michael McClellan, who stepped down on November 8, 2019, after serving as Executive Vice President, CFO from November 2017. |
| ∎ | On October 2, 2019, Eric Drapé was appointed Executive Vice President, Global Operations, after serving as Executive Vice President, Chief Quality Officer since 2015. He succeeded Dr. Carlo de Notaristefani, who served as Executive Vice President, Global Operations from August 2012. |
Multi-Year Restructuring Largely Completed in 2019 to Position Teva for Future Growth
In September 2017, our Board appointed Mr. Schultz as CEO based on his strong track record in corporate turnarounds and driving growth. At the time of Mr. Schultz’s appointment in 2017, we had approximately $34 billion of debt and COPAXONE, a product that generated a significant amount of our revenue, was losing patent protection around the world and we anticipated lower product revenue amid competition from generic versions.
Shortly after his appointment, Mr. Schultz initiated atwo-year Company restructuring plan designed to reduce our spend base significantly, which would provide cash flow to service debt and stabilize earnings, while still maintaining full operational capacity. In 2019, we essentially concluded the plan. Under Mr. Schultz’s leadership, the Company’s executive officers succeeded in reducing our spend base by $3 billion since 2017, reducing our net debt by 21% since 2017, and optimizing our manufacturing operations, enabling us to lay the foundation for future growth.
In order to focus our executive officers on these most critical strategic priorities during the restructuring period, the Compensation Committee and the Board selectednon-GAAP EPS and Free Cash Flow as performance metrics in the 2019 annual cash incentive plan andnon-GAAP Operating Profit and Net Debt Reduction in the 2019-2021 long-term incentive equity plan. Even in the midst of the restructuring and despite facing significant market headwinds, our CEO and our executive officers led the Company in achieving the 2019non-GAAP EPS and Free Cash Flow goals. See “—Key Highlights of 2019 Executive Compensation—3. 2019 Targets, Performance Achievement and Annual and Long-Term Incentive Compensation Payouts” below for additional information on the target and achievement levels of performance for these metrics.
We believe that our success in 2019 in steadying our earnings performance and in bringing new specialty products to market around the world have positioned the Company for future growth. As such, for 2020, the Compensation Committee and the Board began to shift the focus of incentives by incorporating Net Revenue and top line growth into the 2020-2022 long-term incentive equity metrics.
Key Highlights of 2019 Executive Compensation
| 1. | 2019 CEO Compensation—Unchanged, Majority Performance-Based (Total and Equity): There was no increase to the target total direct compensation of the CEO as compared to 2018, and no increase in the value of the equity component. Approximately 82% of CEO compensation was variable andat-risk, with the majority being performance-based. 50% of the long-term incentive equity grants were performance-based. Specifically, 50% of such grants were in the form of performance share units (“PSUs”) that are subject to new three-year performance metrics tied to our key goals and with a relative TSR modifier (now +/- 20%), and that will vest at the end of the performance period. The other 50% were in the form of time-based restricted share units (“RSUs”). |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 31
Executive Compensation
2019 CEO Target Total Direct Compensation
Executive
| Principal
| Base Salary
| Target
| 2019 PSUs
| 2019 RSUs
| Total
| ||||||
Kåre Schultz
|
CEO
|
$2,000,000
|
$2,800,000
|
$2,999,985
|
$2,999,992
|
$10,799,977
| ||||||
% of Total
|
18%
|
26%
|
28%
|
28%
| 100% | |||||||
% of Long-Term
|
50%
|
50%
|
| 2. | 2019 Long-Term Incentives—Increased the Allocation to Performance-Based Equity to 50% for all NEOs; High Threshold Performance Level; Three-Year Performance Goal; Reduced Maximum Earning Percentage:The Compensation Committee and the Board raised the portion of equity granted to the executive officers that is subject to performance-based vesting conditions to 50% by allocating 50% of the value of the target equity grant to PSUs and the other 50% to time-based RSUs. Previously, in 2018, the Compensation Committee and the Board had raised the CEO’s allocation to PSUs to 50%. This change was extended to executive officers in order to further enhance the link between pay and performance for executive officers and the alignment of the interests of the executive officers with those of Teva and its shareholders. |
In order to earn any of the PSUs, a minimum of 85% of target performance must be achieved, which is a rigorous and challenging level of achievement that must be met before any PSUs are earned. In addition, the Compensation Committee and the Board established three-year goalsup-front for the chosen metrics and communicated them to grant recipients, clearly articulating the targets from the outset of the performance period. For the grants in the form of PSUs, the Compensation Committee and the Board reduced the maximum potential number of PSUs to be earned from 300% to 240% of the target number of PSUs for maximum performance.
| 3. | 2019 Targets, Performance Achievement and Annual and Long-Term Incentive Compensation Payouts: At the beginning of 2019, we established annual cash incentive plan goals aligned with the high end of our 2019 outlook as communicated to investors in February 2019. These goals were considered rigorous, aggressive and challenging, attainable only with strong performance, and took into account the relevant opportunities and risks, including the significant continuing headwinds we were facing. While the 2019non-GAAP EPS goal remained the same as the goal for 2018, the Free Cash Flow goal decreased, based on the assumptions communicated to investors in February 2019, including: |
| ∎ | Anticipated continued decline in COPAXONE revenue of over 37% from $2.4 billion in 2018 to approximately $1.5 billion in 2019 due to an expected increase in generic competition; |
| ∎ | Anticipated decrease in ProAir HFA revenue in 2019 due to the introduction of generic Albuterol; |
| ∎ | Anticipated slight decline in our North American generics business revenue due to erosion and volume declines, offset by new launches; and |
| ∎ | Anticipated decline in International Generics revenue from the adverse impact in Japan, due to a National Health Insurance price revision, as well as from continued erosion of long listed products. |
In spite of the challenges we faced, we made exceptional progress. For the 2019 annual incentive plan, the Compensation Committee and the Board determined that the Company’s achievement was 96% of our 2019non-GAAP EPS target and 103% of our 2019 Free Cash Flow target, both of which were aligned to the high end of our 2019 outlook as communicated to investors in February 2019. Based on achievement of these corporate objectives, along with determination of the NEOs’ individual performance achievement, the Compensation Committee and the Board approved an annual incentive plan payout of 102% of target for the CEO, and between 93% and 118% of target for the other NEOs.
32 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
In addition, for 2017-2019 PSUs, the Compensation Committee and the Board determined that the achievement for the combined three-year performance period was 100% of thenon-GAAP EPS target, resulting in an earning percentage of 100%, and achievement of 111% of the Free Cash Flow target, resulting in an earning percentage of 154%. The average of these earning percentages, 127%, was then subject to a relative TSR modifier, which adjusted the earning percentage downward by 20%, resulting in a modified earning percentage of 102%. The Compensation Committee and the Board then exercised negative discretion to reduce the final earning percentage to 100% of the target number of PSUs.
| 4. | Eliminated Overlapping Metrics in Short- and Long-Term Awards:The Compensation Committee and the Board eliminated overlapping metrics in short- and long-term performance-based awards in 2019 by usingnon-GAAP EPS and Free Cash Flow metrics for the short-term incentive plan goals andnon-GAAP Operating Profit and Net Debt Reduction, with a relative TSR modifier, for the long-term incentive plan goals. The new long-term metrics were selected in order to focus executive officers on long-term profitability and debt reduction objectives and to differentiate the long-term metrics from the metrics under the annual incentive plan. |
| 5. | Assessed and Updated Peer Group Criteria to Reflect Current Organizational Status: Each year, the Compensation Committee reassesses the Peer Group used as a reference point for evaluating executive compensation. In connection with determining the 2019 compensation of the CEO and executive officers, the Compensation Committee conducted a review of our peer group to ensure its continued appropriateness. In light of changes in our revenues, the Compensation Committee revised the peer group selection criteria for company size by reducing the revenue range to$10-$40 billion from$10-$70 billion, which resulted in the removal of five of the largest companies by revenue and the addition of one new company, as compared to our 2018 peer group. |
| 6. | Implemented More Robust Stock Ownership Guidelines: The Compensation Committee enhanced the stock ownership guidelines to strengthen alignment with Teva and our shareholders. Changes included: |
| ∎ | increasing the CEO ownership guideline to 6x base salary from 4x base salary; |
| ∎ | increasing the ownership guideline for other executive officers to 3x base salary from 2x base salary; |
| ∎ | adopting stock ownership guidelines for members of the Board equal to 5x the annual cash retainer fee for Board membership (excluding committee fees); and |
| ∎ | discontinuing the use of unvested PSUs to satisfy stock ownership guidelines. |
Realizable Pay Demonstrates Pay for Performance Alignment
Realizable pay reflects the actual value of annual incentives and equity awards received or to be received by our NEOs, and fluctuates with performance and with increases or decreases in share price. For this reason, contrasting target pay with realizable pay provides a meaningful demonstration of pay for performance alignment.
When the Company does not meet performance targets and/or the share price decreases, an executive’s realizable pay is affected. The following charts demonstrate the relationship between the target and realizable pay values, in each of the past three years, of our NEOs’: (1) annual incentive, and (2) annual equity grants, including PSUs, RSUs, and stock options, as applicable, following the conclusion of the applicable three-year PSU performance period (December 31) and RSU and option values from the same annual grant as of that date. The equity grants to the NEOs in 2015 and 2016 included PSUs and stock options and in 2017 included PSUs, RSUs and stock options. The realizable value of this equity has been calculated by multiplying the number of earned shares for each PSU grant and the number of vested and unvested RSUs
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 33
Executive Compensation
(for the 2017 grant) by the stock price per share on the last trading day of the relevant performance period, and by determining the intrinsic (or “in the money”) value of vested and unvested stock options on these dates.
With respect to PSUs, for 2015 grants, the Company’s three-year performance did not achieve the threshold level, and no PSUs were earned. For 2016 grants, the Company’s three-year performance produced an earning percentage of 75.09%, but because of the decrease in the share price, the realizable value of such PSUs represented just 22% of the target value. For NEOs that received a grant in February 2017, the Company’s three-year performance produced an earning percentage of 100%, but because of the decrease in the share price, the realizable value of such PSUs represented just 35% of the target value and the realizable value of RSUs represented just 31% of the grant value. Per the terms of Mr. Schultz’s employment agreement, he received a 2017 grant upon commencing employment in November 2017, and as the share price had already declined by that time resulting in a lower fair value per unit, the CEO’s realizable value of such PSUs represented 104% of the target value and the realizable value of RSUs represented 94% of the grant value. With respect to stock options granted in 2015, 2016 and 2017, because of the decrease in the share price, no stock options granted had any intrinsic value at the conclusion of the respective PSU performance periods.
Average NEO Annual Cash Incentive Payout as % of Target | Average NEO Annual Equity Grant Realizable Value as % of Target Value | |
|
| |
* The average NEO 2017 grant realizable value is 22% excluding the CEO’s annual equity award granted in November 2017, which had a lower fair value per unit when it was granted. |
2019Say-on-Pay Vote and Shareholder Engagement
At the 2019 annual meeting of shareholders, our shareholders approved, on an advisory basis, the compensation of our NEOs, with approximately 89% of the votes cast on the matter “For” such approval, an improvement from 2018’s advisory vote. The Compensation Committee viewed the approval by shareholders of the executive compensation program at such a level as evidence that a substantial majority of shareholders have a favorable view of the Company’s executive compensation program.
In addition, our shareholders approved our amended compensation policy, as required by Israeli law, with approximately 90% of the votes cast on the matter “For” such approval.
Similar to 2018, in 2019 and early 2020, the Board engaged with our shareholders in order to demonstrate our commitment to strong corporate governance and our effort to gather input from our shareholders, which we believe enables us to better understand the perspectives of our shareholders. During this time,
34 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
we contacted shareholders representing approximately 36% of our outstanding shares, as well as the research teams at proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. Our Chairman of the Board and the Chair of our Compensation Committee participated in discussions with shareholders representing approximately 23% of our outstanding shares. In addition, we participated in a discussion with one of the proxy advisory firms.
The target ranges expressBoard and management continue to engage regularly in dialogue with many of the optimal pay mixCompany’s largest shareholders, and the Compensation Committee will continue to consider shareholder feedback and the results of the advisory vote on executive compensation in the event all performance measures are achieved at target levels, and assume all compensation elements are grantedconnection with respectits determinations of executive compensation. Through our shareholder outreach, we have established important feedback channels that provide a valuable way to a given calendar year. Performance that is lower than target levels or exceeds target levels in any given calendar year may result in a payout in different percentages than those described above.receive ongoing input from our shareholders.
The target pay mix supports the core principles of our executive officer compensation philosophy of compensating for performance and aligning executive officers’ interests with those of
Teva and its shareholders, by emphasizing short- and long-term incentives that fall within the ranges noted above.Pharmaceutical Industries Ltd. 2020 Proxy Statement 35
Executive Compensation
II. Compensation Governance
CorporateCompensation Governance Practices
As part of the efforts of the Compensation Committee to ensure that our compensation program, which includes our policies and practices, aligns our executive officers’ interests with those of Teva and its shareholders, the Compensation Committee assesses the effectiveness of our compensation program periodically and reviews risk mitigation and governance matters. We do this by maintaining the following best practices:
| What We Do | What We Don’t Do | |||||
✓ |
|
X |
No immediate vesting (“single trigger”) of equity-based awards if awards are assumed or substituted in connection with a
| |||
✓ |
|
X |
“No
| |||
✓ |
|
X |
“No
|
15%-30% Annual Target Cash Incentives 40%-75% Annual Target Equity-based Compensation 10%-30% Annual Base Salary
✓
30 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
Review compensation benchmark data from peer companies whose industry, revenues, and global footprint share similarities with Teva | X | No guaranteed performance bonuses | ||||||
✓ |
Use equity for long-term incentive awards
|
| X |
|
No | |||
✓ |
Maintain an appropriate balance between
|
| X |
|
No | |||
✓ |
Cap annual cash incentive payouts, annual
|
| X |
| ||||
|
|
|
|
No highly leveraged incentive plans that encourage excessive
| ||||
✓ |
|
| X |
|
No excise taxgross-up provisions in employment agreements | |||
✓ | Maintain a clawback policy designed to recoup cash and equity-based incentives paid to executive officers based on erroneously prepared financial statements or other misconduct | |||||||
✓ |
Engage an independent compensation advisor
| |||||||
✓ |
Conduct annual risk assessments of our
|
U.S. Domestic Issuer Status
Effective January 1, 2018, we began filing periodic reports and registration statements with the SEC as a U.S. domestic issuer, after we determined that, as of June 30, 2017, we no longer qualified as a foreign private issuer under SEC rules. As a U.S. domestic issuer, we must now, for the first time, make our SEC filings under the rules applicable to U.S. domestic issuers, and must include certain disclosures that were not previously required, including this Compensation Discussion and Analysis. In addition, the determination and presentation of executive compensation amounts for NEOs contained within this
36 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation section follows SEC and applicable accounting requirements, which differ from the determination and presentation methodologies that were permitted by, and that we have used previously in, prior Annual Reports filed on Form20-F and other disclosures and filings. For example, certain elements of compensation in this Executive Compensation section are reported based on the year with respect to which they were granted or earned, not for periods with respect to which they were accrued or expensed for accounting purposes (as was the case in our prior Annual Reports filed on Form20-F). This applies, for example, to amounts in respect of equity compensation in the Summary Compensation Table, which are now calculated based on grant date fair value and not calculated based on compensation expense as accrued for accounting purposes, as reflected in our prior Annual Reports filed on Form20-F.
Compensation-Related Requirements ofCompensation Policy under the Israeli Companies Law
Due to our unique position as an Israeli company with an extensive global footprint, we aim to adopt compensation policies and practices that match those of similar global companies, but we must also comply with applicable Israeli law, including the requirement that Israeli publicly traded companies adopt a compensation policy which is brought for shareholders’ approval and contains certain limits on elements of compensation. All executive compensation decisions must generally be consistent with that policy.
As approved at our 20162019 annual general meeting of shareholders, and as required by the Israeli Companies Law, we have adopted a Compensation Policy regarding the terms of office and employment of our “office holders”“Office Holders” (as defined under the Israeli Companies Law, which includes directors, the CEO, other executive officers and any other managers directly subordinate to the CEO), including cash compensation, equity-based awards, releases from liability, indemnification and insurance, severance, and other benefits (the “Terms of Office and Employment”). Each of our NEOs is (oror was while employed by us) an “office holder”Office Holder within the meaning of the Israeli Companies Law. The Compensation Policy is reviewed from time to time by the Compensation Committee and the Board to ensure its alignment with our compensation philosophy and objectives and to consider its appropriateness for Teva and isTeva. Under the Israeli Companies law, we are required to be broughtbring the compensation policy to shareholders at least once every three years to our shareholders for approval.
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 31
Executive Compensation
Pursuant to the Israeli Companies Law, arrangements between Teva and its office holdersOffice Holders must generally be consistent with the Compensation Policy. However, under certain circumstances, we may approve an arrangement that is not consistent with the Compensation Policy, if the arrangement is approved by a majority of our shareholders who participate and vote, provided that (i) the majority includes a majority of the votes cast by shareholders who are presentparticipate and votingvote (abstentions are disregarded) who (A) are not controlling shareholders and (B) do not have a personal interest in the matter, or (ii) the votes cast against the arrangement by shareholders who are not controlling shareholders and who do not have a personal interest in the matter who were presentparticipate and votedvote constitute two percent or less of the voting power of the Company (a “special majority”). Under certain circumstances, if the Compensation Policy is not approved by the shareholders, the Compensation Committee and the Board may nonetheless approve such policy.
In addition, pursuant to the Israeli Companies Law, the Terms of Office and Employment of Office Holders generally require the approval of the Compensation Committee and the Board. The Terms of Office and Employment as applicable to directors, including with respect to other positions in the Company, further require the approval of the shareholders by a simple majority. The Terms of Office and Employment with respect to a CEO (who is not a director) generally require the approval of the shareholders by the special majority referenced in the immediately preceding paragraph. Pursuant to regulations promulgated under the Israeli Companies Law, shareholder approval is not required with respect to Terms of Office and Employment granted to a director or a CEO for the period following his or her appointment until the next general meeting of shareholders, provided these terms are (i) approved by the Compensation Committee and the Board, (ii) consistent with the Compensation Policy and (iii) on similar or less favorable terms than those of the person’s predecessor. In addition, under certain circumstances, shareholder approval is not required with respect to the Terms of Office and Employment of a candidate for CEO if the Compensation Committee determines that the engagement will be frustrated if the approval is pursued, provided that the terms are consistent with the Compensation Policy. This provision was followed in the recruitment of our President and CEO, Kåre Schultz.
Under certain circumstances, if the Terms of Office and Employment of office holdersOffice Holders who are not directors are not approved by the shareholders, where such approval is required, the Compensation Committee and the Board may nonetheless approve such terms. In addition,non-material amendments of the Terms of Office and Employment of office holdersOffice Holders who are not directors may be approved by the Compensation Committee only andnon-material amendments of the Terms of Office and Employment of office holdersOffice Holders who are not directors and excluding the CEO may be approved by the CEO only, provided such approvals are permitted under the Compensation Policy and consistent therewith.
Accordingly, for as long as not otherwise determined bypursuant to our Compensation Policy, the Compensation Committee and the Board,can authorize our President and CEO is currently authorized to approve benefits and perquisiteschanges in terms for any other executive officer with respect to any calendar year, provided that it does not exceed the value of such executive officer’s one monthone-month base salary.
Compensation Proposal Results and Shareholder Feedback
We pay careful attention to any feedback we receive from our shareholders about our executive compensation program. Although we have not been subject to the requirement for a shareholder advisory vote on our executive compensation program(“say-on-pay”) in the past, we have historically received high levels of support from our shareholders on executive compensation matters, including the approval of our Compensation Policy. At our 2017 annual meeting of shareholders, the votes on executive compensation matters received the following levels of support:
32 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
The Compensation Committee believes these results demonstrate strong shareholder support for our executive compensation program. While we received such support for our compensation proposals at our 2017 annual general meeting, the Compensation Committee continued to work to enhance our executive compensation program to further align with shareholder interests. When making compensation decisions for our executive officers, the Compensation Committee will continue to consider the outcome of votes on compensation-related matters and feedback from shareholders.
II.III. Compensation Philosophy and Objectives
To remain competitive, we must attract and retain highly talented professionals with the necessary skills and capabilities to promote creativity and manage global operations. Due to our unique position as an Israeli company with an extensive global footprint, we aim to adopt compensation policies and practices that match those of similar global companies, while complying with applicable local laws and policies.
We are also committed to transparent and ethical business practices. Maintaining high standards of corporate governance and legal compliance are key factors in our success. This allows us to create long-term value for our shareholders as well as all of our other stakeholders, including employees, customers, suppliers and, above all, patients worldwide.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 37
Executive Compensation
Our executive officer compensation philosophy also values the following principles:
| ∎ | promotion of our goals and supporting our business strategy and work plan; |
| ∎ | paying executive officers equitably relative to one another based on their roles and responsibilities, educational background, skills, expertise, prior professional experience, achievements, seniority and location; |
| ∎ | embedding a culture of strong performance with high integrity; and |
| ∎ | encouraging good corporate governance and compliance practices. |
Our objectives with respect to executive officer compensation, as summarized below, are designed to: (i) link pay to performance; (ii) align executive officers’ interests with those of Teva and its shareholders over the long-term;long term; (iii) provide competitive compensation packages that motivate our executive officers; and (iv) encourage balanced risk management; and (iv) provide a competitive compensation package that motivates our executive officers.management.
| ∎ | Pay-for-performance:We aim to incentivize our executive officers by creating a strong link between their performance and compensation. Therefore, a significant portion of the total compensation package provided to our executive officers is based on measures that reflect both our short- and long-term goals and performance, as well as the executive officer’s individual performance and impact on shareholder value. In order to strengthen this link, we define clear and measurable quantitative and qualitative objectives that, in combination, are designed to improve our results and returns to shareholders. |
| ∎ | Alignment of executive officers’ interests with those of Teva and its shareholders: In order to promote retention and motivate executive officers to focus on long-term objectives and the performance of Teva’s shares, a significant portion of the compensation packages of our executive officers is granted in the form of equity-based compensation, which creates a direct link between the interests of executive officers and the interests of Teva and its shareholders. By making executive officers shareholders with a personal stake in the value of Teva, we are motivating them to create and enabling them to share in Teva’s growth and success, while also fostering an ownership culture among executive officers. We further strengthen this link by requiring our executive officers to maintain meaningful levels of share ownership. |
| ∎ |
|
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 33
Executive Compensation
III.
| ∎ | Risk management: Compensation is structured in a manner that creates an incentive to deliver high performance (both short- and long-term) while taking into account our compliance and risk management philosophy and avoiding undue pressure on executive officers to take excessive risks, thereby encouraging a balanced and effective risk-taking approach. Our compensation elements are designed with this in mind, by including mechanisms that reduce incentives to expose Teva to imprudent risks that may harm the Company or our shareholders in the short- and long-term. This is achieved by using tools such as (i) placing maximum limits on short- and long-term incentives; (ii) measuring performance with key performance indicators that are designed to reduce incentives to take excessive risks; (iii) using compensation vehicles with diverse performance measures; (iv) granting a mix of equity-based compensation types that have long-term vesting schedules, which tie the awards |
38 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
| to a longer performance cycle; (v) requiring clawback of compensation payments in certain circumstances; and (vi) requiring compliance with meaningful stock ownership guidelines. |
IV. Compensation Determination Process
The Compensation Committee and the Board design the executive compensation program with the intention of accomplishing the goals of linking pay to performance and creating alignment with Teva and its shareholder interests and also retaining and motivating a qualified executive team to provide strategic leadership and business continuity.described above. In determining executive compensation, the Compensation Committee obtains input and advice from its independent compensation consultants as applicableconsultant and reviews recommendations from our CEO with respect to the performance and compensation of our other executive officers. The Board, upon recommendation from, and following approval of, the Compensation Committee reviews and, approvesif applicable, the Board, review and approve the compensation and performance awardsthe performance-based metrics and goals of the CEO and executive officers. The Compensation Committeeofficers and the Board consider financial, operational and share price performance to determine appropriate executive compensation parameters.parameters, amounts and forms.
34 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 39
Executive Compensation
Key Participants
The roles and responsibilities of all parties involved with the compensation determination process are set forth below:
| Responsibilities | |
Shareholders |
∎ Approve the Compensation Policy as required under the Israeli Companies ∎ Cast advisory vote on proposal(s) regarding executive compensation under U.S. law ∎ Approve any compensation that deviates from the Compensation Policy ∎ Approve compensation of the CEO ∎ Approve compensation of directors ∎ Approve equity plans, material changes to equity plans and share reserve increases ∎ Provide direct feedback and input to Teva and our Board | |
Board of Directors |
∎ Evaluate performance of the CEO and executive officers, including the NEOs ∎ Review and approve (subject to shareholder approval in certain cases): ∎ Equity plans, material changes to equity plans and share reserve increases ∎ ∎ Changes to the Compensation Policy | |
Human Resources and Compensation Committee |
∎ Consider ∎ Review and approve (subject to Board and shareholder approval in certain cases): ∎ ∎ ∎ Achievement of performance-based goals under the annual cash incentive plan and associated with PSUs ∎ Equity plans and awards ∎ The Compensation Policy and its ∎ The CD&A and the compensation tables and accompanying narrative descriptions | |
Independent Compensation Consultant |
∎ ∎ ∎ Selection of peer group companies ∎ ∎ Design of annual cash incentive plan and performance and other equity plans, and awards and grants under each plan ∎ Stock ownership guidelines ∎ Review and provide an independent assessment of the data and materials presented by management to the Compensation Committee ∎ Participate in Compensation Committee meetings as requested | |
CEO |
∎ Evaluate the performance of other executive officers, including the other NEOs, and recommend adjustments to base salaries, annual cash ∎ Develop business goals, which are |
40 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 35
Executive Compensation
Role of Independent Compensation Consultant
The Compensation Committee has the authority to retain independent compensation consultants to assist it in the performance of its duties and responsibilities without consulting or obtaining the approval of management of the Company. The Compensation Committee has retained Pay GovernanceSemler Brossy Consulting Group LLC (“Semler Brossy”) as its independent compensation consultantconsultant. Semler Brossy reported directly to, provide advice onand was directly accountable to, the Compensation Committee. While the Compensation Committee took into consideration the review and recommendations of this independent advisor when making decisions about the Company’s executive officer and director compensation of our executive officers. Pay Governance provides no other services to Teva. practices and governance related topics, the Compensation Committee ultimately made its own independent decisions about these matters.
The Compensation Committee has assessed the independence of Pay GovernanceSemler Brossy pursuant to the rules of the SEC and the NYSE. In doing so, the Compensation Committee considered each of the factors set forth by the SEC and NYSE with respect to a compensation consultant’s independence. The Compensation Committee also considered the nature and amount of work performed for the Compensation Committee and the fees paid for those services in relation to the firm’s total revenues. After these reviews, the Compensation Committee concluded that the engagement of this firm does not raise any conflictthere were no conflicts of interest, with Teva or any of its directors or executive officers.and that Semler Brossy was independent pursuant to SEC and NYSE rules.
Compensation Peer Group and Peer Selection Process
As a part ofIn setting the compensation offor our CEO and executive officers, the Compensation Committee and the Board useconsider comparative compensation information from a relevant peer group of peer companies (the “Peer Group”) as a data point.one point of reference.
TheUpdate to 2019 Peer Group:Periodically, the Compensation Committee selects the companies inreassesses the Peer Group used as a reference point for evaluating executive officer compensation. In connection with determining the assistance2019 compensation of Willis Towers Watson,the CEO and other NEOs, the Compensation Committee conducted a review of our Peer Group to ensure its continued appropriateness. In light of changes in our revenues, the Compensation Committee revised the Peer Group selection criteria for company size by reducing the revenue range to$10-$40 billion from$10-$70 billion and by placing an upper limit on market capitalization of $160 billion. This resulted in the addition of Biogen Inc. and the removal of five of the largest companies from our 2018 peer group: GlaxoSmithKline Plc, Merck & Co., Inc., Novartis AG, Pfizer Inc. and Roche Holding AG.
The Peer Group was selected based on certain primary selection criteria, including, but not limited to, the following:including:
| ∎ | Industry:Pharmaceutical sector/ |
| ∎ | Company |
| ∎ | Global presence and geography:Global footprint and breadth, with focus on U.S. and European |
TheCompany revenues are considered a primary factor in determining the Peer Group, which has been constructed in part, suchso that our revenues are generally in the middle of the revenue range of the Peer Group companies. The Compensation Committee believes that the Peer Group companies also representare the companies with which we compete for talent. Periodically, the Compensation Committee reassesses the companies within the Peer Group and makes changes as appropriate, considering changes to the companies in the Peer Group, such as mergers and acquisitions and changes in our business.
The Compensation Committee and the Board consider data from the Peer Group companies in the Peer Group to review the componentsreviewing market pay levels, allocations and practices. Other factors considered when setting the total compensation of
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 41
Executive Compensation
our CEO and executive officers relative to their counterparts at Peer Group companies, while also taking into considerationinclude sustained performance, criticality of contributions to Teva, and the executive officer’s role, skills, experience and development. The Compensation Committee and the Board use Peer Group data as a reference point for measurement, but Peer Group data is just one of several factors considered. The Compensation Committee retains discretion in determining the nature and extent of the use of Peer Group data.
The Peer Group established for setting 2019 compensation consisted of the following companies:
Company | Headquarters | Revenues (1) ($ in millions) | Market Cap (1) ($ in millions) | Employees (1) | ||||||||||||||||
AbbVie, Inc.
|
United States
|
$
|
28,216
|
|
$
|
142,009
|
|
|
29,000
|
| ||||||||||
Allergan Plc
|
Ireland
|
$
|
15,941
|
|
$
|
63,680
|
|
|
17,800
|
| ||||||||||
Amgen, Inc.
|
United States
|
$
|
22,784
|
|
$
|
133,636
|
|
|
20,800
|
| ||||||||||
Astellas Pharma, Inc.
|
Japan
|
$
|
10,557
|
|
$
|
34,371
|
|
|
16,617
|
| ||||||||||
AstraZeneca Plc
|
United Kingdom
|
$
|
26,367
|
|
$
|
96,596
|
|
|
61,100
|
| ||||||||||
Bayer AG
|
Germany
|
$
|
37,648
|
|
$
|
83,085
|
|
|
99,762
|
| ||||||||||
Biogen, Inc. (2)
|
United States
|
$
|
10,990
|
|
$
|
68,823
|
|
|
7,300
|
| ||||||||||
Bristol-Myers Squibb Co.
|
United States
|
$
|
20,776
|
|
$
|
100,883
|
|
|
23,700
|
| ||||||||||
Celgene Corp.
|
United States
|
$
|
12,822
|
|
$
|
61,593
|
|
|
7,467
|
| ||||||||||
Eli Lilly & Co.
|
United States
|
$
|
22,871
|
|
$
|
113,521
|
|
|
40,655
|
| ||||||||||
Gilead Sciences, Inc.
|
United States
|
$
|
26,135
|
|
$
|
97,213
|
|
|
10,000
|
| ||||||||||
Merck KGaA
|
Germany
|
$
|
16,480
|
|
$
|
45,039
|
|
|
52,880
|
| ||||||||||
Mylan NV
|
United Kingdom
|
$
|
11,907
|
|
$
|
19,396
|
|
|
35,000
|
| ||||||||||
Novo Nordisk A/S
|
Denmark
|
$
|
16,097
|
|
$
|
118,752
|
|
|
42,076
|
| ||||||||||
Sanofi
|
France
|
$
|
37,691
|
|
$
|
110,053
|
|
|
106,566
|
| ||||||||||
Shire plc
|
Ireland
|
$
|
17,794
|
|
$
|
54,367
|
|
|
23,044
|
| ||||||||||
Takeda Pharmaceutical Co., Ltd.
|
Japan
|
$
|
14,374
|
|
$
|
33,493
|
|
|
27,230
|
| ||||||||||
Revenues ($ in millions) | Market Cap ($ in millions) | Employees | ||||
Teva Pharmaceutical Industries Ltd. Percentile Rank
| 53rd
53rd
|
6th
|
76th
| |||
Median |
$17,794
|
$83,085
|
27,230
|
| (1) | Source (revenue, market capitalization and employee number information): Dow Jones (September 2018). |
| (2) | New peer company added for 2019. |
Internal Considerations
Internal fairness: The Company reviews relevant internal ratios between executive officer compensation and the compensation of other employees, specifically the average and median values of other employee compensation, and its potential effect on the Company’s labor relations in connection with the review and approval of compensation to executive officers.
In addition, see “Additional Compensation Information—2019 Pay Ratio” set forth below.
36
42 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Executive Compensation
The Peer Group established for setting 2017 compensation consisted of the following companies:
| ||
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Revenues ($ in millions) | Market Cap ($ in millions) | Employees | ||||
Teva Pharmaceutical Industries Ltd. Percentile Rank
|
47th
|
16th
|
58th
| |||
Median
|
22,859
|
98,638
|
41,275
|
Internal Considerations
Internal fairness: As a global company with complex operations worldwide and with many of our executive officers and a majority of our employees located outside of Israel, we position our executive officer compensation on a competitive scale commensurate with each executive officer’s role and responsibilities. Due to the large variations in customary pay levels, compensation practices and mandatory compensation requirements among the jurisdictions in which executive officers and employees are located, the Compensation Committee and the Board believe that a meaningful comparison between executive officer compensation and the compensation of other employees should be made, taking into account the relevant geographic location in which the executive officer is located, the executive officer’s role and scope of responsibility and the relevant geographic location of employees under the executive officer’s area of responsibility. Therefore, in addition to external benchmarking, the Compensation Committee and the Board review relevant internal ratios between executive officer compensation and the compensation of other employees, including the average and median values of employee compensation in Israel and other relevant geographies and its potential effect on our labor relations.
Previous and existing compensation arrangements: When considering the compensation package of an executive officer, the Compensation Committee and the Board may consider the previous and existing compensation arrangements of such individual and his or her scope of responsibility.
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 37
Executive Compensation
In addition, see “Additional Compensation Information—2017 Pay Ratio” set forth below.
Risk Considerations
While the Board has overall responsibility for risk oversight, each of the standing committees of the Board regularly assesses risk in its area of oversight in connection with executing its responsibilities. Therefore,Thus, the Compensation Committee assesses the potential risks arising from our compensation program, policies and practices. The Compensation Committee coordinates with our legal, human resources and other departments, considers shareholder feedback and interests and consults with its compensation consultant. The Compensation Committee reviewed and discussed the assessment for 2017.2019. The Compensation Committee determined that our compensation program, policies and practices do not create risks that are reasonably likely to have a material adverse effect on Teva.
IV.V. Components of Our Compensation Program
20172019 Components in General
The Compensation Committee, Board and shareholders selectedeach participated in the selection of the components of compensation set forth in the chart below to achieve our stated executive officer compensation program objectives. The majority of the compensation of each executive officer is variable,at-risk and subject to the achievement of performance goals in order to be earned. The Compensation Committee and the Board review all components of the compensation of executive officers in order to verify that theeach executive officer’s total compensation is consistent with our compensation philosophy and objectives. The majority ofobjectives and within the compensation of each executive officer is variable and at risk and subject to the achievement of performance goals in order to be earned.parameters set by our shareholder-approved Compensation Policy.
Element | Description | |||
Base Salary |
Fixed cash compensation
Determined based on each executive officer’s role, individual skills, experience, performance, external market value and internal equity |
Base salaries are intended to provide stable compensation to executive officers, allow Teva to attract and retain | ||
Short-Term Incentives: Annual Cash |
Variable cash compensation based on the level of achievement
Cash incentives are capped at a maximum of 200% of base salary if achievement level is at least 120% of performance goal
|
Annual cash |
38 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 43
Executive Compensation
Element | Description | |||
Long-Term Incentives: Annual Equity-Based Compensation | Variable equity-based compensation
Performance Share Units (PSUs): Restricted share units that are earned only upon the attainment of
Awards capped at
Restricted Share Units (RSUs): Restricted share units that are time-based
| Equity-based compensation is used to foster along-term link between executive officers’ interests and the interests of Teva and its shareholders, as well as to attract, motivate and retain executive officers for the In 2019, all executive officers received 50% of the value granted in the form of PSUs and 50% in the form of RSUs |
2019 Target Pay Mix
The target pay mix supports the core principles of our executive officer compensation philosophy of compensating for performance and aligning executive officers’ interests with those of Teva and its shareholders, by emphasizing short- and long-term incentives.
The following charts outline the Compensation Committee and the Board’s allocation of annual target total direct compensation payable to the CEO and to other NEOs. The Compensation Committee and the Board allocated compensation among (i) base salary, (ii) the target amount payable under the short-term annual cash incentive plan and (iii) the target value of long-term annual equity, as determined using the fair value of PSUs at target level and RSUs granted under our long-term equity incentive plan. The Compensation Committee and the Board determined these allocations and amounts with reference to, and consistent with, the allocations among such elements at the Peer Group companies and within the maximum limits set forth in the Compensation Policy. A sizeable majority of annual target total direct compensation is variableat-risk pay, consistent with ourpay-for-performance philosophy. Specifically, in 2019, 82% of Mr. Schultz’s annual target total direct compensation wasat-risk compensation, and 78%, on average, of the annual target total direct compensation of our other NEOs wasat-risk compensation. We consider compensation to be “at risk” if it is subject to performance-based payment or vesting conditions or if its value depends on stock price appreciation.
44 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
Target Pay Mix
Percentage of annual target total direct compensation as calculated above is based on the annualized 2019 base salary, the 2019 annual cash incentive compensation opportunity (assuming achievement at the target level), and the grant date fair value of the annual equity grant made in March 2019, which included PSUs (assuming vesting at the target achievement level) and RSUs. Each compensation element is outlined in more detail in the 2019 Summary Compensation Table and 2019 Grants of Plan-Based Awards table.
Base Salary
PurposePurpose:: Base salaries provide stable compensation to executive officers, allow Teva to attract and retain competentqualified global executive talent and maintain a stable leadershipmanagement team. Base salaries vary among executive officers, and are individually determined according to each executive officer’s areas of responsibility, role and experience based on a variety of considerations, including:which may include, inter alia, professional background (education, skills, expertise, professional experience and achievements and previous compensation arrangements, as relevant), external competitiveness, job criticality and internal fairness.
2019 base salaries for continuing NEOs in 2019remained unchanged:For 2019, there were no changes made to the annual base salaries for each of our continuing NEOs in 2019 (disregarding any effects of foreign exchange rates) compared to the end of 2018.
Executive | Annualized ($) | Annualized ($) | 2018-2019 % Change | ||||||||||||
Kåre Schultz
|
$
|
2,000,000
|
|
$
|
2,000,000
|
|
|
0.0%
|
| ||||||
Eli Kalif
|
|
N/A
|
|
$
|
657,494
|
|
|
N/A
|
| ||||||
Dr. Hafrun Fridriksdottir
|
$
|
720,000
|
|
$
|
720,000
|
|
|
0.0%
|
| ||||||
Brendan O’Grady
|
|
N/A
|
|
$
|
700,000
|
|
|
N/A
|
| ||||||
Gianfranco Nazzi
|
|
N/A
|
|
$
|
548,602
|
|
|
N/A
|
| ||||||
Michael McClellan
|
$
|
700,000
|
|
$
|
700,000
|
|
|
0.0%
|
| ||||||
Dr. Carlo de Notaristefani
|
$
|
836,400
|
|
$
|
836,400
|
|
|
0.0%
|
| ||||||
Adjustments to base salary: The Compensation Committee and the Board may periodically consider and approve base salary adjustments for executive officers. The main considerations for a salary adjustment are similar to those used in initially determining base salary, but may also include a change of role or responsibilities, recognition for professional achievements, regulatory or contractual requirements,
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 3945
Executive Compensation
budgetary constraints or market trends. The Compensation Committee and the Board also consider the previous and existing compensation arrangements of the executive officer whose base salary is being considered for adjustment.
Annual Cash Incentives
Purpose:The annual cash incentive component aims to ensure that our executive officers are aligned in reachingincentivized to reach our short- and long-termannual goals. Annual cash incentives are designed to provide a significantpay-for-performance element of our executive compensation package.
Annual cash incentives:Payout eligibility and levels of individual annual cash incentives are determined based on actual financial and operational results, as well as individual performance. Following approval of the Company’s annual operating plan each calendar year, the Compensation Committee and the Board, following the CEO’s recommendations, determine the performance measures, taking into account ourshort- and long-term goals, as well as our compliance and risk management policies. The Compensation Committee and the Board may also determine any applicable super-measures that must be met for entitlement to the annual cash incentive (all or any portion thereof) and the formula for calculating any annual cash incentive payout, with respect to each calendar year, for each executive officer.
In special circumstances, as determined by the Compensation Committee and the Board (e.g., regulatory changes and significant changes in our business environment), the Compensation Committee and the Board may modify the objectives and/or their relative weights during the calendar year.
Parameters:Individual annual cash incentive parameters are determined by the Compensation Committee and the Board, taking into account our short- and long-term goals, as well as our risk management policy.
|
40 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
The annual cash incentive parameters are intended to drive motivation and performance higher, while the maximum payout ceiling provides a risk management mechanism that assists in protecting Teva from excessive risk taking to achieve short-term results that could expose us to risk in the long-term, and aligns target setting with ourpre-defined risk profile.
In the event of an executive officer’s termination of service or employment where such executive officer served Teva for less than 12 months, he or she will not be entitled to an annual cash incentive, unless otherwise determined by the Compensation Committee and Board.
2017 Annual Cash Incentives
As provided in our Compensation Policy, annual cash incentives are designed to ensure that our executive officers are aligned in reaching our short- and long-term goals. Annual cash incentives are therefore a strictlypay-for-performance compensation element,package, as payout eligibility and levels are determined based on actual financial and operational company and business unit results,performance, as well as individual performance.
As provided inPursuant to our Compensation Policy, executive officer target annual cash incentive is capped at 100% of annual base salary, and as described above, ourfor the CEO, target annual cash incentive is capped at 150% of annual base salary. In addition, the maximum annual cash incentive payout cannot exceed 200% of target annual cash incentive.
2019 Annual Cash Incentives
Our annual cash incentive plan for our executive officers takes the form of cash awards that are earned based onone-year performance. This structure aligns our executive officers’ interests with those of our shareholders by providing incentives to the executive officers to achieve certain short-term financial and operational results established bygoals that the Board asdetermined to be vital to the execution ofexecuting our business strategy.
For 2017, the Compensation Committee and the Board reviewed our company performance against our 2017 objectives in order to make determinations regarding whether any payouts were due under our 2017 executive officers’ annual incentive plan. Due to the fact that our financial results were significantly below our original financial targets for the year, the Compensation Committee and the Board determined not to make any payouts under the executive officers’ annualTarget cash incentive planpercentage opportunities for 2017. Below we provide additional information aboutour continuing NEOs in 2019 were not changed compared to 2018 as set forth in the design and operation of the 2017 annual cash incentive plan for executive officers.following table:
Executive | 2018 Target Annual Cash Incentive (% of Base Salary) | 2019 Target Annual Cash Incentive (% of Base Salary) | ||||||||
Kåre Schultz | 140% | 140% | ||||||||
Eli Kalif | N/A | 100% | ||||||||
Dr. Hafrun Fridriksdottir | 100% | 100% | ||||||||
Brendan O’Grady | N/A | 100% | ||||||||
Gianfranco Nazzi | N/A | 100% | ||||||||
Michael McClellan | 100% | 100% | ||||||||
Dr. Carlo de Notaristefani | 100% | 100% | ||||||||
Annual Cash Incentive Calculation Methodology
| Eligible Salary | X | Target Incentive % | X | Overall Performance Factor % | = | Annual Cash Incentive Payout |
The amount of the annual cash incentive opportunity and payment for the executive officers, including the CEO and our other NEOs, is determined as follows. follows:
First, the Compensation Committee determines a target cash incentive opportunity by taking the individual’s base salary and multiplying it by the individual’s target incentive percentage.
Second, for each of the Company-, business unit- and individual-level performance results, a weighted-average approach is used. As shown below, Company-level performance measures consist of financial measures and operational measures. Each component of the financial and operational measures has a weighting, and the Compensation Committee determines the aggregate Company-level weighted average performance relative to target. Similarly, for business-unit level performance measures, each component is assigned a weighting, and the Compensation Committee determines the aggregate business-unit level weighted average performance relative to the target (except for the CEO, whose annual cash incentive is determined based on only Company- and individual-level measures). Finally, for individual-level measures, the Compensation Committee determines the individual performance rating based on achievement of individual goals.
46 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 41
Executive Compensation
Third,Second, the Compensation Committee determines an overall performance factor. The Compensation Committee determines this overall performance factor by calculating the weighted average of the performance factorspercentage for Company-, business unit- and individual-level performance. There are slightly different potential factors for the CEO and the othereach executive officers, as described below. If the overall performance factor is below the overall threshold, then the performance factor will be zero (and the individual will not receive an annual cash incentive). If the overall performance factor is between the overall threshold and overall maximum, the individual’s overall performance factor will be determined by linear interpolation. If the overall performance factor is above the maximum, the maximum performance factor will be used.officer.
| ∎ | The performance factor is based on performance measures, which consist of Company financial measures and individual performance measures. For Company financial measures, the Compensation Committee calculates a performance achievement percentage against goals. For individual performance measures, the Compensation Committee assesses performance achievement against goals and determines the individual performance rating and individual performance achievement percentage. |
| ∎ | The Compensation Committee then calculates the weighted average of the Company and the individual performance achievement percentages to determine an overall performance achievement percentage. |
| ∎ | The overall performance achievement percentage is then converted to an overall performance factor, as described below. If the overall performance factor is below the threshold, then the performance factor will be zero (and the individual will not receive an annual cash incentive payout). If the overall performance factor is between the threshold and the maximum, the individual’s overall performance factor will be determined by linear interpolation between points. If the overall performance factor is above the maximum, the maximum performance factor will be applied. |
Finally, the Compensation Committee takes the target cash incentive opportunitiesopportunity of theeach executive officers, including the CEO,officer and multiplies themit by the applicable overall performance factor of the personrespective executive officer to determine the actual cash incentive to be paid. The Compensation Committee then approves and presents the Company-, business unit-Company and the individual-level achievement relative to target performance measures,achievements, the calculation of performance factors and the determination of incentive payout amounts to the Board for its review and approval.
ThePerformance Measures and Goals
For the 2019 annual cash incentive, the Compensation Committee and the Board establishedused the followingsame performance measure categories and weightings for 2017:
CEOas in 2018:
Category
| Weighting
| Additional
| ||||||||
Company Financial | % | 50% Non-GAAP EPS |
| |||||||
25% Free Cash Flow |
| |||||||||
Individual | % | |||||||||
Other Executive Officers
|
|
| ||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
Company-Level:Company Financial MeasuresMeasures:: The Compensation Committee and the Board believe that financial measures are key performance indicators of the present and future prospects of our business and key drivers of shareholder value, and selected the following financial measures for use in the annual cash incentive program:plan:
| ∎ |
| Non-GAAP |
42 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
| ∎ | Free Cash |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 47
Executive Compensation
These performance measures were selected because they focus management on metrics that align with our most critical strategic priorities of servicing debt, controlling expenses and improving profitability, and give a clear line of sight into how achieving operating goals drives Teva performance and generates rewards.
The Compensation Committee and the Board usednon-GAAP measures as performance metrics in structuring our annual cash and our performance-based long-term equity incentive programs. The use of these measures is not intended to replace comparable GAAP measures as set forth in our consolidated financial statements. We believe that thesenon-GAAP measures are helpful to management and investors as measures of operating performance because they exclude various items that do not relate to or are not indicative of operating performance. Please see “Item 7—Management’s Discussion
Company Performance Goals: The Compensation Committee and Analysis—SupplementalNon-GAAP Income Data” to our Annual Report on Form10-Kthe Board set the 2019 threshold, target and maximum performance levels for the year ended December 31, 2017 for reconciliations of these measuresCompany performance goals. These goals were set at levels that were considered rigorous, aggressive and challenging, attainable only with strong performance, and that took into account the relevant risks and opportunities. In developing our 2019 business plan and corresponding incentive plan performance metric targets, which were based on the business plan and were aligned to the most directly comparable GAAP measures and other required disclosures.
The table below shows Company-level financial performance measures and their weightings approved byhigh end of our 2019 outlook as communicated to investors in February 2019, the Compensation Committee and the Board for the 2017 annual cash incentive plan:
|
| ||||
| |||||
| |||||
| |||||
Company-Level: Operational Measures: Of the 80% (CEO) or 60% (other executive officers) of performance measures that are set at the Company level, operational metrics constituted 30% of those respective amounts. The Compensation Committee and the Board believe that operational measures representmade key stepsassumptions, including a decline in total revenue compared to 2018, based on the pathassumptions communicated to achieving short and long-term strategic objectives and value creation. For 2017, the Compensation Committee and the Board selected operational measures as follows:
|
|
| ||
|
| |||
|
| |||
| ||||
| ||||
Business Unit Level: Of the 20% of performance measures that are set at the Business Unit level for executive officers (other than the CEO), the commercial business units have measures that include the following components:investors in February 2019, including:
| ∎ | Anticipated continued decline in COPAXONE® revenue of over 37% from $2.4 billion in 2018 to approximately $1.5 billion in 2019 due to an expected increase in generic competition; |
| ∎ | Anticipated decrease in ProAir® HFA revenue in 2019 due to the introduction of generic Albuterol; |
| ∎ | Anticipated slight decline in our North American generics business revenue due to erosion and volume declines, offset by new launches; and |
| ∎ | Anticipated decline in International Generics revenue from the adverse impact in Japan, due to a National Health Insurance price revision, as well as from continued erosion of long listed products. |
After setting the targets, the Compensation Committee and the Board also set the threshold and maximum performance levels. To achieve threshold performance, 85% of target performance for each Company performance metric must be achieved, which is a rigorous and challenging level of achievement that must be met. An achievement percentage of less than 85% of target for eithernon-GAAP EPS or Free Cash Flow would result in no annual cash incentive payment for executive officers. The Compensation Committee and the Board set the maximum level of performance at 120% of target for each Company performance metric, a level that presented a significant challenge requiring exceptionally strong performance.
In spite of the challenges we faced, we achieved 96% of our 2019non-GAAP EPS target and 103% of our 2019 Free Cash Flow target, both of which were aligned to the high end of our 2019 outlook.
Weighting | Performance Metric | Threshold (85%) | Target (100%) | Maximum (120%) | Actual Results |
% | |||||||||||||||||||||||||
50% |
Non-GAAP EPS |
$ |
2.13 |
|
$ |
2.50 |
|
$ |
3.00 |
|
$ |
2.40 |
|
96% |
| ||||||||||||||||
25% | Free Cash Flow | $ | 1.7B | $ | 2.0B | $ | 2.4B | $ | 2.05B |
103%
|
| ||||||||||||||||||||
48 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 43
Executive Compensation
The global function units, such as Finance, Human Resources and Legal, have operational measures that include components specific to their nature.
Individual LevelMeasures:: The remaining 20%25% of the measures under the 2019 annual cash incentive plan arewere individual performance measures established by the Compensation Committee and the Board early in the year inyear. These measures included components specific to the following areas:
Strategy measures are primarily related to key planned strategic actions, such as transformation. Collaboration, culturenature of each executive officer’s position and leadership measures are generally related to cross business unit collaboration, talent development and building organizational capability, and personal development.area of responsibility. The Compensation Committee and the Board evaluateevaluated performance with respect to the individual measures using aby determining an individual performance rating system that equates to a level ofand individual performance achievement percentage, which iswas then used as a component for determination ofdetermining the overall performance factor.
Overall Performance Factor:The Compensation Committee and the Board then determine the weighted average of the performance factors for Company-, business unit- and individual-level performance. Based on the weighted average performance, the overall performance factor is then determined based on the following table for each executive officer, and for the CEO, the former CEO and the former interim CEO:
|
|
| ||
|
∎ Achieving generic products submissions and ∎ Achieving targets related to improving employee engagement ∎Compliance modifier: In addition to the above, the individual performance achievement percentage (i.e., 100%) could be decreased or increased by 20% based on performance against targets related to ensuring compliance standards are met | 110% | ||
Eli Kalif (1) |
| N/A | ||
Dr. Hafrun Fridriksdottir |
∎ Achieving specialty product milestones by meeting targets ∎ Achieving generic products submissions and approvals targets ∎ Completing critical business optimization targets | 107% | ||
Brendan O’Grady |
∎ Achieving regional gross margin targets ∎ Achieving regional sales targets for ∎ Completing other critical business initiatives | 120% | ||
|
∎ Achieving regional gross margin targets
| |||
Michael McClellan (2) | ∎ Ensuring compliance standards are met ∎ Achieving global gross margin targets ∎ Completing other critical function initiatives | N/A | ||
Dr. Carlo de Notaristefani | ∎ Ensuring compliance standards are met ∎ Achieving global gross margin targets ∎ Achieving global sales targets for new generics and key specialty products ∎ Ensuring high product quality and compliance with Environmental Health & Safety standards ∎ Completing other critical function initiatives | 100% |
| (1) | Mr. Kalif commenced employment with the Company on December 22, 2019 and was not eligible for an annual cash incentive opportunity. |
| (2) | Mr. McClellan stepped down as CFO on November 8, 2019 and was not eligible for an annual cash incentive opportunity. |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 49
Executive Compensation
Overall Performance Factor and Payout Calculation
Overall Performance Factor:The Compensation Committee and the Board then calculated an overall performance factor for each executive officer by taking the weighted average of the achievement percentages of the Company financial measures and the individual measures and converting that weighted average to an overall performance factor based on the following table:
Weighted Average Level of Achievement of Objectives | Overall Performance Achievement % (1) (2) | Overall Performance Factor: Potential Annual Cash Incentive | ||
Below Threshold |
Below 85% (below 90% for CEO) |
0% (no annual cash incentive payment) | ||
Threshold |
85% (90% for CEO) | 25% | ||
Target |
100% |
100% (140% for CEO) | ||
Maximum Cash Incentive
|
120% |
200% |
| (1) | Payouts for performance for the CEO |
| (2) | Payouts for performance for other executive officers are determined linearly based on a straight-line interpolation of the applicable payout range (i.e., |
| (3) | Payout as a percentage of target for the |
Payout Calculation:For 2019, the Compensation Committee and the Board reviewed Company financial and individual performance against 2019 objectives in order to make determinations regarding whether any payouts were due under our 2019 executive officers’ annual incentive plan.
The table below sets forth the calculation of the overall performance achievement percentage and performance factor for our CEO and other NEOs:
Executive
| Non-GAAP EPS % Achievement (50% weighting) | Free Cash Flow (25% weighting) |
Individual % Achievement (25% weighting) | Overall Performance Achievement | Overall Factor | ||||||||||||||||||||
Kåre Schultz
| 96% | 103% | 110% | 101% | 102% | ||||||||||||||||||||
Eli Kalif
| N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||
Dr. Hafrun Fridriksdottir
| 96% | 103% | 107% | 100% | 102% | ||||||||||||||||||||
Brendan O’Grady
| 96% | 103% | 120% | 104% | 118% | ||||||||||||||||||||
Gianfranco Nazzi
| 96% | 103% | 107% | 100% | 102% | ||||||||||||||||||||
Michael McClellan
| N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||
Dr. Carlo de Notaristefani
|
| 96%
|
|
| 103%
|
|
| 100%
|
|
| 99%
|
|
| 93%
|
| ||||||||||
4450 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Executive Compensation
As described above, theThe Compensation Committee and the Board reviewed our companythen took the target award opportunity and applied the overall performance against our 2017 objectives. Duefactor to determine the fact that our financial results were significantly below our original financial targetstotal 2019 annual incentive plan payout for the year, the Compensation Committee and the Board determined not to make any payouts under the executive officers’ annual cash incentive plan for 2017.
The table below sets forth the calculation of the annual cash incentive plan for our interim CEO, CEO and other NEOs whicheach NEO. This amount is reflected in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table presented below in under the “Additional Compensation Information” section.
Name | Eligible Base ($) | Target Annual Cash Incentive (% of Base Salary) | Target Award ($) | Overall Performance Factor | Payout ($) | Cash Incentive Payout as a % of Base Salary | ||||||||||||||
Current NEOs
| ||||||||||||||||||||
Kåre Schultz
| $
| 2,000,000
|
|
| 140%
|
| $
| 2,800,000
|
| 0%
| $
| 0
|
| 0%
| ||||||
Michael McClellan (1)
| $
| 219,519
|
|
| 100%
|
| $
| 219,519
|
| 0%
| $
| 0
|
| 0%
| ||||||
Dr. Carlo de Notaristefani
| $
| 836,400
|
|
| 100%
|
| $
| 836,400
|
| 0%
| $
| 0
|
| 0%
| ||||||
Dr. Hafrun Fridriksdottir (1)
| $
| 630,577
|
|
| 100%
|
| $
| 630,577
|
| 0%
| $
| 0
|
| 0%
| ||||||
Mark Sabag
| $
| 604,637
|
|
| 100%
|
| $
| 604,637
|
| 0%
| $
| 0
|
| 0%
| ||||||
Former NEOs
| ||||||||||||||||||||
Erez Vigodman (2)
|
| N/A
|
|
| N/A
|
|
| N/A
|
| N/A
|
| N/A
|
| N/A
| ||||||
Dr. Yitzhak Peterburg (1)
| $
| 1,199,750
|
|
| 140%
|
| $
| 1,679,650
|
| 0%
| $
| 0
|
| 0%
| ||||||
Eyal Desheh (3)
| $
| 408,300
|
|
| 100%
|
| $
| 408,300
|
| 0%
| $
| 0
|
| 0%
| ||||||
Dr. Rob Koremans (4)
| $
| 783,215
|
|
| 100%
|
| $
| 783,215
|
| 0%
| $
| 0
|
| 0%
| ||||||
Dr. Michael Hayden (4)
| $
| 1,071,000
|
|
| 100%
|
| $
| 1,071,000
|
| 0%
| $
| 0
|
| 0%
| ||||||
Executive | Eligible Base ($) |
Target | Target Award ($) | Overall Performance Factor(*) | Payout ($) | ||||||||||||||||||||
Kåre Schultz
|
$
|
2,000,000
|
|
|
140%
|
|
$
|
2,800,000
|
|
|
102%
|
|
$
|
2,869,720
|
| ||||||||||
Eli Kalif
|
|
N/A
|
|
|
N/A
|
|
|
N/A |
|
|
N/A |
|
|
N/A |
| ||||||||||
Dr. Hafrun Fridriksdottir
|
$
|
720,000
|
|
|
100%
|
|
$
|
720,000
|
|
|
102%
|
|
$
|
734,832
|
| ||||||||||
Brendan O’Grady
|
$
|
676,923
|
|
|
100%
|
|
$
|
676,923
|
|
|
118%
|
|
$
|
800,868
|
| ||||||||||
Gianfranco Nazzi
|
$
|
541,580
|
|
|
100%
|
|
$
|
541,580
|
|
|
102%
|
|
$
|
552,505
|
| ||||||||||
Michael McClellan
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
| ||||||||||
Dr. Carlo de Notaristefani
|
$
|
836,400
|
|
|
100%
|
|
$
|
836,400
|
|
|
93%
|
|
$
|
780,445
|
| ||||||||||
Percentages have been |
Equity-Based Compensation
PurposePurpose:: Equity-based compensation is intended to incentivize and reward for future long-term performance, as reflected by the market price of our shares and/or other performance criteria, and is used to foster a long-term link between executive officers’ interests and the interests of Teva and its shareholders, as well asshareholders. Equity-based compensation is also intended to attract, motivate and retain executive officers for the long-term by:long term by (i) providing them with a meaningful interest in Teva’s share performance; (ii) linking equity-based compensation to potential and sustained performance; and (iii) spreading benefits over a longer performance cycle through the vesting period mechanism.
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 45
ExecutivePursuant to our Compensation
Equity-based awards: Equity-based awards are generally granted to executive officers on an annual basis, and at other times as Policy, the Compensation Committee and the Board deem appropriate, including for newly hired or promoted executive officers or due to special retention needs. Notwithstanding the foregoing, the Compensation Committee and the Board may determine with respect to a specific year that no equity-based awards will be granted to all or any particular executive officers.
Parameters: Equity-based awards are granted pursuant to Teva’s 2015 Long-Term Equity-Based Incentive Plan, and/or any other long-term incentive plan(s) that we may adopt in the future, and generally on terms and conditions provided for therein and as determined by the Compensation Committee and the Board, provided that any such terms and conditions are consistent with the following:
The monetary grant value of executive officers’ equity-based awards is determined bythree years from the Compensation Committeedate of grant (partial vesting can occur before), the maximum monetary grant date fair value of annual equity-based awards granted to the CEO cannot exceed $11 million at target and to any other executive officer $4.5 million at target, and the Board, taking into account, among other things, our pay mix targets, the desired mixmaximum number of equity-based vehicles, the executive officer’s contribution to Company performance, desired competitive compensation levels and dilution or pool limits. When establishing the monetary grant value, the Compensation Committee and the Board also determine the mix of equity-based vehiclesshares settled for each grant, which may include various types of time-based anda performance-based equity-based vehicles, such as share options, restricted share units, performance share units and/or other share-based awards. The value of each type of equity-based vehicle is determined in accordance with accepted valuation and accounting principles, as they apply to the relevant type of equity-based vehicle, and might differ from the value determined for other purposes.
The mix of equity-based vehicles and the relative weight assigned to each type of equity-based vehicle outequity award shall not exceed 250% of the total equity-based grant is structured to enhance the executive officers’ commitment to increasing Company and shareholder value and is designed to encourage balanced and effective business risk-taking. The Compensation Committee and the Board may change the distribution and elementstarget number of the equity mix from time to time.shares granted.
46 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
Caps on equity-based compensation:
20172019 Long-Term Equity Incentives—Annual Grant
As described above, the Compensation Committee and the Board intend for long-term equity-based compensation to reward executive officers based on our future performance, as reflected by the market price of Teva’s shares, to foster a long-term link between executive officers’ interests and the interests of Teva and its shareholders, as well as to attract, motivate and retain executive officers for the long-term by:
In making determinations about 20172019 long-term equity incentive grants to executive officers, the Compensation Committee and the Board considered, among other things:
| ∎ | sustained performance; |
| ∎ | criticality of contributions to Teva; |
| ∎ | comparison against our Peer Group; |
| ∎ | the executive officer’s role, skills, experience and development; |
| ∎ | internal fairness among executive officers; and |
| ∎ | pay mix. |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 51
Executive Compensation
The sizes of the grants to executive officers vary based on the factors above. The portion of executive officer compensation that is composed of these equity vehicles is “at risk” and directly aligned with shareholder value creation.
Change to Long-Term Incentive Equity in 2019
For the 2019 long-term incentive equity grants to executive officers, the Compensation Committee and the Board reviewed andre-evaluated the Company’s executive compensation program in light of the restructuring that is now largely behind us, and made the following changes to the long-term equity incentives:
| ∎ | increased the weight of the performance-based PSUs to 50% for all executive officers from 33.3%, to match the change made for the CEO in 2018, in order to further enhance the link between pay and performance for executive officers and the alignment of the interests of the executive officers with those of Teva and its shareholders; |
| ∎ | changed the performance metrics fromnon-GAAP EPS and Free Cash Flow tonon-GAAP Operating Profit and Net Debt Reduction in order to focus executive officers on long-term profitability and debt reduction objectives and to differentiate the long-term metrics from the metrics under the annual incentive plan; |
| ∎ | established the three-year goals up front for these metrics and communicated them to grant recipients, clearly articulating the long-term targets from the outset of the performance period; and |
| ∎ | reduced the maximum number of PSUs that may be issued based on the relative TSR multiplier from 300% of the target number to 240% of the target number, and modified the requisite relative TSR performance to trigger the maximum multiplier from the 100th percentile to at least the 75th percentile, in order to align more closely with market practice. |
52 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 47
Executive Compensation
For the 2017 long-term equity incentive grants to executive officers, theEquity Vehicles and Mix
The Compensation Committee and the Board used the termsequity vehicles and mix set forth in the following table:
Type of Long-
| Proportion
| Vesting
| Performance
| Rationale for Use of Performance Metric
| ||||
|
1) |
1) Leading indicator of profitability, expense control and sustained
| ||||||
Performance Share Units | 50% | Three-year cliff vesting | 2) | 2) Serves to focus executive officers on
| ||||
| 3) | 3) Strong performance, as measured by the other two operating metrics, is fully rewarded only if it also results in above
| |||||||
Restricted Share Units |
Three | |||||||
|
| N/A | N/A |
The 2019 PSU performance measures were selected because:
| ∎ | non-GAAP Operating Profit and Net Debt Reduction focus management on metrics that align with our most critical strategic priorities of servicing debt, controlling expenses and improving profitability; |
| ∎ | relative TSR is an important measure because TSR ties executive officer compensation with shareholder value creation, aligns the interests of executive officers with those of Teva and its shareholders and filters out macroeconomic and other factors that are not within management’s control; and |
| ∎ | all metrics give recipients a clear line of sight into how achieving operating goals drives Teva performance and generates rewards. |
Before the conclusion of the three-year performance period, we do not publicly disclose our specific performance measure targets and the corresponding minimums and maximums because (i) Free Cash Flowof the potential for competitive harm from such disclosure. These measures are competitively sensitive andNon-GAAP EPS focus management on metrics would reveal information about our view of our anticipated trajectory, which is not otherwise public. The Compensation Committee and the Board believe that align withthey have set performance goals at rigorous and challenging levels so as to require significant effort and achievement by our most critical strategic prioritiesexecutive officers to be attained, and that such goals have been established in light of servicing debt, controlling expensesour internal forecast as well as the macroeconomic and improving profitability, (ii)industry environments. After the end of the performance period, the targets and achievement relative TSR is an important measure for shareholders and (iii) they give recipients a clear line of sight into how executing on operating measures drives the achievement of performance and earning awards.to such targets will be disclosed.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 53
Executive Compensation
The Compensation Committee and the Board utilize RSUs to encourage ownership and retention while immediately aligning executive officers’ interests with those of our shareholders, and options are meant to focus executive officers on share price appreciation.shareholders.
2019 PSU Calculation Methodology
In connection with the 20172019 PSU grants, the number of shares earned by the CEO, former interim CEO, and to the other executive officers will be determined in two steps as follows.
48 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
Company Financial Measures:There are two Company financial performance measures, in step 1, 2017-20192019-2021Non-GAAPnon-GAAP EPSOperating Profit and 2017-2019 Free Cash Flow,2019-2021 Net Debt Reduction, each of which is weighted an equal 50%. ForIn step one, for each of these two measures, the Compensation Committee determines the Company’s performance for the measureachievement percentage for the three-year period. The Company’s performance with respect to each measureachievement percentage is compared to the target for the measure, and the proportion of achievement isthen converted to a factoran earning percentage as set forth below.
Level of Achievement of Objectives(*) | % Achievement of Target | Earning Percentage | Performance Achievement % | Earning Percentage | ||||||||||
Below Threshold | Below 85% | 0% | ||||||||||||
Threshold
| Up to 85%
| 0%
| 85% | 25% | ||||||||||
Target
| 100%
| 100%
| 100% | 100% | ||||||||||
Maximum
| 120%
| 200%
| 120% | 200% | ||||||||||
(*) Linear interpolation will be used to determine the applicable earning percentage.
| (*) | Linear interpolation will be used to determine the applicable earning percentage between levels. |
The Compensation Committee then calculates the average of the earning percentages for the two performance measures.
Relative TSR Modifier:The Compensation Committee and the Board introduced a TSR modifier in the PSU design beginning in 2017. They continue to view the inclusion of Total Shareholder Return as critical because it ties executive officer compensation with the creation of shareholder value and aligns the interests of executive officers with those of Teva and its shareholders. By measuring our stock performance relative to peers, it mitigates the impact of macroeconomic factors, both positive and negative, that affect the industry and/or stock price performance and are beyond the control of management, and it provides rewards that are more directly aligned with performance through different economic cycles.
In step two, thisthe average of the earning percentages determined in the first step is multiplied by a modifier that has been determined based on our relative TSR performance for the three yearthree-year period as set forth below. The Company’s TSR is ranked relative to our Peer Group, and the Compensation Committee and the Board believe that the Peer Group is an appropriate comparator group that is broadly representative in terms of its size, industry, geographic footprint and employee base. See “—III.IV. Compensation Determination Process—Compensation Peer Group and Peer Selection Process” for a list of the peer group companies used for this purpose.
Level of Achievement of Relative TSR(*) | Relative TSR Ranking | Modifier | ||||||||
Threshold | Up to 25th percentile |
average of the earning percentages) | ||||||||
Target | 50th percentile | 100% | ||||||||
Maximum
| 75thth percentile or above
| 120%
| ||||||||
| (*) | Linear interpolation will be used to determine the applicable modifier. |
The product of (1) the average of the earning percentages and (2) the relative TSR modifier is multiplied by the target number of PSUs granted to the CEO, former interim CEO, and to each of the executive officers respectively, to determine the final number of shares PSUs
54 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
earned by each individual, except thatindividual. For example, if the numberCompany’s TSR rank is less than or equal to the 25th percentile, then the average of sharesthe earning percentages is multiplied by 80% (equivalent to be issued may not exceed 200%a reduction of 20%) to determine the final performance factor and then multiplied by the target number of PSUs to determine the final number of earned PSUs. If the Company’s TSR rank is at the 75th percentile or above, then the average of the earning percentages is multiplied by 120% (equivalent to an increase of 20%) and then incorporated into the calculation.
The Compensation Committee approves and presents the performance achievement relative to target performance measures,percentages, the calculation of the average earning percentage and the TSR modifier, and the determination of the number of PSUs earned PSUsby each executive officer to the Board for its review and approval.
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 49
Executive Compensation
20172019 Long-Term Incentive Award Values—Annual Grant
In connection with determinations of the appropriate level of annual equity grants for 2017,2019, the Compensation Committee and the Board took into account the factors outlined above as well as information regarding the absolute levels and allocations at the companies in the Peer Group.
In light of the restructuring and other factors, the Compensation Committee and the Board did not recommend an increase to the aggregate equity grant value to the CEO (which was in accordance with the maximum limits provided in the compensation policy in effect at the time of grant).
The Compensation Committee and the Board determined that it was consistent with our performance-based compensation philosophy and appropriate to structure the equity grants to executive officers such that (1) 33% are50% would be granted in PSUs that will be earned and will vest only if the CEO and executive officerswe achieve specified levels of performance as measured by certainthe performance metrics at the end of the three-year performance period and (2) 67% are earned and50% would be granted in RSUs that will vest over four years.
The Compensation Committee and the Board increased the allocation of PSUs for the NEOs as compared to 2018 in order to further enhance the link between pay and performance and the alignment of the interests of the NEOs with those of Teva and its shareholders, similar to the change made for the CEO in 2018.
The following table sets forth the 20172019 annual awardgrant date fair values at target approved by the Compensation Committee and the Board for the NEOs.
Name | PSUs ($) (1/3) | RSUs ($) (1/3) | Share Options ($) (1/3) | Total ($) | ||||||||||||||||
Current NEOs
|
| |||||||||||||||||||
Kåre Schultz
| $
| 1,999,998
|
| $
| 1,999,993
|
| $
| 2,000,009
|
| $
| 6,000,000
|
| ||||||||
Michael McClellan (1)
|
| N/A
|
| $
| 132,331
|
| $
| 132,329
|
| $
| 264,660
|
| ||||||||
Dr. Carlo de Notaristefani
| $
| 866,657
|
| $
| 866,659
|
| $
| 866,688
|
| $
| 2,600,004
|
| ||||||||
Dr. Hafrun Fridriksdottir
| $
| 499,979
|
| $
| 499,979
|
| $
| 500,047
|
| $
| 1,500,005
|
| ||||||||
Mark Sabag
| $
| 533,310
|
| $
| 533,319
|
| $
| 533,375
|
| $
| 1,600,004
|
| ||||||||
Former NEOs
|
| |||||||||||||||||||
Erez Vigodman (2)
|
| N/A
|
|
| N/A
|
|
| N/A
|
|
| N/A
|
| ||||||||
Dr. Yitzhak Peterburg
| $
| 1,499,992
|
| $
| 1,499,999
|
| $
| 1,500,009
|
| $
| 4,500,000
|
| ||||||||
Eyal Desheh
| $
| 666,666
|
| $
| 666,649
|
| $
| 666,686
|
| $
| 2,000,001
|
| ||||||||
Dr. Rob Koremans
| $
| 833,326
|
| $
| 833,319
|
| $
| 833,361
|
| $
| 2,500,006
|
| ||||||||
Dr. Michael Hayden | $
| 666,666
|
| $
| 666,649
|
| $
| 666,686
|
| $
| 2,000,001
|
| ||||||||
Executive | PSUs ($) | RSUs ($) | Total ($) | |||||||||
Kåre Schultz | $ | 2,999,985 | $ | 2,999,992 | $ | 5,999,977 | ||||||
Eli Kalif | N/A | N/A | N/A | |||||||||
Dr. Hafrun Fridriksdottir | $ | 949,995 | $ | 949,993 | $ | 1,899,988 | ||||||
Brendan O’Grady | $ | 949,995 | $ | 949,993 | $ | 1,899,988 | ||||||
Gianfranco Nazzi | $ | 649,993 | $ | 649,984 | $ | 1,299,977 | ||||||
Michael McClellan | $ | 849,999 | $ | 849,996 | $ | 1,699,995 | ||||||
Dr. Carlo de Notaristefani
| $
| 1,249,996
|
| $
| 1,249,986
|
| $
| 2,499,982
|
| |||
Consistent with historical practice, the dollar value allocated to PSUs was converted to a number of units, based on the fair market value on the grant datesdate as determined in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718. The dollar amount allocated to RSUs was converted to a number of shares using the fair market value on the grant date. The dollar amount allocated
As discussed below under “—2019 Potential Payments Upon Termination or Change in Control,” under the terms of their separations from service, the 2019 grants of PSUs and RSUs to share options was convertedMr. McClellan were forfeited upon his resignation, and the 2019 grants of PSUs and RSUs to a number of shares using the Black Scholes valuation method as of the grant dates.Dr. de Notaristefani will continue to vest in full.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 55
Executive Compensation
2015-20172017-2019 Performance Share Unit Payout
In 2015,2017, the Compensation Committee and the Board granted PSUs with performance-based vesting requirements for the three-year performance period 2015-2017. The threshold level of 2017-2019. In connection with the 2017 PSU grants, the number of PSUs earned by the NEOs who were executive officers at the time of the grants has been determined in two steps as follows.
In step one, there were two Company financial performance measures, 2017-2019non-GAAP EPS and 2017-2019 Free Cash Flow, each of which was weighted 50%. For each of these two measures, the Compensation Committee and the Board determined the Company’s performance achievement was 90%,percentage for each year in the three-year period relative to the target level of achievement was 100%,set according to the annual business plan for each year. The Compensation Committee and the maximum level ofBoard then calculated the average annual performance achievement percentage for the three-year period. The average three-year performance achievement percentage was 120% of the PSU performance goalsthen converted to an earning percentage as defined below, with a maximum payout of 150% of the target number of PSUs. Payouts for performance between threshold and target and between target and maximum were determined based on a straight-line linear interpolation of the applicable payout range (i.e., 10% for each percentile change in performance between threshold and target and 2.5% for each percentile change in performance between target and maximum).set forth below:
Level of Achievement of Objectives(*) | % Achievement of Target | Earning Percentage | ||
Threshold | Up to 85% | 0% | ||
Target | 100% | 100% | ||
Maximum
| 120%
| 200%
|
| (*) | Linear interpolation was used to determine the applicable earning percentage between levels. |
The Compensation Committee and the Board setthen calculated the average of the earning percentages for the two performance measures.
In step two, this average of the earning percentages was multiplied by a modifier that was determined based on our TSR performance relative to the companies included in the peer group used as a reference point for 2017 compensation decisions for the three-year performance targets (“PSU Performance Goals”) for net revenuesperiod, as set forth below.
Level of Achievement of Relative TSR(*) | Relative TSR Ranking | Modifier | ||
Threshold | Up to 25th percentile | 80% (i.e., 20% less than unmodified average of the earning percentages) | ||
Target | 50th percentile | 100% | ||
Maximum | 100th percentile | 120% |
| (*) | Linear interpolation was used to determine the applicable modifier. |
The product of (1) the average of the earning percentages andnon-GAAP operating profit at (2) the beginningrelative TSR modifier was multiplied by the target number of 2015, subjectPSUs granted to adjustment for the effectNEOs, to determine the final number of changes in currency exchange rates. The Compensation Committee andPSUs earned by each individual, except that the Board setnumber of PSUs to be issued may not exceed 200% of the target number of PSUs.
5056 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Executive Compensation
these targets based on certain assumptions about our performance. Pursuant to the 2015 award agreements, theThe Compensation Committee and the Board haveapproved an average earning percentage of 127% which was then subject to a relative TSR modifier, which adjusted the discretion to adjust (increase or decrease) the PSU Performance Goals and their relative weights if one or moreearning percentage downward by 20%, resulting in a modified earning percentage of the following items of gain, loss, profit or expense, having a material impact on the PSU Performance Goals, is: (i) determined to be extraordinary, unusual ornon-recurring in nature; (ii) related to changes in accounting principles under U.S. GAAP or tax laws; (iii) related to currency fluctuations; (iv) related to productivity initiatives or new business initiatives; (v) related to discontinued operations that do not qualify as a segment of business under U.S. GAAP; or (vi) attributable to the business operations or assets of any entity acquired or licensed by the Company during the fiscal year, to the extent the Compensation Committee or the Board, as applicable, determines that the adjustment is necessary or advisable to preserve the intended incentives and benefits of the PSUs, or if such adjustments were reflected in our publicnon-GAAP financial results.
In connection with evaluating our achievement of the 2015-2017 performance metrics, the102%. The Compensation Committee and the Board determined that in order forthen exercised negative discretion to reduce the PSU Performance Goalsfinal earning percentage to operate as they were intended to, they would make adjustments by increasing the targets due primarily to the 2016 acquisition of Actavis Generics. The aggregate effect of these adjustments was an increase of approximately 16% in the net revenue target and an increase of approximately 22% in thenon-GAAP operating profit target. For the performance period, our actual net revenue achievement was 91% and our actualnon-GAAP operating profit achievement was 86%, resulting in a weighted average achievement of 88.5%100%. This level of achievement was below the threshold level of performance of 90%, resulting in no payout, a 122% decrease compared to what would have been if the upward adjustments had not been taken into account.
Weighting | Performance Metric | Target ($MM) Excluding FX | Adjusted Target (100%) ($MM) | Actual Results ($MM) | % Achievement | Performance Metric | Year | Target | Actual Results | % Achievement | Earning % | |||||||||||||||||||||||||||||
| 2017 | $ | 4.86 | $ | 4.01 | 83% | |||||||||||||||||||||||||||||||||||
50% | Net Revenue | 58,654 | 67,992 | 62,045 | 91 | % | Non-GAAP EPS | 2018 | $ | 2.50 | $ | 2.92 | 117% | |||||||||||||||||||||||||||
| 2019 | $ | 2.40 | $ | 2.40 | 100% | |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| Average | 99.9% | 99.6% | ||||||||||||||||||||||||||||||||||||||
| 2017 | $ | 6.9B | $ | 6.0B | 87% | |||||||||||||||||||||||||||||||||||
50% | Non-GAAP Operating Profit | 17,557 | 21,461 | 18,406 | 86 | % | Free Cash Flow (1) | 2018 | $ | 2.8B | $ | 3.7B | 132% | |||||||||||||||||||||||||||
| 2019 | $ | 1.8B | $ | 2.1B | 113% | |||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
| Average | 110.9% | 154.3% | ||||||||||||||||||||||||||||||||||||||
Weighted Average: | Weighted Average: |
| 88.5 | % | 127.0% | |||||||||||||||||||||||||||||||||||
Relative TSR Modifier(-20%, reflecting <25th percentile) | Relative TSR Modifier(-20%, reflecting <25th percentile) |
| 80.0% | |||||||||||||||||||||||||||||||||||||
Modified Earning % | 101.6% | |||||||||||||||||||||||||||||||||||||||
Final Earning % (after exercising negative discretion) | Final Earning % (after exercising negative discretion) |
| 100.0% | |||||||||||||||||||||||||||||||||||||
| (1) | The definition of Free Cash Flow for each year was based on the definition used in connection with developing the annual business plan in each relevant year. In 2017, Free Cash Flow excluded legal settlements and included divestments. In 2018 and 2019, Free Cash Flow aligned to the definition used in our Annual Report on Form10-K for each applicable year which included legal settlements and excluded divestments. |
Based on this outcome, the NEOs did not earn anyearned Teva sharesPSUs in respect of their 2015-20172017-2019 PSU awards:awards as follows:
Name | Target Award (# of PSUs) | Payout Factor | Final Award (# of PSUs) | |||||||||
Current NEOs |
| |||||||||||
Kåre Schultz (1) | N/A | N/A | N/A | |||||||||
Michael McClellan (1) | N/A | N/A | N/A | |||||||||
Dr. Carlo de Notaristefani | 16,838 | 0 | % | 0 | ||||||||
Dr. Hafrun Fridriksdottir (1) | N/A | N/A | N/A | |||||||||
Mark Sabag | 12,628 | 0 | % | 0 | ||||||||
Former NEOs |
| |||||||||||
Erez Vigodman (2) | 30,869 | 0 | % | 0 | ||||||||
Dr. Yitzhak Peterburg (1) | N/A | N/A | N/A | |||||||||
Eyal Desheh (2) | 16,838 | 0 | % | 0 | ||||||||
Dr. Rob Koremans (2) | 17,773 | 0 | % | 0 | ||||||||
Dr. Michael Hayden (2) | 17,773 | 0 | % | 0 | ||||||||
Executive | Target Award (# of PSUs) | Final Earning Percentage | Final (# of PSUs) | |||||||||
Kåre Schultz (1) | 212,314 | 100% | 212,314 | |||||||||
Eli Kalif (2) | N/A | N/A | N/A | |||||||||
Dr. Hafrun Fridriksdottir | 17,850 | 100% | 17,850 | |||||||||
Brendan O’Grady (2) | N/A | N/A | N/A | |||||||||
Gianfranco Nazzi (2) | N/A | N/A | N/A | |||||||||
Michael McClellan (2) | N/A | N/A | N/A | |||||||||
Dr. Carlo de Notaristefani
|
| 30,941
|
|
| 100%
|
|
| 30,941
|
| |||
| (1) | Per the terms of Mr. Schultz’s employment agreement, he received a PSU grant upon joining the company in November 2017. |
| (2) | Mr. Kalif, Mr. O’Grady, Mr. Nazzi and Mr. McClellan, were appointed as executive officers subsequent to the 2017 grant date. As such, we did not grant |
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 5157
Executive Compensation
Performance, PromotionNew Hire and OtherLegacyOne-Time Grants
The Compensation Committee and the Board do not generally intend to provideone-time grants except in a very judicious and limited manner in rare circumstances as warranted by the situation. The Compensation Committee and the Board view any such grants to the NEOs as a special and exceptional nonrecurring event to meet the Company’s needs during a specific period or for a specific purpose. The Compensation Committee and the Board continue to prudently and carefully evaluate our compensation program to ensure that it accounts for the current transitional stage, aligns the interests of executive officers and shareholders and links their pay to the Company’s performance.
In 2019, the Compensation Committee and the Board did not approve anyone-time grants to any NEOs, other than a modestsign-on make-whole equity grant to Mr. Kalif in connection with his appointment as CFO, which was granted in February 2020. See “Leadership Transitions” below for a performance-based cash award earned by Dr. Fridriksdottir when she was an employeedescription of Actavis Generics prior to its acquisition by Teva in 2016, we assumed the obligation to pay a cash incentive of $535,000 based on Actavis Generics shareholder return performance metrics. Also,this grant.
As previously disclosed, pursuant to a legacy 2014 Actavis Generics retention plan that we also assumed in connection with our acquisition of Actavis Generics in 2016, Dr. Fridriksdottir had been granted a cash award of $1,000,000. Half of the cash award was earned in December 2018 and the remaining half was earned in December 2019. In November 2016, after the closing of our acquisition of Actavis Generics, we fulfilled the assumed obligation under the plan by making payment ofmade a $900,000special cash retention award to Dr. Fridriksdottir.
In connection withFridriksdottir of $300,000 due to her significance and key role during the promotiontransition period and the importance of Mr. McClellan tosecuring her services after the positionacquisition. We paid half of Interim CFO in July 2017 (before his promotion to Executive Vice President, CFO in November 2017), we awarded Mr. McClellan aone-time promotionthe cash award of $202,500 in recognition of his increased responsibility.One-half of the award was paid in November 2017,March 2018 and the remaining half was paid in February 2018.March 2019. In order to secure the services of Mr. McClellan during a time of transition while he served as Interim CFO,December 2016, we granted him 12,341 options, 4,091 RSUs, andmade a cash retention award totaling $67,500.One-halfto Dr. Fridriksdottir of $750,000. We paid one quarter of the cash award will bein January 2019 and paid the remaining three quarters in January 2020. These awards were granted to Dr. Fridriksdottir prior to her appointment as an executive officer.
As previously disclosed, pursuant to anon-executive retention program adopted in September 2018 and the remaining half will be paid in September 2019. The options and RSUs will vest in September 2019. All payments and vesting are subject to continued employment through the applicable vesting dates. These grants were part of a broader program2017 to secure the services of key employees during a period of uncertainty for our Company.
In addition, in May 2017,Company, we granted Dr. de Notaristefani 30,875 RSUs duecertainnon-executives awards consisting of cash and equity. In connection with this program, Mr. McClellan, Mr. O’Grady and Mr. Nazzi were paid the second half of the cash award in September 2019 totaling $33,750 for Mr. McClellan, $20,500 for Mr. O’Grady and 36,850 euros for Mr. Nazzi (approximately $40,579 based on the September 2019 average exchange rate of 0.91 euros per U.S. dollar). These payments were subject to his significance and key role duringcontinued employment through the transition period and the importance of securing his services. The RSUs will vest in May 2019.
Information regarding thesign-on equity and cash grants for Kåre Schultz is provided in the “Leadership Transitions” section below.applicable payment dates.
Leadership Transitions
Appointment of Mr. Kåre SchultzEli Kalif as Executive Vice President and CEOCFO
In September 2017, our Board successfully completed its global search process (with the assistanceEffective as of a search firm) for our next President and CEO when it appointed Kåre Schultz to the position. In its search, the Board sought a leader with extensive global pharmaceutical experience and a strong track record in corporate turnarounds, as well as in driving growth and leading international expansion. Mr. Schultz is a seasoned leader in the health care industry with an extensive background leading global companies’ financial and restructuring initiatives.
Since 2015, and prior to his appointment as our President and CEO, Mr. Schultz served as the President and CEO of H. Lundbeck A/S, which he joined as the company was facing the loss of critical patents. Mr. Schultz conducted a top to bottom evaluation of the business and implemented a robust turnaround strategy that involved cutting operating costs while targeting new product launches. As a result of his leadership, H. Lundbeck A/S is on track to achieveall-time high revenue and earnings with significant stock price appreciation and increased market cap. Prior to joining Lundbeck, Mr. Schultz worked for nearly three decades at Novo Nordisk, where he served in a number of leadership roles, including Chief Operating Officer, Vice President in Product Supply and Director of Product Planning and Customer Services in the Diabetes Care Division.
Based on this outstanding profile, our Board selected Mr. Schultz as the best candidate to lead Teva presently and to participate in the establishment of, and steer the execution of, our strategic and operational goals. The Board appointed Mr. Schultz as President and CEO effective November 1, 2017, and he joined the Board at that time.
52 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
The terms of the employment agreement with Mr. Schultz were negotiated in order to induce him to accept the Board’s offer to become our President and CEO at this critical time, including relocation to our headquarters in Israel. The Board was mindful of the challenges currently facing our Company in its various business segments, product lines and markets, the advent of generic competition for one of our key branded specialty products, the fierce competition for talented executives in the pharmaceutical industry and the extreme pressure on, and vast duties of, the leader of an international organization of the size and complexity of Teva in approving the components of the compensation package, including the annual base salary, target annual incentive, annual equity grants, and inducement equity grants and cash awards to Mr. Schultz. The Board also took into account the difficulty not just in identifying an individual with the desired skills and experience, but also retaining the person throughout the period of transition and significant change being driven by the Board. Accordingly, the Board, with the assistance of its independent compensation consultant, developed a compensation package that considered pay structures for CEOs at peer companies, and which includes pay that depends on long-term Company performance as well as the opportunity to accumulate a significant ownership interest in Teva upon the creation of sustained shareholder value.
In light of all of these factors,December 22, 2019, we entered into an employment agreement with Mr. Schultz which provides for an initial employment termEli Kalif to serve as our Executive Vice President and CFO.
Mr. Kalif has over twenty years of five years, subject to automatic renewal for subsequentone-year periods (or until the second anniversary followingexperience in corporate and operational finance, mainly with Flex Ltd., a change in control of the Company, if later than the otherwise applicable term end date) until a notice ofnon-renewal is provided or other termination circumstances occur.
Under the employment agreement, Mr. Schultz received an annual base salary of $2 million, a performance-based target annual incentive opportunity equal to 140% of his annual base salary (and a maximum opportunity of 200% of his annual base salary), annual long-term equity incentives with a total target grant date fair value of $6 million with vesting terms similar to other senior executive officers, a meaningful portion of which are performance-based,Nasdaq-listed global technology design and the same employee benefits as are provided to similarly situated senior executives of the Company.
Upon commencing employment on November 1, 2017, Mr. Schultz received the followingsign-on equity awards over the five year term of the agreement, which are designed to align his interests with those of Teva and its shareholders over the long term (like our stock ownership guidelines to which he is subject): (i) a restricted share unit award with a grant date fair value of $5 million (as determined based on the closing price of Teva’s shares on the date prior to the announcement of Mr. Schultz’s hire), which will vest and settle in equal installments on the third, fourth and fifth anniversaries of the employment commencement date (the “Effective Date”); and (ii) twosign-on performance share unit awards, each with a target grant date fair value of $7.5 million (as determined based on the closing price of Teva’s shares on the date prior to the announcement of Mr. Schultz’s hire), which will be earned based on the achievement of performance goals related to the absolute increase in the price of Teva’s shares over three- and five-year periods following the Effective Date, which range from a 16% increase to a 158% increase for the three-year performance period and from a 28% increase to a 385% increase for the five-year period, and generally vest on the third, fourth and fifth anniversaries of the Effective Date (in the case of the award with a three-year performance period) and on the fifth anniversary of the Effective Date (in the case of the award with a five-year performance period). In addition, Mr. Schultz received asign-on cash award of $20 million, which will vest and be paid in two equal installments three and six months following the Effective Date. In connection with his relocation to Israel, Mr. Schultz will also receive a housing reimbursement and certain relocation benefits.
As the grant date value of equity awards for accounting purposes depends on, among other things, stock price, the actual grant date fair values of thesesign-on equity awards that appear in our Summary Compensation Table are lower than the intended target values described in the preceding paragraph since the number of units was set based on the closing price of Teva’s shares on the date prior to the announcement of Mr. Schultz’s hire, but the grant date fair value of the awards for accounting purposes
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 53
Executive Compensation
were determined when they were actually granted. The Compensation Committee believed that fixing the number of units was appropriate and consistent with the aforementioned focus on aligning executives’ compensation with long-term shareholder value creation. See “—Additional Compensation Information—2017 Grants of Plan-Based Awards.”
Appointment of Mr. Michael McClellan as CFO; Previous Appointment as Interim CFO
Effective as of November 27, 2017, we entered into an employment agreement with Mr. McClellan.manufacturing service provider. For the preceding twopast 9 years, Mr. McClellanKalif served as theFlex’s Senior Vice President, and CFO of Teva’sFinance, leading the finance organization that supports Flex’s Global Specialty Medicines division.Operations, Components & services business. Prior to joining Teva, he wasthis role, Mr. Kalif served in other leadership positions in Flex’s finance organization. Mr. Kalif is a Certified Public Accountant and holds a bachelor’s degree in Accounting and Economics from the U.S. CFO at Sanofi. TheCollege of Management Academic Studies in Israel.
Mr. Kalif’s employment agreement provides that Mr. McClellanKalif will be employed as Executive Vice President and CFO, until his death, disability, termination with or without cause or resignation with or without good reason. He will continue his international assignment in Amsterdam, Netherlands, and on or about September 1, 2018, he will relocate to our corporate headquarters in Israel. The agreement provides for an initial annual base salary of $700,000.2,343,200 NIS (approximately $650,000 based on an exchange rate of 3.60 Israeli shekels per U.S. dollar). Mr. McClellanKalif is eligible to be considered for an annual cash incentive with a target of 100% of his then currentthen-current annual base salary, and for equity-based awards under our equity compensation plan.
In July 2017, in connection with the promotion ofaddition, Mr. McClellan to the position of Interim CFO (before his promotion to Executive Vice President, CFO in November 2017), we awarded Mr. McClellanKalif received aone-timesign-on promotion cashequity award of $202,500 in recognition of his increased responsibility.One-half of the award was paid in November 2017, and the remaining half was paid in February 2018. In order to retain the services of Mr. McClellan during a time of transition while he served as Interim CFO, we granted him 12,341 options, 4,091 RSUs, and a cash award totaling $67,500.One-half of the cash award will be paid in September 2018 and the remaining half will be paid in September 2019. The options and RSUs will vest in September 2019. All payments and vesting are subject to continued employment through the applicable vesting dates.
Appointment of Dr. Hafrun Fridriksdottir as Executive Vice President, Global R&D
On November 27, 2017, we appointed Dr. Hafrun Fridriksdottir as Executive Vice President, Global R&D. Since February 2017, she served as Executive Vice President, President of Global Generics R&D, after serving as Senior Vice President and President of Global Generics R&D since August 2016. Prior to joining Teva, Dr. Fridriksdottir served as Senior Vice President of Global Generics R&D of Allergan plc, where she held several positions of increasing responsibility2020 in the Actavis group within Allergan.
On June 18, 2017, we entered into an employment agreementform of RSUs with Dr. Fridriksdottir. The agreement provides that Dr. Fridriksdottir will serve in a senior R&D position until her death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial base salarygrant date fair value of $720,000. Dr. Fridriksdottir is eligible to be considered for an annual cash incentive (prorated for 2017 and under the applicable plan prior to being appointed an executive officer for the time period before such appointment), and for equity-based awards under our equity compensation plan.
Separation of former President and CEO Erez Vigodman
In February 2017, Erez Vigodman stepped down as President and CEO.
Pursuant to the terms of our employment agreement with Mr. Vigodman, in connection with his termination of employment, Mr. Vigodman was entitled to receive nine months’ notice, payments associated with termination as required pursuant to Israeli law, certain previously accrued obligations, and a payment that, together with severance amounts accumulated in his existing pension insurance funds, equals the product of twice his monthly base salary multiplied by the number of his years of service. Mr. Vigodman is also receiving an amount equal to eighteen times his monthly base salary$250,000 in consideration for compliance withof certainnon-competition covenants. equity
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Undergrants with Mr. Kalif’s prior employer that were forfeited upon his employment agreement, Mr. Vigodman is also entitled to continued vesting of equity-based awards for twelve months following terminationresignation, which will vest in three equal installments on the second, third, and an extensionfourth anniversaries of the exercise period of outstanding options for a period of ninety days after the twelve month period.
Appointment and Separation of Dr. Yitzhak Peterburg as Interim President and CEO
Dr. Yitzhak Peterburg served as Interim President and CEO from February 2017 until November 2017. Prior to that, Dr. Peterburg served as Chairman of the Board since January 2015. When Mr. Schultz began his service as President and CEO on November 1, 2017, Dr. Peterburg continued to serve as a member of our Board and then resigned from the Board on December 12, 2017.
Pursuant to Dr. Peterburg’s terms of employment, during his service as Interim President and CEO, Dr. Peterburg was compensated in a manner comparable to our former President and CEO, Mr. Vigodman,grant date, subject to certain differences relating to his interim status, as described below.
Dr. Peterburg’s compensation included (i) a monthly base salary of 488,250 Israeli shekels (approximately $135,608 using a 2017 average monthly exchange rate of 3.60 shekels per U.S. dollar); (ii) an annual cash incentive(pro-rated for service forcontinued employment through the partial period of the year) with an annual target amount equal to 140% of annual base salary and a maximum amount equal to 200% of annual base salary; (iii) an annual equity award with an aggregate target fair market value of $4.5 million under terms consistent with those of the previous President and CEO, with one third of the annual award being granted in the form of options to purchase Teva shares, one third in the form of PSUs and one third in the form of RSUs, calculated in accordance with accepted valuation and accounting principles, as they apply to the relevant type of equity-based vehicle and in accordance with Teva practice; and (iv) termination arrangements as described below.
Pursuant to Dr. Peterburg’s terms of employment, in connection with his termination of employment, Dr. Peterburg is entitled to receive nine months’ notice, payments associated with termination as required pursuant to Israeli law, certain previously accrued obligations, and a payment that, together with severance amounts accumulated in his existing pension insurance funds, equals the product of twice his monthly base salary multiplied by the number of his years of service as Interim President and CEO.
Under his employment terms, Dr. Peterburg will also be entitled to continuedapplicable vesting in full of all equity-based awards granted as Interim President and CEO and continued exercisability of vested options through their expiration dates.
Separation of formerFormer CFO Eyal DeshehMr. Michael McClellan
In July 2017, Eyal Desheh stepped downOn November 8, 2019, Michael McClellan resigned from his role as Group Executive Vice President and CFO.
CFO for personal reasons. Pursuant to the terms of our employment agreement with Mr. Desheh,McClellan, in connection with his resignation, Mr. McClellan was entitled to a three month notice period.
Separation of Dr. Carlo de Notaristefani
On October 2, 2019, Dr. Carlo de Notaristefani stepped down as Executive Vice President, Global Operations. He will remain with Teva until the end of the second quarter of 2020 to ensure an orderly transition.
Pursuant to the terms of employment with Dr. de Notaristefani, in connection with his termination of employment, Mr. DeshehDr. de Notaristefani is entitled to receivea nine months’month notice payments associated with termination as required pursuantperiod, eligibility for 2019 annual cash incentive, cash severance equal to Israeli law, certain previously accrued obligations, amake-up payment equal tothe product of twelve times his monthly base salary multiplied by the numberand payment of his years of service, that togethercertain costs associated with severance amounts accumulated in his pensioncontinued medical insurance fund account cannot exceed twice his monthly base salary multiplied by the number of his years of service, and eligibility to apro-rata annual cash incentive for the term active in position. Mr. Desheheighteen months. Dr. de Notaristefani is also receivingentitled to receive an amount equal to twelve times his monthly base salary, in consideration for, and conditioned upon, his undertaking not to compete with Teva for one year following termination.termination and other restrictive covenants.
Mr. DeshehDr. de Notaristefani is also entitled to continued vesting in full of his equity-based awards and continued exercisability of vested options through their expiration dates due to our qualifying retirement and qualifying termination policy.
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Separation of Dr. Rob Koremans
As a result of the new organization and leadership structure, on November 27, 2017, Dr. Rob Koremans stepped down as President and CEO, Global Specialty Medicines.
Pursuant to the terms of our employment agreement with Dr. Koremans, in connection with his termination of employment, Dr. Koremans is entitled to receive six months’ notice, a severance payment equal to 12 monthly salaries and target annual cash incentive (for a total of 24 monthly salaries).
Dr. Koremans is also entitled to continued vesting of equity-based awards until March 1, 2020 and continued exercisability of vested options through their expiration dates.
Separation of Dr. Michael Hayden
As a result of the new organization and leadership structure, on November 27, 2017, Dr. Michael Hayden stepped down as President of Global R&D and Chief Scientific Officer.
Pursuant to the terms of our employment agreement with Dr. Hayden, in connection with his termination of employment, Dr. Hayden is entitled to receive nine months’ notice, payments associated with termination as required pursuant to Israeli law, certain previously accrued obligations, a payment equal to 12 monthly salaries, a payment that, together with severance amounts accumulated in his existing pension insurance funds, equals the product of twice his monthly base salary multiplied by the number of his years of service, a payment equal to the premium for continued health insurance coverage for eighteen months following the termination date and certain relocation benefits in the event of a move back to Canada within one year following the termination date.
Dr. Hayden is also entitled to continued vesting of certain equity-based awards and continued exercisability of vested options through their expiration dates due to our qualifying retirement and qualifying termination policy.awards.
SupplementalNon-GAAP Income Data
We utilize certainnon-GAAP financial measures to evaluate performance, in conjunction with other performance metrics. The following are examples of how we utilize thenon-GAAP measures:
| ∎ | our executives and Board usenon-GAAP measures to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of our executives; |
| ∎ | our annual budgets are prepared on anon-GAAP basis; and |
| ∎ | senior |
Non-GAAP financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide thisnon-GAAP data because our executives believe that the data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP,non-GAAP measures may not be comparable with the calculation of similar measures for other companies. Please see “Item 7—Management’s Discussion
For the definitions ofnon-GAAP financial measures and Analysis—Supplementala reconciliation of these items to the most directly comparable financial measures calculated and presented in accordance with GAAP, reference is made to the section captioned “SupplementalNon-GAAP Income Data” toin the Annual Report onCompany’s Form10-K for the year ended December 31, 2017 for additional information.2019.
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Other Elements of Compensation
We generally provide to our executive officers the same benefits that are provided to all employees, including certain health and welfare benefits and other benefits. In addition, our executive officers are provided with certain additional benefits, intended to be competitive with the practices of companies in our Peer Group.
Health and Welfare Benefits
We offer health and welfare benefits to all eligible employees, including all executive officers, which are tailored to each location’s competitive market. Health and welfare benefits may include medical, dental, prescription drug, vision, life insurance, accidental death and dismemberment, short- and long-term disability coverage and an employee assistance program.
Retirement and Other Local Benefits
Israel
Israeli law generally requires severance pay equal to one month’s salary for each year of employment upon the termination of an employee’s employment due to retirement, death, termination without cause and other circumstances as defined under Israeli law. We make monthly contributions on behalf of our executive officers on Israel payroll to pension plans. These funds provide a combination of pension allowance and/or insurance and severance pay benefits to the executive officers. We contribute 7.5% of a NEO’s monthly salary to the pension component (including disability insurance) and 8.33% of the NEO’s monthly salary to the severance component and the employee contributes an amount between 6% and 7% of the monthly salary to the pension component. The contributions to the severance component are on account of Teva’s obligation to pay severance upon termination as referenced above. Our CEO is entitled to similar contributions on behalf of the Company as a pension contribution and on account of severance. Accordingly, a substantial part of our statutory severance obligation is covered by these monthly contributions.
Generally, in addition, our executive officers on Israel payroll (excluding the CEO), like all of our employees in the country, are entitled to participate in a study fund plan, pursuant to which each employee who participates in the plan contributes an amount equal to 2.5% of his or her monthly salary to the study fund and Teva contributes to this fund or pays 7.5% of his or her monthly salary.
North America
Our North American subsidiaries mainly provide various defined contribution plans for the benefit of their employees. Under these plans, contributions are based on specified percentages of pay. In addition, Teva USA offers a supplemental deferred compensation plan to eligible employees. The plan is a nonqualified plan which is intended to work as a complement to the qualified 401(k) Retirement Savings Plan. The plan has been designed to address the “retirement gap” that many highly compensated individuals face, primarily due toIRS-imposed limits on qualified plans and IRAs. Finally, certain executive officers located in the United States participate in a defined contribution supplemental executive retirement plan (“DC SERP”). As of the beginning of 2017, no new executive officers are enrolled in this plan.
Expatriate Benefits / International Assignment and Relocation Benefits
Teva provides benefits to our employees who either accept an expatriate assignment or relocate internationally. The benefits are designed to provide ongoing assignment management and physical relocation support services. These benefits can vary depending on the nature of the assignment or relocation, but generally include a housing allowance, transportation support, a cost of living allowance (where applicable), home leave, global health insurance, and Company-paid education for approved
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V.dependents in locations where public education is not suitable. Additionally, we provide tax preparation and tax support services, dependent on the nature of the assignment (e.g., tax equalization for home-based assignments or tax gross up of relocation benefits and ongoing assignment allowances for host-based assignments), as well as immigration services to manage compliance within all global jurisdictions. The purpose of these benefits is to keep our expatriate employees “economically neutral” for the costs associated with living and working outside their home country, with the goal that they are not financially advantaged or disadvantaged as a result of relocating to another country and incurring associated taxes.
Details regarding benefits and perquisites specific to each NEO can be found in the footnotes to the 2019 Summary Compensation Table set forth below under “Additional Compensation Information.”
VI. Additional Compensation Policies and Practices
Equity Ownership PolicyHealth and Welfare Benefits
TevaWe offer health and its shareholderswelfare benefits to all eligible employees, including all executive officers, which are best served by executives that managetailored to each location’s competitive market. Health and welfare benefits may include medical, dental, prescription drug, vision, life insurance, accidental death and dismemberment, short- and long-term disability coverage and an employee assistance program.
Retirement and Other Local Benefits
Israel
Israeli law generally requires severance pay equal to one month’s salary for each year of employment upon the business with a long-term perspective. Therefore, we adopted share ownership guidelines,termination of an employee’s employment due to retirement, death, termination without cause and other circumstances as we believe share ownership is an important tool to strengthen the alignmentdefined under Israeli law. We make monthly contributions on behalf of interests among shareholders and our executive officers. The policy provides that Teva expects the applicable required level of equity ownership to be satisfied by our executive officers within five yearson Israel payroll to pension plans. These funds provide a combination of pension allowance and/or insurance and severance pay benefits to the executive officers. We contribute 7.5% of a NEO’s monthly salary to the pension component (including disability insurance) and 8.33% of the laterNEO’s monthly salary to the severance component and the employee contributes an amount between 6% and 7% of the datemonthly salary to the guidelines were adopted in June 2016 orpension component. The contributions to the dateseverance component are on account of appointmentTeva’s obligation to pay severance upon termination as an executive officer. If an executive officer’s holding requirement increases because of a change in annual base salary, the executive officerreferenced above. Our CEO is expectedentitled to achieve the higher holding requirement within one yearsimilar contributions on behalf of the dateCompany as a pension contribution and on account of severance. Accordingly, a substantial part of our statutory severance obligation is covered by these monthly contributions.
Generally, in addition, our executive officers on Israel payroll (excluding the CEO), like all of our employees in the country, are entitled to participate in a study fund plan, pursuant to which each employee who participates in the plan contributes an amount equal to 2.5% of his or her monthly salary to the study fund and Teva contributes to this fund or pays 7.5% of his or her monthly salary.
North America
Our North American subsidiaries mainly provide various defined contribution plans for the benefit of their employees. Under these plans, contributions are based on specified percentages of pay. In addition, Teva USA offers a supplemental deferred compensation plan to eligible employees. The plan is a nonqualified plan which is intended to work as a complement to the qualified 401(k) Retirement Savings Plan. The plan has been designed to address the “retirement gap” that many highly compensated individuals face, primarily due toIRS-imposed limits on qualified plans and IRAs. Finally, certain executive officers located in the United States participate in a defined contribution supplemental executive retirement plan (“DC SERP”). As of the increase.
The Compensation Committee receives periodic reportsbeginning of the ownership achieved by each executive officer. For purposes of determining compliance with the guidelines, the value of an executive officer’s share holdings is based on the closing price of Teva’s American Depositary Shares reported on the principal U.S. national securities exchange on which the shares are listed on the last trading day of the year.
The following table represents the required salary multiples:
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The value of all of the following types of Teva shares or share options owned by or granted to an executive officer qualifies toward the participant’s attainment of the target multiple of pay:
Clawback Policy
Our2017, no new executive officers are requiredenrolled in this plan.
Expatriate Benefits / International Assignment and Relocation Benefits
Teva provides benefits to return any compensation paidour employees who either accept an expatriate assignment or relocate internationally. The benefits are designed to themprovide ongoing assignment management and physical relocation support services. These benefits can vary depending on the basisnature of results included in financial statements that turned out to be erroneousthe assignment or relocation, but generally include a housing allowance, transportation support, a cost of living allowance (where applicable), home leave, global health insurance, and were subsequently restated, during the three year period following filing thereof. In such case, compensation amounts will be returned net of taxes that were withheld thereon, unless the executive officer has reclaimed or is able to reclaim such tax payments from the relevant tax authorities (in which case the executive officer will also be obligated to return such tax amounts). In addition, in the event that it is discovered that an executive officer engaged in conduct that resulted in a material inaccuracy in Teva’s financial statements or caused severe financial or reputational damage to Teva, or in the event that it is discovered that an executive officer breached confidentiality and/ornon-compete obligations to Teva (as determined by the Compensation Committee), the Compensation Committee shall have broad remedial and disciplinary authority. Such disciplinary actionCompany-paid education for approved
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or remedy would vary depending on the facts and circumstances, and may include, without limitation, (i) termination of employment, (ii) initiating an action for breach of fiduciary duty, and (iii) seeking reimbursement of performance-based or incentive compensation paid or awarded to the executive officer. The Compensation Committee will determine applicable terms to enforce repayment of clawback amounts and may modify this clawback policy in accordance with applicable law and regulations.
Anti-Hedging and Pledging Policies
Directors and executive officers are prohibited from hedging their equity-based awards and any other Teva securities held by them (whether they are subject to transfer restrictions or not), such as purchasing or selling options on Teva securities, purchasing or selling puts, calls, straddles, equity swaps or other derivative securities linked to Teva’s securities, or engaging in “short” sales on Teva securities. This policy applies to each director and each executive officer until one year after the director’s or executive officer’s termination or retirement.
Directors and executive officers are subject to certain restrictions on pledging or using their equity-based awards and any other Teva securities held by them (whether they are subject to transfer restrictions or not) as collateral for loans.
Tax Deductibility
Prior to the Tax Cuts and Jobs Act (the “TCJA”) signed into law in December 2017, Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally limited the corporate tax deduction for compensation paid to the CEO and the three other most highly compensated executives (other than the CFO) to $1.0 million annually, unless certain requirements were satisfied. To maximize the corporate tax deduction, incentive plans were designed so that certain awards under those plans would constitute “qualified performance-based compensation” for purposes of Section 162(m) of the Code and preserve our corporate tax deductibility for those amounts.
The TCJA contained significant changes to Section 162(m) of the Code, including the elimination of the performance-based compensation exception to Section 162(m) for corporate tax years beginning after December 31, 2017 and an expansion of employees covered by the provision. Section 162(m) now covers the CFO or any individual who served as the CFO in the relevant taxable year. In addition, once an individual becomes a covered employee under Section 162(m) for any taxable year beginning after December 31, 2016, this status carries forward to all future years, even in the event of the employee’s termination or death. The act provides limited transition relief for certain “performance-based” compensation, specifying that compensation payable pursuant to a written binding contract which was in effect on November 2, 2017 and which was not modified in any material respect on or after that date will remain eligible for the “performance-based” pay exception to Section 162(m) (i.e., may remain deductible even if in excess of $1 million). The U.S. Internal Revenue Service is expected to provide guidance on the application of the transition relief to specific situations. However, given the changes to Section 162(m), we expect that the U.S.-based tax deductibility of performance-based compensation in excess of $1.0 million will be less of a consideration for us when designing and implementing our executive officers’ compensation program in future years.
Other Benefits and Perquisites
We generally provide to our CEO and executive officers the same benefits that are provided to all employees, including certain retirement benefits, health and welfare benefits, and other benefits. In addition, our executive officers are provided with certain additional benefits, intended to be competitive with the practices of our peer companies.
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Our Compensation Policy provides that:dependents in locations where public education is not suitable. Additionally, we provide tax preparation and tax support services, dependent on the nature of the assignment (e.g., tax equalization for home-based assignments or tax gross up of relocation benefits and ongoing assignment allowances for host-based assignments), as well as immigration services to manage compliance within all global jurisdictions. The purpose of these benefits is to keep our expatriate employees “economically neutral” for the costs associated with living and working outside their home country, with the goal that they are not financially advantaged or disadvantaged as a result of relocating to another country and incurring associated taxes.
Benefit plans and perquisites have three main objectives:
Benefit plans and perquisites are intended to supplement cash compensation and often involvenon-monetary rewards, coverage of certainbusiness-related expenses, insurance, pension and savings plans and other deferred monetary savings. TheseDetails regarding benefits and perquisites may vary depending on geographic locationspecific to each NEO can be found in the footnotes to the 2019 Summary Compensation Table set forth below under “Additional Compensation Information.”
VI. Additional Compensation Policies and other circumstances. Global, regional and local units may develop their own benefit plans and procedures, consistent with Teva’s principles and guidelines and subject to any required Company approvals. Benefits and perquisites may include, in addition to benefits that are mandated by applicable law and/or generally provided to other employees (including related costs and expenses): car, transportation and accommodations, telecommunication devices, media and computer equipment and expenses, travel and relocation (includingfamily-related expenses, such as tuition and commuting) and life and medical insurance and benefits (including executive officers’ families).Practices
Health and Welfare Benefits
We offer health and welfare benefits to all eligible employees, including the President and CEO andall executive officers, which are tailored to each location’s competitive market. Health and welfare benefits may include medical, dental, prescription drug, vision, life insurance, accidental death and dismemberment, short- and long-term disability coverage and an employee assistance program.
Retirement and Other Local Benefits
Israel
Israeli law generally requires severance pay equal to one month’s salary for each year of employment upon the termination of an employee’s employment due to retirement, death, termination without cause (andand other circumstances as defined under Israeli law).law. We make monthly contributions on behalf of our Israel-based executive officers on Israel payroll to a pension plan known as Managers’ Insurance or to a Pension Fund.plans. These funds provide a combination of pension allowance and/or insurance and severance pay benefits to the executive officers. We contribute 7.5% of thea NEO’s monthly salary to the pension component (including disability insurance) and 8.33% of the NEO’s monthly salary to the severance component and the employee contributes an amount between 6% and 7% of the monthly salary to the pension component. TheseThe contributions to the severance component are on account of Teva’s obligation to pay severance upon termination as referenced above. Our President and CEO is entitled to similar contributions on behalf of the Company as a pension contribution and on account of severance. Accordingly, a substantial part of our statutory severance obligation is covered by these monthly contributions.
Generally, in addition, our Israel-based executive officers on Israel payroll (excluding the current President and CEO), like all of our employees in the country, are entitled to participate in ana study fund plan, pursuant to which each employee who participates in the plan contributes an amount equal to 2.5% of his or her monthly salary to the study fund and Teva contributes to this fund or pays 7.5% of his or her monthly salary to this fund.salary.
North America
Our North American subsidiaries mainly provide various defined contribution plans for the benefit of their employees. Under these plans, contributions are based on specified percentages of pay. In addition, Teva USA offers a supplemental deferred compensation plan to eligible employees. The plan is a nonqualified
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plan which is intended to work as a complement to the qualified 401(k) Retirement Savings Plan. The plan has been designed to address the “retirement gap” that many highly compensated individuals face, primarily due to IRS imposedIRS-imposed limits on qualified Plansplans and IRAs. Finally, certain executive officers located in the United States participate in a defined contribution supplemental executive retirement plan. Noplan (“DC SERP”). As of the beginning of 2017, no new executive officers are enrolled in this plan.
Expatriate Benefits / International Assignment and Relocation Benefits
Teva provides benefits to our employees who either accept an expatriate assignment or relocate internationally. The benefits are designed to provide ongoing assignment management where applicable, and physical relocation support services. These benefits can vary depending on the nature of the assignment or relocation, but generally include a housing allowance, transportation support, a cost of living allowance (where applicable), home leave, global health insurance, and company paidCompany-paid education for approved
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dependents in locations where public education is not suitable. Additionally, we provide tax preparation and tax support services, dependent on the nature of the assignment (e.g., tax equalization for home-based assignments or tax gross up of relocation benefits and ongoing assignment allowances for host-based assignments), as well as immigration services to manage compliance within all global jurisdictions. The purpose of these benefits is to keep our expatriate employees “economically neutral” for the costs associated with living and working outside their home country, with the goal that they are not financially advantaged or disadvantaged as a result of relocating to another country and incurring associated taxes.
Details regarding benefits and perquisites specific to each NEO can be found in the footnotes to the 2019 Summary Compensation Table set forth below under “Additional Compensation Information.”
VI. Additional Compensation Policies and Practices
Equity Ownership Policy
Teva and its shareholders are best served by executives and directors that manage the business with a long-term perspective. Therefore, we adopted share ownership guidelines, as we believe share ownership is an important tool to strengthen the alignment of interests among our executive officers and directors and our shareholders, to reinforce executive officers’ commitment to Teva and to demonstrate Teva’s commitment to sound corporate governance.
The policy provides that Teva expects the applicable required level of equity ownership to be satisfied by our executive officers within five years, and by our directors within six years, of the later of the date the guidelines were adopted or the date of appointment as an executive officer or director. If an executive officer’s holding requirement increases because of a change in annual base salary, or if a director’s holding requirement increases because of a change in annual cash retainer, the executive officer is expected to achieve the higher holding requirement within one year, and the director within two years, of the date of the increase.
The Compensation Committee receives periodic reports of the ownership achieved by each executive officer and director. For purposes of determining compliance with the guidelines, the value of an executive officer or director’s share holdings is based on the closing price of Teva’s American Depositary Shares reported on the principal U.S. national securities exchange on which the shares are listed (currently the NYSE) on the last trading day of the year.
To further strengthen the alignment of interests among our executive officers and directors and our shareholders, starting in 2019, the Compensation Committee and the Board modified the equity ownership guidelines by increasing the required salary multiple from 4x to 6x for the CEO and from 2x to 3x for other executive officers. In addition, they introduced an equity ownership guideline for directors. The Compensation Committee and the Board also modified the definition of what can be included to satisfy the guidelines by removing unvested PSUs. The updated ownership guidelines are as follows:
Current Position | Multiple of Base Salary/Retainer | |
CEO | 6x | |
All other executive officers | 3x | |
Directors | 5x annual cash fee(*) |
| (*) | Excluding committee fees. |
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The value of all of the following types of Teva shares or stock options owned by, or granted to, an executive officer or director qualifies toward the attainment of the target multiple of pay:
| ∎ | shares owned outright by the executive officer or director or jointly with, or separately by, his or her immediate family members residing in the same household; |
| ∎ | shares held in a grantor trust or under a similar arrangement for the economic benefit of the executive officer or director or his or her immediate family members residing in the same household; |
| ∎ | shares held in any Teva retirement plan; |
| ∎ | unvested time-based restricted shares and RSUs; and |
| ∎ | the intrinsic value of vested but unexercisedin-the-money stock options. |
Clawback Policy
Our executive officers are required to return any compensation paid to them on the basis of results included in financial statements that turned out to be erroneous and that were subsequently restated, during the three-year period following filing thereof. In such cases, compensation amounts will be returned net of taxes that were withheld thereon, unless the executive officer has reclaimed or is able to reclaim such tax payments from the relevant tax authorities (in which case the executive officer will also be obligated to return such tax amounts). We will publicly disclose the general circumstances of any repayment or forfeiture of compensation from our executive officers under our clawback policy, and the aggregate amounts repaid or forfeited, if required by applicable law or regulation, or if we have previously disclosed the underlying event giving rise to the repayment or forfeiture, unless such disclosure would, as determined by our Compensation Committee or Board, raise legal or privacy concerns with respect to those individuals involved or would not be in the best interests of our shareholders.
In addition, in the event that it is discovered that an executive officer engaged in conduct that resulted in a material inaccuracy in Teva’s financial statements or caused severe financial or reputational damage to Teva, or in the event that it is discovered that an executive officer breached confidentiality and/ornon-compete obligations to Teva (as determined by the Company), the Company has broad remedial and disciplinary authority. Such disciplinary action or remedy would vary depending on the facts and circumstances, and may include, without limitation, (i) terminating employment, (ii) initiating an action for breach of fiduciary duty, and (iii) seeking reimbursement of performance-based or incentive compensation paid or awarded to the executive officer, including by means of an offset to, or cancellation of, outstanding grants or opportunities. The Company will determine applicable terms to enforce repayment of clawback amounts and may modify this clawback policy in accordance with applicable law and regulations.
Anti-Hedging and Anti-Pledging Policies
Our directors and executive officers are prohibited from hedging their equity-based awards and any other Teva securities held by them (whether they are subject to transfer restrictions or not), such as purchasing or selling options on Teva securities, purchasing or selling puts, calls, straddles, equity swaps or other derivative securities linked to Teva’s securities, or engaging in “short” sales on Teva securities. This policy applies to each director and each executive officer until one year after the director’s or executive officer’s termination or retirement. Our employees are also strongly discouraged from participating in any transaction in which profit is earned through a decline in value of Teva securities, such as short sales or hedges. Directors and executive officers are prohibited from pledging or using their equity-based awards and any other Teva securities held by them (whether they are subject to transfer restrictions or not) as collateral for loans.
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Tax Deductibility
Prior to the Tax Cuts and Jobs Act (the “TCJA”) signed into law in December 2017, Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally limited the corporate tax deduction for compensation paid to the CEO and the three other most highly compensated executives (other than the CFO) to $1.0 million annually, unless certain requirements were satisfied. To maximize the corporate tax deduction, incentive plans were designed so that certain awards under those plans would constitute “qualified performance-based compensation” for purposes of Section 162(m) of the Code and preserve our corporate tax deductibility for those amounts.
The TCJA contained significant changes to Section 162(m) of the Code, including the elimination of the performance-based compensation exception to Section 162(m) for corporate tax years beginning after December 31, 2017, and an expansion of employees covered by the provision. Section 162(m) now covers the CFO or any individual who served as the CFO in the relevant taxable year. In addition, once an individual becomes a covered employee under Section 162(m) for any taxable year beginning after December 31, 2016, this status carries forward to all future years, even in the event of the employee’s termination or death. The TCJA provides limited transition relief for certain grandfathered “performance-based” compensation, specifying that compensation payable pursuant to a written binding contract which was in effect on November 2, 2017 and which was not modified in any material respect on or after that date will remain eligible for the “performance-based” compensation exception to Section 162(m) (i.e., may remain deductible even if in excess of $1 million). The U.S. Internal Revenue Service has provided some guidance on the application of the transition relief to specific situations. However, given the changes to Section 162(m), we expect that the U.S.-based tax deductibility of performance-based compensation in excess of $1.0 million will be less of a consideration for us when designing and implementing our executive officers’ compensation program in future years.
While the TCJA may limit the deductibility of compensation paid to our covered employees, the Compensation Committee and the Board will—consistent with past practice—retain flexibility to design compensation programs that are in the best long-term interests of Teva and our shareholders, with deductibility of compensation being one of many factors considered.
Compensation Committee Report
The Compensation Committee has reviewed and discussed this “Compensation Discussion and Analysis” section of this Proxy Statement with our executives. Based upon this review and discussions, the Compensation Committee recommended to the Board that the “Compensation Discussion and Analysis” be included in this Proxy Statement.
This Compensation Committee Report shall not be deemed to be incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, notwithstanding any general statement contained in any such filing incorporating this proxy statement by reference, except to the extent the Company incorporates such Report by specific reference.
Members of the Compensation Committee:
Rosemary A. Crane, Chair
Gerald M. Lieberman
Jean-Michel Halfon
Nechemia (Chemi) J. Peres
60 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 63
Executive Compensation
ADDITIONAL COMPENSATION INFORMATION
20172019 Summary Compensation Table
Name and Principal
| Year
| Salary
| Bonus
| Stock
| Option
| Non-Equity
| Change in
| All Other
| Total ($)
| ||||||||||||||||||||||||||||||||||||
Kåre Schultz President and Chief Executive Officer
|
|
2017
|
|
|
333,333
|
|
|
0
|
|
|
14,229,808
|
|
|
2,000,009
|
|
|
0
|
|
0
|
|
464,591
|
|
|
17,027,741
|
| ||||||||||||||||||||
Michael McClellan Executive Vice President, Chief Financial Officer
|
|
2017
|
|
|
397,058
|
|
|
101,250
|
|
|
199,260
|
|
|
195,515
|
|
|
0
|
|
0
|
|
199,579
|
|
|
1,092,662
|
| ||||||||||||||||||||
Dr. Carlo de Notaristefani Executive Vice President, Global Operations
|
|
2017 |
|
|
836,400 |
|
|
0 |
|
|
2,569,720 |
|
|
866,688 |
|
|
0 |
|
0 |
|
189,551 |
|
|
4,462,359 |
| ||||||||||||||||||||
| 2016 | 835,832 | 0 | 1,074,937 | 1,075,070 | 872,532 | 0 | 191,766 | 4,050,137 | |||||||||||||||||||||||||||||||||||||
|
| 2015
|
|
| 877,231
|
|
| 0
|
|
| 899,991
|
|
| 900,016
|
|
| 1,189,398
|
| 0
|
| 178,988
|
|
| 4,045,624
|
| |||||||||||||||||||||
Dr. Hafrun Fridriksdottir Executive Vice President, Global Research and Development
|
|
2017
|
|
|
696,346
|
|
|
900,000
|
|
|
999,957
|
|
|
500,047
|
|
|
535,000
|
|
0
|
|
77,492
|
|
|
3,708,842
|
| ||||||||||||||||||||
Mark Sabag Executive Vice President, Global Human Resources
|
|
2017
|
|
|
604,637
|
|
|
0
|
|
|
1,066,630
|
|
|
533,375
|
|
|
0
|
|
0
|
|
317,108
|
|
|
2,521,750
|
| ||||||||||||||||||||
Erez Vigodman Former President and CEO |
|
2017 |
|
|
1,378,702 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
0 |
|
1,455,704 |
|
|
2,834,406 |
| ||||||||||||||||||||
| 2016 | 1,528,437 | 0 | 2,249,948 | 2,250,061 | 0 | 0 | 478,671 | 6,507,117 | |||||||||||||||||||||||||||||||||||||
|
| 2015
|
|
| 1,363,692
|
|
| 0
|
|
| 1,649,948
|
|
| 1,650,060
|
|
| 2,253,581
|
| 0
|
| 435,942
|
|
| 7,353,223
|
| |||||||||||||||||||||
Dr. Yitzhak Peterburg Former Interim President and CEO
|
|
2017
|
|
|
1,534,467
|
|
|
0
|
|
|
2,999,991
|
|
|
1,500,009
|
|
|
0
|
|
0
|
|
737,071
|
|
|
6,771,538
|
| ||||||||||||||||||||
Eyal Desheh Former Group ExecutiveVice President and ChiefFinancial Officer
|
|
2017 |
|
|
831,428 |
|
|
0 |
|
|
1,333,315 |
|
|
666,686 |
|
|
0 |
|
0 |
|
1,369,101 |
|
|
4,200,530 |
| ||||||||||||||||||||
| 2016 | 779,399 | 0 | 1,124,934 | 1,125,072 | 591,775 | 0 | 269,231 | 3,890,411 | |||||||||||||||||||||||||||||||||||||
|
| 2015
|
|
| 733,863
|
|
| 0
|
|
| 899,991
|
|
| 900,016
|
|
| 1,110,824
|
| 0
|
| 253,068
|
|
| 3,897,762
|
| |||||||||||||||||||||
Dr. Rob Koremans Former President and CEO, Global Specialty Medicines
|
|
2017
|
|
|
783,215
|
|
|
0
|
|
|
1,666,644
|
|
|
833,361
|
|
|
0
|
|
0
|
|
1,807,975
|
|
|
5,091,195
|
| ||||||||||||||||||||
Dr. Michael Hayden Former President of Global R&D and Chief Scientific Officer
|
|
2017 |
|
|
1,071,000 |
|
|
0 |
|
|
1,333,315 |
|
|
666,686 |
|
|
0 |
|
0 |
|
1,152,537 |
|
|
4,223,538 |
| ||||||||||||||||||||
| 2016 | 1,071,000 | 500,000 | 1,149,956 | 1,150,055 | 970,202 | 0 | 2,638,012 | 7,479,225 | |||||||||||||||||||||||||||||||||||||
|
| 2015
|
|
| 1,050,000
|
|
| 500,000
|
|
| 949,967
|
|
| 950,034
|
|
| 1,608,239
|
| 0
|
| 1,045,992
|
|
| 6,104,232
|
| |||||||||||||||||||||
Name and Principal Position | Year | Salary ($) (1) | Bonus ($) (2) | Stock Awards ($) (3) | Option Awards ($) (4) | Non-Equity Incentive Plan Compensation ($) (5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) (6) | Total ($) | |||||||||||||||||||||||||
Kåre Schultz President and Chief Executive Officer
|
|
2019 |
|
|
2,000,000 |
|
|
0 |
|
|
5,999,977 |
|
|
0 |
|
|
2,869,720 |
|
0 |
|
726,867 |
|
|
11,596,564 |
| |||||||||
| 2018 | 2,000,000 | 20,000,000 | 4,499,977 | 1,500,019 | 3,790,360 | 0 | 679,519 | 32,469,875 | ||||||||||||||||||||||||||
| 2017 | 333,333 | 0 | 14,229,808 | 2,000,009 | 0 | 0 | 464,591 | 17,027,741 | ||||||||||||||||||||||||||
Eli Kalif Executive Vice President, Chief Financial Officer
|
|
2019 |
|
|
18,130 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
0 |
|
2,425 |
|
|
20,555 |
| |||||||||
Dr. Hafrun Fridriksdottir Executive Vice President, Global Research and Development |
|
2019 |
|
|
720,000 |
|
|
837,500 |
|
|
1,899,988 |
|
|
0 |
|
|
734,832 |
|
0 |
|
185,405 |
|
|
4,377,725 |
| |||||||||
| 2018 | 720,000 | 650,000 | 2,321,392 | 900,003 | 1,296,144 | 0 | 87,492 | 5,975,031 | ||||||||||||||||||||||||||
| 2017 | 696,346 | 900,000 | 999,957 | 500,047 | 535,000 | 0 | 77,492 | 3,708,842 | ||||||||||||||||||||||||||
Brendan O’Grady Executive Vice President, North America Commercial
|
|
2019 |
|
|
676,923 |
|
|
20,500 |
|
|
1,899,988 |
|
|
0 |
|
|
800,868 |
|
0 |
|
64,011 |
|
|
3,462,290 |
| |||||||||
Gianfranco Nazzi Executive Vice President, International Markets Commercial
|
|
2019 |
|
|
541,580 |
|
|
40,579 |
|
|
1,299,977 |
|
|
0 |
|
|
552,505 |
|
0 |
|
1,014,531 |
|
|
3,449,172 |
| |||||||||
Michael McClellan Former Executive Vice President, Chief Financial Officer
|
|
2019 |
|
|
603,077 |
|
|
33,750 |
|
|
1,699,995 |
|
|
0 |
|
|
0 |
|
0 |
|
1,894,421 |
|
|
4,231,243 |
| |||||||||
| 2018 | 700,000 | 135,000 | 1,799,992 | 900,003 | 1,172,640 | 0 | 238,375 | 4,946,010 | ||||||||||||||||||||||||||
| 2017 | 397,058 | 101,250 | 199,260 | 195,515 | 0 | 0 | 211,090 | 1,104,173 | ||||||||||||||||||||||||||
Dr. Carlo de Notaristefani Former Executive Vice President, Global Operations
|
|
2019 |
|
|
836,400 |
|
|
0 |
|
|
2,499,982 |
|
|
0 |
|
|
780,445 |
|
0 |
|
202,011 |
|
|
4,318,838 |
| |||||||||
| 2018 | 836,400 | 0 | 3,549,915 | 1,166,679 | 1,495,232 | 0 | 194,294 | 7,242,520 | ||||||||||||||||||||||||||
| 2017 | 836,400 | 0 | 2,569,720 | 866,688 | 0 | 0 | 189,551 | 4,462,359 | ||||||||||||||||||||||||||
Salary
| (1) | Mr. |
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 61
Executive Compensation
Bonus
| (2) | Dr. Fridriksdottir was entitled to receive payment of |
64 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
Stock Awards
| (3) | The amounts shown in the Stock Awards column represent the aggregate grant date fair value of the |
The PSUs granted as part of the executive officer annual grants have a three-year performance period and vest in full on the third anniversary of the date of grant. The RSUs granted as part of the executive officer annual grants vest in equal installments on the second, third and fourth anniversaries of the date of grant. For more information on these and other share awards granted during 2017, see the table entitled “2017 Grants of Plan-Based Awards” and related narrative and footnotes.
Under the employment agreement with Mr. Schultz, the Company made twosign-on grants of PSUs, one of which has a three-year performance period and thereafter vests in equal installments generally on the third, fourth, and fifth anniversaries of the date of grant, and the other of which has a five year performance period and thereafter vests in full on the fifth anniversary of the date of grant. In addition, under the employment agreement with Mr. Schultz, the Company made asign-on grant of RSUs that vest in equal installments on the third, fourth and fifth anniversaries of the date of grant.
The grant date fair value of PSUs displayed above is determined based upon achievement of performance at the “target” level, which is the probable outcome of the performance metrics associated with each award of PSUs. If performance were to be achieved at “maximum” level, the grant date fair value of the 2019 PSU awards as of the respective grant dates would have been as follows: Mr. Schultz: five year PSUs—$10,889,293; three year PSUs—$9,105,295; annual PSUs—$3,999,996;$7,199,976; Dr. Fridriksdottir: $2,279,990; Mr. O’Grady: $2,279,990; Mr. Nazzi: $1,559,996; Mr. McClellan: NA;$2,040,007; and Dr. de Notaristefani: $1,733,315; Dr. Fridriksdottir: $999,957; Mr. Sabag: $1,066,621; Mr. Vigodman: NA; Dr. Peterburg: $2,999,983; Mr. Desheh: $1,333,332; Dr. Koremans: $1,666,651; and Dr. Hayden: $1,333,332. These values and the values in the table do not include the impact of shares that will be forfeited upon the conclusion of the notice period currently in effect for applicable former NEOs.$3,000,000.
Options
| (4) | The amounts shown above in the Option Awards column represent the aggregate grant date fair value of share options computed in accordance with Topic 718. Valuations of options were determined using the Black-Scholes option pricing model. For information regarding assumptions, factors and methodologies used in our computations pursuant to Topic 718, see note 14c. to our consolidated financial statements in our Annual Report on Form10-K for the year ended December 31, |
Non-Equity Incentive Awards
| (5) | The amounts shown in theNon-Equity Incentive Plan Compensation column are comprised of amounts paid in respect of the executive officer annual cash incentive plan, as determined by the Compensation Committee and the Board in accordance with the plan and the awards |
All Other Compensation
| (6) |
62 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Name
|
Defined (a)
|
Automobile (b)
|
Housing (c)
|
Tax (d)
|
Other (e)
| Total ($)
| ||||||||||||||||||
Kåre Schultz
|
|
316,806
|
|
|
91,958
|
|
|
200,786
|
|
|
112,563
|
|
|
4,754
|
|
|
726,867
|
| ||||||
Eli Kalif
|
|
—
|
|
|
1,261
|
|
|
—
|
|
|
1,161
|
|
|
3
|
|
|
2,425
|
| ||||||
Dr. Hafrun Fridriksdottir
|
|
150,159
|
|
|
24,000
|
|
|
—
|
|
|
3,548
|
|
|
7,698
|
|
|
185,405
|
| ||||||
Brendan O’Grady
|
|
29,745
|
|
|
24,000
|
|
|
7,031
|
|
|
1,811
|
|
|
1,424
|
|
|
64,011
|
| ||||||
Gianfranco Nazzi
|
|
43,788
|
|
|
43,287
|
|
|
240,720
|
|
|
677,450
|
|
|
9,286
|
|
|
1,014,531
|
| ||||||
Michael McClellan
|
|
61,360
|
|
|
40,398
|
|
|
146,327
|
|
|
1,640,009
|
|
|
6,327
|
|
|
1,894,421
|
| ||||||
Dr. Carlo de Notaristefani
|
|
156,470
|
|
|
33,998
|
|
|
—
|
|
|
3,424
|
|
|
8,119
|
|
|
202,011
|
| ||||||
Executive Compensation
The amount reported for Dr. Fridriksdottir was paid in respect of a performance-based cash award granted when she was an employee of Actavis Generics prior to its acquisition by Teva in 2016. In conjunction with the Actavis Generics acquisition, Teva assumed the obligation to pay the cash incentive based on Actavis Generics shareholder return performance metrics.
The Company paid the amounts reported in 2016 and 2015 for Messrs. Vigodman and Desheh and Dr. Hayden in Israeli shekels. The 2016 U.S. dollar amounts in the table above were converted from Israeli shekelslocal currency, where needed, using a 2016 annualthe relevant 2019 monthly average exchange raterates of 3.843.47 to 3.69 Israeli shekels per U.S. dollar and the 2015 U.S. dollar amounts were converted using a 2015 annual average exchange rate of 3.89 shekels0.88 to 0.91 euros per U.S. dollar.
All Other Compensation
Name
|
Defined (a)
|
Automobile (b)
|
Life and (c)
|
Housing (d)
|
Tax (e)
|
Study (f)
|
Termination (g)
|
Other (h)
|
Total ($)
| |||||||||||||||||||||||||||
Kåre Schultz
|
|
52,922
|
|
|
15,232
|
|
|
0
|
|
|
41,393
|
|
|
201,339
|
|
|
0
|
|
|
0
|
|
|
153,705
|
|
|
464,591
|
| |||||||||
Michael McClellan
|
|
46,114
|
|
|
13,748
|
|
|
1,080
|
|
|
99,311
|
|
|
39,326
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
199,579
|
| |||||||||
Dr. Carlo de Notaristefani
|
|
154,641
|
|
|
30,330
|
|
|
1,080
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
3,500
|
|
|
189,551
|
| |||||||||
Dr. Hafrun Fridriksdottir
|
|
54,104
|
|
|
20,308
|
|
|
1,080
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
2,000
|
|
|
77,492
|
| |||||||||
Mark Sabag
|
|
98,058
|
|
|
42,443
|
|
|
103
|
|
|
44,434
|
|
|
82,801
|
|
|
45,348
|
|
|
0
|
|
|
3,921
|
|
|
317,108
|
| |||||||||
Erez Vigodman
|
|
210,953
|
|
|
66,135
|
|
|
0
|
|
|
0
|
|
|
33,761
|
|
|
103,403
|
|
|
1,038,539
|
|
|
2,913
|
|
|
1,455,704
|
| |||||||||
Dr. Yitzhak Peterburg
|
|
235,237
|
|
|
91,024
|
|
|
0
|
|
|
0
|
|
|
40,896
|
|
|
111,451
|
|
|
253,620
|
|
|
4,843
|
|
|
737,071
|
| |||||||||
Eyal Desheh
|
|
131,460
|
|
|
48,122
|
|
|
0
|
|
|
0
|
|
|
43,261
|
|
|
62,357
|
|
|
1,080,471
|
|
|
3,430
|
|
|
1,369,101
|
| |||||||||
Dr. Rob Koremans
|
|
52,588
|
|
|
17,673
|
|
|
0
|
|
|
54,210
|
|
|
21,585
|
|
|
0
|
|
|
1,641,994
|
|
|
19,925
|
|
|
1,807,975
|
| |||||||||
Dr. Michael Hayden
|
|
160,230
|
|
|
48,118
|
|
|
39,255
|
|
|
241,742
|
|
|
219,565
|
|
|
80,344
|
|
|
359,702
|
|
|
3,581
|
|
|
1,152,537
|
| |||||||||
| (a) | Amounts disclosed in this column reflect Company contributions and/or payments related totax-qualified andnon-qualified retirement plans and Israeli |
| (b) | Amounts disclosed in this column reflect automobile allowances, participation in the Company’s car lease program, or use of a Company car and/or reimbursement ofnon-business automobile expenses. |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 65
Executive Compensation
| (c) | Amounts disclosed in this column reflect |
Amounts disclosed in this column reflect taxgross-ups paid to our NEOs as follows:Mr. Schultz—gross-ups are provided for the income associated with accommodation in Israel, travel costs associated with travel allowance, |
Amounts disclosed in this column reflect |
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 63
Executive Compensation
The U.S. dollar amounts in the table above were converted from local currency using the relevant 2017 monthly average exchange rates of 3.50 to 3.82 Israeli shekels per U.S. dollar and 0.84 to 0.94 euros per U.S. dollar.
Employment Agreements
We have entered into employment agreements with all of our current and former NEOs that provide for, among other things, the term of employment, the position and duties, the compensation and benefits payable during the term of the agreement and certain restrictive covenants. The agreements also set forth the terms in the event that the NEO’s employment is terminated under various conditions. The material provisions pertaining to termination of employment of the NEOs are set forth below under “—20172019 Potential Payments Upon Termination or Change in Control.”
Kåre Schultz
On September 7, 2017, we entered into an employment agreement with Mr. Schultz to serve as our PresidentCEO. The employment agreement provides for an employment term of five years, subject to automatic renewal for subsequentone-year periods (or until the second anniversary following a change in control of the Company, if later than the otherwise applicable term end date) until a notice ofnon-renewal is provided or other termination circumstances occur.
Under the employment agreement, Mr. Schultz received an annual base salary of $2 million, a performance-based target annual incentive opportunity equal to 140% of his annual base salary (and a maximum opportunity of 200% of his annual base salary) and CEO. Heannual long-term equity incentives with a total target grant date fair value of $6 million with vesting terms similar to other senior executive officers, a meaningful portion of which are performance-based. Mr. Schultz is eligible for benefit plans provided to similarly situated executive officers, including medical, dental, group life and other programs, pension and severance contributions as required underpursuant to Israeli law, relocation benefits in accordance with our policy, housing reimbursement up to 40,000 Israeli shekels per month ($11,11011,224 using a 20172019 average monthly exchange rate of 3.603.56 shekels per U.S. dollar) and personal travel reimbursement up to $100,000 per year. We agreed to provideUnder the agreement, Mr. Schultz is also provided with a company car. For a summary of the material terms of Mr. Schultz’s employment
The agreement see “Compensation Discussion and Analysis—IV. Components of Our Compensation Program—Leadership Transitions—Appointment of Mr. Kåre Schultz as President and CEO” above. Mr. Schultz agreed toalso contains noncompetition (except in the event of expiration of histhe term) and nonsolicitation covenants for 24 months andafter the term of the agreement, a nondisparagement covenant for 10 years after termination. Mr. Schultz also agreed tothe term of the agreement, and an assignment of inventions.
Michael McClellanEli Kalif
Effective as ofOn November 27, 2017,6, 2019, we entered into an employment agreement with Mr. McClellan.Kalif. The agreement provides that Mr. McClellanKalif will be employed as Executive Vice President CFO.and CFO, until his death, disability, termination with or without cause or resignation with or without good reason. The agreement provides for an initial annual base salary of 2,343,200 Israeli shekels (approximately $650,000 based on an exchange rate of 3.60 Israeli shekels per U.S. dollar).
66 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
Mr. Kalif is eligible to be considered for an annual cash incentive with a target of 100% of his then-current base salary, and for equity-based awards under our equity compensation plan. Under the agreement, Mr. Kalif is also provided with a company or leased car(grossed-up for applicable taxes), certain pension and severance fund contributions pursuant to Israeli law (by both the Company and Mr. Kalif), and group life insurance and other benefits customary for executives in Israel.
In addition, Mr. Kalif received asign-on equity award in February 2020 in the form of restricted stock units with a grant date fair value of $250,000 in consideration of certain equity grants with Mr. Kalif’s prior employer that were forfeited upon his resignation. These RSUs will vest in three equal installments on the second, third, and fourth anniversaries of the grant date, subject to his continued employment through the applicable vesting dates.
The agreement also contains noncompetition and nonsolicitation covenants for 6 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.
Dr. Hafrun Fridriksdottir
On June 18, 2017, we entered into an executive employment agreement with Dr. Fridriksdottir. The agreement provides that Dr. Fridriksdottir will serve in a senior R&D position until her death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial annual base salary of $720,000.
Dr. Fridriksdottir is eligible to be considered for an annual cash incentive and for equity-based awards under our equity compensation plan. She is eligible for benefit plans provided to similarly situated executive officers, including medical, disability, dental, life, 401(k) plan, deferred compensation and other programs. Under the agreement, Dr. Fridriksdottir is also provided with a car allowance.
The agreement also contains noncompetition and nonsolicitation covenants for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.
Brendan O’Grady
On May 6, 2018, we entered into an executive employment agreement with Mr. O’Grady. The agreement provides that Mr. O’Grady will serve as Executive Vice President, North America Commercial until his death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial annual base salary of $600,000.
Mr. O’Grady is eligible to be considered for an annual cash incentive with a target of 100% of his then-current base salary, and for equity-based awards under our equity compensation plan. He is eligible for benefit plans provided to similarly situated executive officers, including medical, disability, dental, life, 401(k) plan, deferred compensation and other programs. Under the agreement, Mr. O’Grady is also provided with a car allowance. In addition, Mr. O’Grady is eligible for housing reimbursement up to $4,000 per month, grossed up for applicable taxes, until he permanently relocates to Parsippany, NJ in 2021, as part of various initiatives to support employees in connection with the U.S. headquarters move from North Whales, PA to Parsippany, NJ.
The agreement also contains noncompetition and nonsolicitation covenants for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.
Gianfranco Nazzi
On April 1, 2019, we entered into an executive employment agreement with Mr. Nazzi. The agreement provides that Mr. Nazzi will serve as Executive Vice President, International Markets Commercial until his death, disability, termination with or without cause or resignation. The agreement provided for an annual
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 67
Executive Compensation
base salary of 464,100 euros commencing April 1, 2018 (approximately $519,605 using a 2019 average monthly exchange rate of 0.89 euros per U.S. dollar).
Mr. Nazzi is eligible to be considered for an annual cash incentive with a target of 100% of his then-current base salary, and for equity-based awards under our equity compensation plan. He is eligible for pension and benefit plans provided to similarly situated executive officers. In conjunction with Mr. Nazzi’s relocation to Israel, he is entitled to relocation benefits in accordance with the terms of our relocation policy. He is entitled to a housing allowance of up to 32,000 Israeli shekels per month ($8,979 using a 2019 average monthly exchange rate of 3.56 shekels per U.S. dollar).
The agreement also contains noncompetition and nonsolicitation covenants for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.
Michael McClellan
On February 8, 2018, we entered into an executive employment agreement with Mr. McClellan. The agreement provided that Mr. McClellan would be employed as Executive Vice President, CFO, until his death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial annual base salary of $700,000.
Mr. McClellan was eligible to be considered for an annual cash incentive with a target of 100% of his then-current base salary, and for equity-based awards under our equity compensation plan. He was eligible for benefit plans provided to similarly situated executive officers, including medical, disability, dental, life, 401(k) plan, deferred compensation and other programs. In conjunction with Mr. McClellan’s relocations to the Netherlands and thenrelocation to Israel, he will bewas entitled to relocation benefits in accordance with the terms of our relocation policy. While he iswas based in the Netherlands,Israel, he iswas entitled to a housing allowance of up to€3,250 21,500 Israeli shekels per month ($3,6636,033 using a 20172019 average monthly exchange rate of 0.89 euros3.56 shekels per U.S. dollar). For a summary of the material terms of Mr. McClellan’s employment agreement, see “Compensation Discussion and Analysis—IV. Components of Our Compensation Program—Leadership Transitions—Appointment of Mr. Michael McClellan as CFO; Previous Appointment as Interim CFO” above.
The agreement also containscontained noncompetition and nonsolicitation covenants during and for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.
Dr. Carlo de Notaristefani
On August 6, 2012, we entered into an employment agreement with Dr. de Notaristefani which was most recently amended and restated on February 7, 2018. The agreement providesprovided that Dr. de Notaristefani willwould serve in a senior global operations position, until his death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial annual base salary of $836,400.
64 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
Dr. de Notaristefani iswas eligible to participate in the Company’s annual cash incentive plan with a target of 100% of his then current base salary, and for equity-based awards under our equity compensation plan. He iswas eligible for benefit plans provided to similarly situated executive officers, including medical, disability, dental, life, 401(k) plan, deferred compensation and other programs. We agreed to furnishUnder the agreement, Dr. de Notaristefani was also provided with a car or a car allowance. In May 2017, we granted Dr. de Notaristefani 30,875 RSUs due to his significance and key role during a critical transition period for us and the importance of securing his services. The RSUs will vest in May 2019.
The agreement also containscontained noncompetition and nonsolicitation covenants during and for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.
Dr. Hafrun Fridriksdottir
On June 18, 2017, we entered into an employment agreement with Dr. Fridriksdottir. The agreement provides that Dr. Fridriksdottir will serve in a senior R&D position. She is eligible for benefit plans provided to similarly situated executive officers, including medical, disability, dental, life, 401(k) plan, deferred compensation and other programs. We agreed to provide a car allowance. For a summary of the material terms of Dr. Fridriksdottir’s employment agreement, see “Compensation Discussion and Analysis—IV. Components of Our Compensation Program—Leadership Transitions—Appointment of Dr. Hafrun Fridriksdottir as Executive Vice President, Global R&D” above.
The agreement also contains noncompetition and nonsolicitation covenants during and for 12 months after the term of the agreement and nondisclosure and nondisparagement covenants and assignment of inventions.
Mark Sabag
On December 22, 2013, we entered into an employment agreement with Mr. Sabag. The agreement provides that Mr. Sabag will serve as Group Executive Vice President, Human Resources until his death, disability, aged retirement, termination with or without cause or resignation with or without good reason. The agreement provided for an initial base monthly salary of 126,500 Israeli shekels (approximately $35,134 using a 2017 average monthly exchange rate of 3.60 shekels per U.S. dollar). Mr. Sabag is eligible to be considered for an annual cash incentive and for equity-based awards under our equity compensation plan. We agreed to provide Mr. Sabag with a company or leased car andgrossed-up for applicable taxes. We also agreed to provide certain pension and severance fund contributions required in Israel, and group life insurance and other benefits customary for executives in Israel. Mr. Sabag is also eligible for reimbursement of rent up to $3,000 per month, and utilities,grossed-up for applicable taxes. The agreement also contains provisions covering Mr. Sabag’s contributions to a choice of a pension fund, managers’ insurance fund or provident fund.
Mr. Sabag also agreed to a noncompetition covenant during and for 12 months after termination, nondisclosure and nondisparagement covenants and an assignment of inventions.
Erez Vigodman
Effective as of February 11, 2014, we entered into an employment agreement with Mr. Vigodman. The agreement provided that Mr. Vigodman would serve as President and CEO until his death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial annual base salary in the amount of Israeli shekels that is equivalent to $1,350,000, adjusted according to increases in the consumer price index. Mr. Vigodman was eligible for an annual cash incentive and for equity-based awards under our equity compensation plan as decided by the Compensation Committee and the Board and subject to the applicable framework approved by shareholders. We also
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 65
Executive Compensation
agreed to provide certain pension and severance fund contributions required in Israel, medical, dental, group life insurance and other benefits customary for senior executives in Israel. The agreement also contains provisions covering Mr. Vigodman’s contributions to a choice of a pension fund, managers’ insurance fund or provident fund. We agreed to provide Mr. Vigodman with a company car andgrossed-up for applicable taxes.
Mr. Vigodman also agreed to a noncompetition covenant during and for 12 months after the term of the agreement, a nondisparagement covenant for 10 years, a nondisclosure covenant and an assignment of inventions.
Dr. Yitzhak Peterburg
Effective as of February 6, 2017, we entered into an employment agreement with Dr. Peterburg. The agreement provided that Dr. Peterburg would serve as Interim President and CEO until his death, disability, termination with or without cause or resignation with or without good reason. The agreement provided for an initial base monthly salary of 488,250 Israeli shekels (approximately $135,608 using a 2017 average monthly exchange rate of 3.60 shekels per U.S. dollar), adjusted according to increases in the consumer price index. From the appointment of Dr. Peterburg as Interim President and CEO and for as long as he continued to serve in such position, Dr. Peterburg was not entitled to any payments in his capacity as a member of the Board or any committee thereof. Dr. Peterburg was eligible for apro-rata annual cash incentive in 2017. Dr. Peterburg received an equity grant of $4.5 million, comprised of 1/3 options, 1/3 RSUs and 1/3 PSUs. The options and RSUs will vest in three equal installments on the second, third and fourth anniversaries of the grant date and the PSUs will have a cliff vesting on the third anniversary of the grant date subject to meeting the PSU performance goals and in accordance with the formula approved by the Committee and the Board. We agreed to furnish a car andgrossed-up for applicable taxes and to provide certain pension and severance fund contributions required in Israel, medical, dental, group life insurance and other benefits customary for senior executives in Israel. The agreement also contains provisions covering Dr. Peterburg’s contributions to a choice of a pension fund, managers’ insurance fund or provident fund.
Dr. Peterburg also agreed to a noncompetition covenant during and for 12 months after termination, a nondisparagement covenant for 10 years, a nondisclosure covenant and an assignment of inventions.
Eyal Desheh
Effective as of April 28, 2008, we entered into an employment agreement (as subsequently amended) with Mr. Desheh. The agreement provided that Mr. Desheh will serve as CFO until his death, disability, aged retirement, termination with or without cause or resignation with or without good reason. The agreement provided for an initial base monthly salary of 110,000 Israeli shekels (approximately $30,552 using a 2017 average monthly exchange rate of 3.60 shekels per U.S. dollar). Mr. Desheh was eligible for an annual cash incentive and for equity-based awards under our equity compensation plan. We agreed to provide Mr. Desheh with a company or leased car andgrossed-up for applicable taxes. We also agreed to provide certain pension and severance fund contributions required in Israel, and group life insurance and other benefits customary for executives in Israel. The agreement also contains provisions covering Mr. Desheh’s contributions to a choice of a pension fund, managers’ insurance fund or provident fund.
Mr. Desheh also agreed to a noncompetition covenant during and for 12 months after termination, nondisclosure and nondisparagement covenants and an assignment of inventions.
Dr. Rob Koremans
Effective as of March 1, 2012, we entered into an employment agreement (as subsequently amended) with Dr. Rob Koremans. The agreement provided that Dr. Koremans would serve as Teva Pharmaceuticals Europe President and CEO for an indefinite period of time, subject to termination by Dr. Koremans or the
6668 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Executive Compensation
Company. The agreement provided for an initial fixed gross annual base salary of€550,000 (approximately $619,896 using a 2017 average monthly exchange rate of 0.89 euro per U.S. dollar). Dr. Koremans was eligible to be considered for an annual cash incentive and for the long term incentive plan. We provided Dr. Koremans with the right to use a Company-leased apartment for which the lease value would not exceed€4,200 per month, until March 31, 2018 (approximately $4,734 using a 2017 average monthly exchange rate of 0.89 euro per U.S. dollar) and a company car for which the annualall-in costs would not exceed an amount of€33,000 (approximately $37,194 using a 2017 average monthly exchange rate of 0.89 euro per U.S. dollar). We also agreed to provide certain group medical, life and disability insurance.
Generally, Dr. Koremans also agreed to noncompetition and nonsolicitation covenants during and for 12 months after termination. If he breaches his obligations, he owes us a penalty of€100,000 and€5,000 for each day that such breach continues (approximately $112,708 and $5,635, respectively, using a 2017 average monthly exchange rate of 0.89 euro per U.S. dollar).
Dr. Michael Hayden
On May 8, 2012, we entered into an employment agreement with Dr. Michael Hayden which was amended and restated on May 22, 2015. The agreement provided that Dr. Hayden would serve as President of R&D and Chief Scientific Officer and will continue on anat-will basis. The agreement provided for an initial base annual salary of $1,050,000. Dr. Hayden was eligible to participate in the Company’s annual cash incentive plan and to be considered for equity awards under the long term incentive plan. We also agreed to be responsible for the costs of existing pension coverage of up to $40,000,grossed-up for taxes, and the balance between such amount and the amount required by Israeli law is contributed to a certain pension fund of his choice. We also agreed to provide certain medical, dental, group life insurance, and other benefits. Dr. Hayden is also entitled to certain benefits associated with his relocation to Israel.
Dr. Hayden also agreed to a noncompetition covenant during and for 12 months after termination, nondisclosure and nondisparagement covenants and an assignment of inventions.
20172019 Pay Ratio
UnderThe CEO pay ratio rule permits the Dodd-Frank Wall Street Reformuse of a median employee for up to three years unless there has been a meaningful change to a company’s employee population. We determined that there was no meaningful change to our employee population and Consumer Protection Act,therefore we are requiredused the same median employee as was used in 2018 for pay ratio purposes.
We have estimated the compensation of the 2019 median employee to disclose the medianbe $76,421. The annual total compensation of our CEO was $11,596,564. The ratio of the annual total compensation of our employees, the annual total compensation of our principal executive officer, President and CEO Mr. Kåre Schultz, and the ratio of these two amounts.
We have estimated the median of the 2017 annual total compensation of our employees, excluding Mr. Schultz, to be $64,081. The annualized total compensation of our President and CEO, who was hired in 2017, was $19,374,347. The ratio of the annualized total compensation of our President and CEO to the estimated medianthat of the annual total compensation of our employeesmedian employee was 302 to 1. We believe this pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules. We note that a substantial portion of our President and CEO’s total compensation for 2017 was thesign-on equity awards he received in accordance with his employment agreement, which had a grant date fair value of approximately $10.2 million. Excluding thesign-on equity awards, the ratio would have been 143152 to 1.
The following paragraphs provide important context related to our employee population and describe the methodology and the material assumptions, adjustments, and estimates that we used to calculate this ratio.
Teva is a global company, with complex operations worldwide and with many of its executive officers and a majority of its employees located outside of Israel, the country in which our headquarters office is located.
As of November 1, 2017, Teva’s workforce consisted of approximately 52,419 full-time and part-time employees, including hourly employees, who worked for our parent company and consolidated subsidiaries. Approximately 45% of these employees are located in Europe, approximately 17% are located
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 67
Executive Compensation
in the U.S., approximately 12% are located in Israel, and approximately 26% are located throughout the rest of the world. Approximately 50,441 individuals are full-time employees, with the remainder employed on a part-time basis.
In determining the employee population to be used to calculate the compensation of the median employee, we included employees in all countries except for 424 employees in Venezuela, who represented less than 5% of our total employees, as permitted under the applicable SEC de minimis rule. As a result, the employee population that we used for purposes of determining the compensation of our median employee was 51,995 employees.
We selected November 1, 2017, which is within the last three months of 2017, as the date upon which we would identify theOur “median employee,” because it enabled us to make such identification in a reasonably efficient and economical manner, and it was also the date that our new CEO commenced employment.
We included all of our full-time, part-time, and temporary employees globally, but excluded our President and CEO. We annualized the compensation of approximately 2,562 full-time and part-time employees who were hired in 2017 but did not work for us for the entire fiscal year. Earnings of our employees outside the U.S. were converted to U.S. dollars using the currency exchange rates used for organizational planning purposes, which consider historic and forecasted rates as well as other factors. We did not make any cost of living adjustments.
To identify the “median employee,” we utilized the annualized 2017 base salary and target annual cash incentive for our consistently applied compensation measure because we believe that this measure reasonably reflects the annual compensation of our employees. We do not grant equity to a large percentage of our employee population, so using base salary plus target annual incentive is representative.
Using this measure, we identified a “median employee” who is a full-time, salaried employee located in Israel. Initially, a different employee had been identified, but in the process of determining that employee’s total compensation in accordance with applicable SEC rules, we recognized that there were anomalous elements in that employee’s compensation which we believe did not reasonably reflect the annual compensation of our employees generally. Consequently, we identified an employee whose amount for the consistently applied compensation measure was very close to the initial employee, but who did not have such unusual elements. Once we identified this median employee, weWe totaled all of the elements of the employee’s compensation for 20172019 in the same manner as the CEO and in accordance with theSEC Summary Compensation Table disclosure requirements, of the applicable SEC rules and converted the amounts from Israeli shekels to U.S. dollars using the relevant monthly average currency exchange rate of 3.50 to 3.82 shekels per U.S. dollar. Thiswhich resulted in an annual total compensation of $64,081,$76,421, of which $29,159$29,640 is base salary, $5,715 isnon-equity incentive compensation, and $34,922$41,066 is comprised of Company contributions to a pension fund, as is required by Israeli law, and other compensation such as overtime pay, travel and other cash allowances, and Company contributions to a study fund, as is common practice for Israel-based employees of the Company.
With respect to the annual total compensation of our President and CEO, we adjusted the amount reported in the “Total” column of our 2017 Summary Compensation Table included in this Proxy Statement, by annualizing his base salary and certain components of “all other compensation” to account for the fact that he only commenced employment with us on November 1, 2017, resulting in an adjusted total amount of $19,374,347. As indicated above, we note that a substantial portion of the total compensation of our newly-hired President and CEO for 2017 was thesign-on equity awards he received in accordance with his employment agreement, which had a grant date fair value of approximately $10.2 million.
Because the SEC rules for identifying the median of the annual total compensation of our employees and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions
68 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
that reflect their employee populations and compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio for our Company, as other companies have headquarters offices in different countries, have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their pay ratios.
2017 Grants of Plan-Based Awards
Estimated Future Payouts
| Estimated Future Payouts
| |||||||||||||||||||||||||||||||||||||||||||||
Name
| Approval
| Grant
| Award Type
| Threshold
| Target
| Maximum
| Threshold
| Target
| Maximum
| All (#) (3)
| All Other of
| Exercise Base
| Grant Fair of Share
| |||||||||||||||||||||||||||||||||
Kåre Schultz |
9/6/2017 |
11/1/2017 |
Annual Incentive |
|
0 |
|
|
2,800,000 |
|
|
4,000,000 |
| ||||||||||||||||||||||||||||||||||
9/6/2017 |
11/3/2017 |
PSU (5) |
|
0 |
|
|
649,914 |
|
|
1,949,742 |
|
|
3,035,098 |
| ||||||||||||||||||||||||||||||||
9/6/2017 |
11/3/2017 |
PSU (5) | 0 | 751,504 | 2,254,512 | 3,629,764 | ||||||||||||||||||||||||||||||||||||||||
9/6/2017 |
11/3/2017 |
RSU (5) |
|
349,163 |
|
|
3,564,954 |
| ||||||||||||||||||||||||||||||||||||||
9/6/2017 |
11/3/2017 |
PSU |
|
0 |
|
|
212,314 |
|
|
424,628 |
|
|
1,999,998 |
| ||||||||||||||||||||||||||||||||
9/6/2017 |
11/3/2017 |
RSU |
|
190,839 |
|
|
1,999,993 |
| ||||||||||||||||||||||||||||||||||||||
9/6/2017 |
11/3/2017 |
Options |
|
591,719 |
|
|
11.40 |
|
|
2,000,009 |
| |||||||||||||||||||||||||||||||||||
Michael
McClellan |
7/12/2017 |
7/12/2017 |
Annual Incentive |
|
0 |
|
|
219,519 |
|
|
439,038 |
| ||||||||||||||||||||||||||||||||||
2/28/2017 |
3/3/2017 |
RSU |
|
4,197 |
|
|
132,331 |
| ||||||||||||||||||||||||||||||||||||||
2/28/2017 |
3/3/2017 |
Options |
|
22,505 |
|
|
34.70 |
|
|
132,329 |
| |||||||||||||||||||||||||||||||||||
9/18/2017 |
9/18/2017 |
RSU |
|
4,091 |
|
|
66,929 |
| ||||||||||||||||||||||||||||||||||||||
| 9/18/2017 | 9/18/2017 | Options | 12,341 | 16.99 | 63,186 | |||||||||||||||||||||||||||||||||||||||||
Dr. Carlo de
Notaristefani |
3/31/2017 |
3/31/2017 |
Annual Incentive |
|
0 |
|
|
836,400 |
|
|
1,672,800 |
| ||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
PSU |
|
0 |
|
|
30,941 |
|
|
61,882 |
|
|
866,657 |
| ||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
RSU |
|
27,840 |
|
|
866,659 |
| ||||||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
Options |
|
147,396 |
|
|
34.90 |
|
|
866,688 |
| |||||||||||||||||||||||||||||||||||
3/31/2017 |
5/18/2017 |
RSU |
|
30,875 |
|
|
836,404 |
| ||||||||||||||||||||||||||||||||||||||
Dr. Hafrun
Fridriksdottir |
3/31/2017 |
3/31/2017 |
Annual Incentive |
|
0 |
|
|
630,577 |
|
|
1,261,154 |
| ||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
PSU |
|
0 |
|
|
17,850 |
|
|
35,700 |
|
|
499,979 |
| ||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
RSU |
|
16,061 |
|
|
499,979 |
| ||||||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
Options |
|
85,042 |
|
|
34.90 |
|
|
500,047 |
| |||||||||||||||||||||||||||||||||||
Mark Sabag |
3/31/2017 |
3/31/2017 |
Annual Incentive |
|
0 |
|
|
604,637 |
|
|
1,209,274 |
| ||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
PSU |
|
0 |
|
|
19,040 |
|
|
38,080 |
|
|
533,310 |
| ||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
RSU |
|
17,132 |
|
|
533,319 |
| ||||||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
Options |
|
90,710 |
|
|
34.90 |
|
|
533,375 |
| |||||||||||||||||||||||||||||||||||
Dr. Yitzhak
Peterburg |
3/31/2017 |
3/31/2017 |
Annual Incentive |
|
0 |
|
|
1,679,650 |
|
|
2,351,510 |
| ||||||||||||||||||||||||||||||||||
2/8/2017 |
2/14/2017 |
PSU |
|
0 |
|
|
53,552 |
|
|
107,104 |
|
|
1,499,992 |
| ||||||||||||||||||||||||||||||||
2/8/2017 |
2/14/2017 |
RSU |
|
48,185 |
|
|
1,499,999 |
| ||||||||||||||||||||||||||||||||||||||
2/8/2017 |
2/14/2017 |
Share Options |
|
255,104 |
|
|
34.90 |
|
|
1,500,009 |
| |||||||||||||||||||||||||||||||||||
Eyal Desheh |
3/31/2017 |
3/31/2017 |
Annual Incentive |
|
0 |
|
|
408,300 |
|
|
816,600 |
| ||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
PSU |
|
0 |
|
|
23,801 |
|
|
47,602 |
|
|
666,666 |
| ||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
RSU |
|
21,415 |
|
|
666,649 |
| ||||||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
Options |
|
113,382 |
|
|
34.90 |
|
|
666,686 |
| |||||||||||||||||||||||||||||||||||
Dr. Rob
Koremans |
3/31/2017 |
3/31/2017 |
Annual Incentive |
|
0 |
|
|
783,215 |
|
|
1,566,430 |
| ||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
PSU |
|
0 |
|
|
29,751 |
|
|
59,502 |
|
|
833,326 |
| ||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
RSU |
|
26,769 |
|
|
833,319 |
| ||||||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
Options |
|
141,728 |
|
|
34.90 |
|
|
833,361 |
| |||||||||||||||||||||||||||||||||||
Dr. Michael
Hayden |
3/31/2017 |
3/31/2017 |
Annual Incentive |
|
0 |
|
|
1,071,000 |
|
|
2,142,000 |
| ||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
PSU |
|
0 |
|
|
23,801 |
|
|
47,602 |
|
|
666,666 |
| ||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
RSU |
|
21,415 |
|
|
666,649 |
| ||||||||||||||||||||||||||||||||||||||
2/7/2017 |
2/14/2017 |
Options |
|
113,382 |
|
|
34.90 |
|
|
666,686 |
| |||||||||||||||||||||||||||||||||||
Mr. Vigodman did not receive any grants of plan-based awards in 2017. In addition, the annual equity award granted to Mr. McClellan was made prior to his appointment as Interim CFO in July 2017 pursuant to our program fornon-executive officers.
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 69
Executive Compensation
2019 Grants of Plan-Based Awards
| Estimated Future Payouts UnderNon-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | |||||||||||||||||||||||||||||||||||||||||||||||||
Name
| Approval
| Grant
| Award Type
| Threshold
| Target ($)
| Maximum ($)
| Threshold
| Target (#)
| Maximum
| All (#) (3)
| All Other (#)
| Exercise
| Grant ($)
| |||||||||||||||||||||||||||||||||||||
Kåre Schultz | 2/12/2019 | 2/12/2019 | Annual Incentive | 500,000 | 2,800,000 | 4,000,000 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | PSU | 39,788 | 198,938 | 477,452 | 2,999,985 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | RSU | 179,104 | 2,999,992 | ||||||||||||||||||||||||||||||||||||||||||||||
Dr. Hafrun Fridriksdottir | 2/12/2019 | 2/12/2019 | Annual Incentive | 180,000 | 720,000 | 1,440,000 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | PSU | 12,600 | 62,997 | 151,193 | 949,995 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | RSU | 56,716 | 949,993 | ||||||||||||||||||||||||||||||||||||||||||||||
Brendan O’Grady | 2/12/2019 | 2/12/2019 | Annual Incentive | 169,231 | 676,923 | 1,353,846 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | PSU | 12,600 | 62,997 | 151,193 | 949,995 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | RSU | 56,716 | 949,993 | ||||||||||||||||||||||||||||||||||||||||||||||
Gianfranco Nazzi | 2/12/2019 | 2/12/2019 | Annual Incentive | 135,395 | 541,580 | 1,083,160 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | PSU | 8,621 | 43,103 | 103,448 | 649,993 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | RSU | 38,805 | 649,984 | ||||||||||||||||||||||||||||||||||||||||||||||
Michael McClellan | 2/12/2019 | 2/12/2019 | Annual Incentive | 150,769 | 603,077 | 1,206,154 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | PSU | 11,274 | 56,366 | 135,279 | 849,999 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | RSU | 50,746 | 849,996 | ||||||||||||||||||||||||||||||||||||||||||||||
Dr. Carlo de Notaristefani | 2/12/2019 | 2/12/2019 | Annual Incentive | 209,100 | 836,400 | 1,672,800 | ||||||||||||||||||||||||||||||||||||||||||||
| 2/12/2019 | 3/4/2019 | PSU | 16,579 | 82,891 | 198,939 | 1,249,996 | ||||||||||||||||||||||||||||||||||||||||||||
|
| 2/12/2019
|
|
| 3/4/2019
|
| RSU
|
| 74,626
|
|
| 1,249,986
|
| ||||||||||||||||||||||||||||||||||||||
Mr. Kalif was not eligible for any grants of plan-based awards in 2019.
Annual Incentive Plan
| (1) | The amounts disclosed in these columns reflect the threshold, target and maximum annual cash incentive opportunities for |
Mr. McClellan and Dr. Fridriksdottir were eligible for annual incentive award opportunities under the Company’s plan fornon-executive officers in respect ofpro-rated salary earned prior to being appointed executive officers. Pursuant to this plan fornon-executive officers, Mr. McClellan and Dr. Fridriksdottir hadpro-rated target opportunities of $88,769 and $52,615, respectively, and maximumpro-rated incentive opportunities of $177,538 and $105,230, respectively. Because the Company’s financial results were significantly below our original financial targets for the year, no payouts were made for Mr. McClellan and Dr. Fridriksdottir under this incentive plan.
Performance Share Units (PSUs)
| (2) | Amounts disclosed in these columns reflect the potential threshold, target and maximum number of PSUs awarded in |
Restricted Share Units (RSUs)
| (3) | Amounts disclosed in this column reflect the number of RSUs granted to our NEOs in |
Share Options
Sign-On Grants to Mr. Schultz of PSUs and RSUs
70 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Executive Compensation
20172019 Outstanding Equity Awards at FiscalYear-End
Option Awards
|
Stock Awards
| |||||||||||||||||||||||||||||||||||||
Name
| Award
| Grant
| Number of
| Number of (2)
| Option
| Option
| Number
| Market
| Equity
| Equity ($) (6)
| Vesting Schedule (7)
| |||||||||||||||||||||||||||
Kåre Schultz
| Options
| 11/3/2017
|
| 591,719
|
|
| 11.40
|
|
| 11/2/2027
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||
| RSUs
| 11/3/2017
|
| 190,839
|
|
| 3,616,399
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||||
| 11/3/2017
|
| 349,163
|
|
| 6,616,639
|
| 33% in 2020, 2021 and 2022
| |||||||||||||||||||||||||||||||
| PSUs
| 11/3/2017
|
| 649,914
|
|
| 12,315,870
|
| 33% in 2020, 2021 and 2022, subject to performance
| ||||||||||||||||||||||||||||||
| 11/3/2017
|
| 751,504
|
|
| 14,241,001
|
| 100% in 2022, subject to performance
| |||||||||||||||||||||||||||||||
| 11/3/2017
|
| 212,314
|
|
| 4,023,350
|
| 100% in 2020, subject to performance
| |||||||||||||||||||||||||||||||
Michael McClellan
| Options
| 11/5/2015
|
| 6,962
|
|
| 6,965
|
|
| 60.92
|
|
| 11/4/2025
|
| 25% in 2016, 2017, 2018 and 2019
| |||||||||||||||||||||||
| 3/17/2016
|
| 3,500
|
|
| 10,503
|
|
| 53.50
|
|
| 3/16/2026
|
| 25% in 2017, 2018, 2019 and 2020
| |||||||||||||||||||||||||
| 3/3/2017
|
| 22,505
|
|
| 34.70
|
|
| 3/2/2027
|
| 25% in 2018, 2019, 2020 and 2021
| ||||||||||||||||||||||||||||
| 9/18/2017
|
| 12,341
|
|
| 16.99
|
|
| 9/17/2027
|
| 100% in 2019
| ||||||||||||||||||||||||||||
| RSUs
| 11/5/2015
|
| 1,390
|
|
| 26,341
|
| 25% in 2016, 2017, 2018 and 2019
| ||||||||||||||||||||||||||||||
| 3/17/2016
|
| 1,981
|
|
| 37,540
|
| 25% in 2017, 2018, 2019 and 2020
| |||||||||||||||||||||||||||||||
| 3/3/2017
|
| 4,197
|
|
| 79,533
|
| 25% in 2018, 2019, 2020 and 2021
| |||||||||||||||||||||||||||||||
| 9/18/2017
|
| 4,091
|
|
| 77,524
|
| 100% in 2019
| |||||||||||||||||||||||||||||||
Dr. Carlo de Notaristefani
| Options
| 8/1/2012
|
| 150,003
|
|
| 40.87
|
|
| 7/31/2022
|
| vested
| ||||||||||||||||||||||||||
| 3/12/2014
|
| 65,720
|
|
| 32,861
|
|
| 48.76
|
|
| 3/11/2024
|
| 33% in 2016, 2017 and 2018
| |||||||||||||||||||||||||
| 2/12/2015
|
| 29,792
|
|
| 59,584
|
|
| 57.35
|
|
| 2/11/2025
|
| 33% in 2017, 2018 and 2019
| |||||||||||||||||||||||||
| 2/12/2016
|
| 99,904
|
|
| 55.75
|
|
| 2/11/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 5/16/2016
|
| 8,346
|
|
| 50.43
|
|
| 5/15/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 2/14/2017
|
| 147,396
|
|
| 34.90
|
|
| 2/13/2027
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||
| RSUs
| 2/14/2017
|
| 27,840
|
|
| 527,568
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||||
| 5/18/2017
|
| 30,875
|
|
| 585,081
|
| 100% in 2019
| |||||||||||||||||||||||||||||||
| PSUs
| 2/12/2016
|
| 19,219
|
|
| 364,200
|
| 100% in 2019, subject to performance
| ||||||||||||||||||||||||||||||
| 5/16/2016
|
| 1,603
|
|
| 30,377
|
| 100% in 2019, subject to performance
| |||||||||||||||||||||||||||||||
| 2/14/2017
|
| 30,941
|
|
| 586,332
|
| 100% in 2020, subject to performance
| |||||||||||||||||||||||||||||||
Dr. Hafrun Fridriksdottir
| Options
| 7/1/2014
|
| 7,603
|
|
| 15,206
|
|
| 48.69
|
|
| 6/30/2024
|
| 33% in 2017, 2018 and 2019
| |||||||||||||||||||||||
| 8/2/2016
|
| 3,997
|
|
| 11,993
|
|
| 52.96
|
|
| 8/1/2026
|
| 25% in 2017, 2018, 2019 and 2020
| |||||||||||||||||||||||||
| 9/9/2016
|
| 1,388
|
|
| 4,165
|
|
| 50.21
|
|
| 9/8/2026
|
| 25% in 2017, 2018, 2019 and 2020
| |||||||||||||||||||||||||
| 11/30/2016
|
| 57,167
|
|
| 37.70
|
|
| 11/29/2026
|
| 25% in 2018, 75% in 2019
| ||||||||||||||||||||||||||||
| 2/14/2017
|
| 85,042
|
|
| 34.90
|
|
| 2/13/2027
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||
| RSUs
| 5/8/2014
|
| 3,432
|
|
| 65,036
|
| 50% in 2017 and 2018
| ||||||||||||||||||||||||||||||
| 7/1/2014
|
| 9,280
|
|
| 175,856
|
| 33% in 2017, 2018 and 2019
| |||||||||||||||||||||||||||||||
| 3/4/2015
|
| 2,330
|
|
| 44,154
|
| 33% in 2017, 2018 and 2019
| |||||||||||||||||||||||||||||||
| 8/2/2016
|
| 2,242
|
|
| 42,486
|
| 25% in 2017, 2018, 2019 and 2020
| |||||||||||||||||||||||||||||||
| 9/9/2016
|
| 796
|
|
| 15,084
|
| 25% in 2017, 2018, 2019 and 2020
| |||||||||||||||||||||||||||||||
| 11/30/2016
|
| 10,844
|
|
| 205,494
|
| 25% in 2018, 75% in 2019
| |||||||||||||||||||||||||||||||
| 2/14/2017
|
| 16,061
|
|
| 304,356
|
| 33% in 2019, 2020 and 2021
| |||||||||||||||||||||||||||||||
| PSUs
| 2/14/2017
|
| 17,850
|
|
| 338,258
|
| 100% in 2020, subject to performance
| ||||||||||||||||||||||||||||||
Option Awards
|
Stock Awards
| |||||||||||||||||||||||||||||||||||||
Name
| Award
| Grant
| Number of
| Number of
| Option
| Option
| Number
| Market
| Equity
| Equity
| Vesting Schedule
| |||||||||||||||||||||||||||
Kåre Schultz | Options | 11/3/2017 | 197,239 | 394,480 | 11.40 | 11/3/2027 | 33% in 2019, 2020 and 2021 | |||||||||||||||||||||||||||||||
| 2/9/2018 | 205,482 | 18.61 | 2/9/2028 | 33% in 2020, 2021 and 2022 | ||||||||||||||||||||||||||||||||||
| RSUs | 11/3/2017 | 127,226 | 1,246,815 | 33% in 2019, 2020 and 2021 | ||||||||||||||||||||||||||||||||||
| 11/3/2017 | 349,163 | 3,421,797 | 33% in 2020, 2021 and 2022 | |||||||||||||||||||||||||||||||||||
| 2/9/2018 | 80,601 | 789,890 | 33% in 2020, 2021 and 2022 | |||||||||||||||||||||||||||||||||||
| 3/4/2019 | 179,104 | 1,755,219 | 33% in 2021, 2022 and 2023 | |||||||||||||||||||||||||||||||||||
| PSUs | 11/3/2017 | 649,914 | 6,369,157 | 33% in 2020, 2021 and 2022, subject to performance | ||||||||||||||||||||||||||||||||||
| 11/3/2017 | 751,504 | 7,364,739 | 100% in 2022, subject to performance | |||||||||||||||||||||||||||||||||||
| 11/3/2017 | 212,314 | 2,080,677 | 100% in 2020 | |||||||||||||||||||||||||||||||||||
| 2/9/2018 | 179,104 | 1,755,219 | 100% in 2021, subject to performance | |||||||||||||||||||||||||||||||||||
| 3/4/2019 | 198,938 | 1,949,592 | 100% in 2022, subject to performance | |||||||||||||||||||||||||||||||||||
Dr. Hafrun Fridriksdottir | Options | 7/1/2014 | 22,809 | 48.69 | 7/1/2024 | vested | ||||||||||||||||||||||||||||||||
| 8/2/2016 | 11,991 | 3,999 | 52.96 | 8/2/2026 | 25% in 2017, 2018, 2019 and 2020 | |||||||||||||||||||||||||||||||||
| 9/9/2016 | 4,164 | 1,389 | 50.21 | 9/9/2026 | 25% in 2017, 2018, 2019 and 2020 | |||||||||||||||||||||||||||||||||
| 11/30/2016 | 57,167 | 37.70 | 11/30/2026 | Vested | ||||||||||||||||||||||||||||||||||
| 2/14/2017 | 28,347 | 56,695 | 34.90 | 2/14/2027 | 33% in 2019, 2020 and 2021 | |||||||||||||||||||||||||||||||||
| 2/9/2018 | 123,288 | 18.61 | 2/9/2028 | 33% in 2020, 2021 and 2022 | ||||||||||||||||||||||||||||||||||
| RSUs | 8/2/2016 | 748 | 7,330 | 25% in 2017, 2018, 2019 and 2020 | ||||||||||||||||||||||||||||||||||
| 9/9/2016 | 266 | 2,607 | 25% in 2017, 2018, 2019 and 2020 | |||||||||||||||||||||||||||||||||||
| 2/14/2017 | 10,708 | 104,938 | 33% in 2019, 2020 and 2021 | |||||||||||||||||||||||||||||||||||
| 2/9/2018 | 48,361 | 473,938 | 33% in 2020, 2021 and 2022 | |||||||||||||||||||||||||||||||||||
| 3/4/2019 | 56,716 | 555,817 | 33% in 2021, 2022 and 2023 | |||||||||||||||||||||||||||||||||||
| PSUs | 2/14/2017 | 17,850 | 174,930 | 100% in 2020 | ||||||||||||||||||||||||||||||||||
| 2/9/2018 | 53,731 | 526,564 | 100% in 2021, subject to performance | |||||||||||||||||||||||||||||||||||
| 5/11/2018 | 30,000 | 294,000 | 100% in 2021, subject to performance | |||||||||||||||||||||||||||||||||||
| 3/4/2019 | 62,997 | 617,371 | 100% in 2022, subject to performance | |||||||||||||||||||||||||||||||||||
Brendan O’Grady | Options | 12/6/2010 | 5,401 | 49.11 | 12/6/2020 | vested | ||||||||||||||||||||||||||||||||
| 11/7/2011 | 9,003 | 41.72 | 11/7/2021 | vested | ||||||||||||||||||||||||||||||||||
| 12/13/2012 | 12,503 | 38.84 | 12/13/2022 | vested | ||||||||||||||||||||||||||||||||||
| 3/12/2014 | 17,502 | 48.76 | 3/12/2024 | vested | ||||||||||||||||||||||||||||||||||
| 3/12/2015 | 15,502 | 60.21 | 3/12/2025 | vested | ||||||||||||||||||||||||||||||||||
| 3/17/2016 | 18,753 | 6,253 | 53.50 | 3/17/2026 | 25% in 2017, 2018, 2019 and 2020 | |||||||||||||||||||||||||||||||||
| 3/3/2017 | 12,500 | 12,501 | 34.70 | 3/3/2027 | 25% in 2018, 2019, 2020 and 2021 | |||||||||||||||||||||||||||||||||
| 9/18/2017 | 7,485 | 16.99 | 9/18/2027 | vested | ||||||||||||||||||||||||||||||||||
| 2/9/2018 | 123,288 | 18.61 | 2/9/2028 | 33% in 2020, 2021 and 2022 | ||||||||||||||||||||||||||||||||||
| RSUs | 3/17/2016 | 1,179 | 11,554 | 25% in 2017, 2018, 2019 and 2020 | ||||||||||||||||||||||||||||||||||
| 3/3/2017 | 2,332 | 22,854 | 25% in 2018, 2019, 2020 and 2021 | |||||||||||||||||||||||||||||||||||
| 2/9/2018 | 48,361 | 473,938 | 33% in 2020, 2021 and 2022 | |||||||||||||||||||||||||||||||||||
| 3/4/2019 | 56,716 | 555,817 | 33% in 2021, 2022 and 2023 | |||||||||||||||||||||||||||||||||||
| PSUs | 2/9/2018 | 53,731 | 526,564 | 100% in 2021, subject to performance | ||||||||||||||||||||||||||||||||||
| 3/4/2019
|
| 62,997
|
|
| 617,371
|
| 100% in 2022, subject to performance
| |||||||||||||||||||||||||||||||
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 71
Executive Compensation
Option Awards
|
Stock Awards
| |||||||||||||||||||||||||||||||||||||
Name
| Award
| Grant
| Number of
| Number of (2)
| Option
| Option
| Number
| Market
| Equity
| Equity ($) (6)
| Vesting Schedule (7)
| |||||||||||||||||||||||||||
Mark Sabag
| Options
| 11/7/2011
|
| 4001
|
|
| 41.72
|
|
| 11/6/2021
|
| vested
| ||||||||||||||||||||||||||
| 2/24/2012
|
| 3,201
|
|
| 44.59
|
|
| 2/23/2022
|
| vested
| ||||||||||||||||||||||||||||
| 12/13/2012
|
| 4,501
|
|
| 38.84
|
|
| 12/12/2022
|
| vested
| ||||||||||||||||||||||||||||
| 2/24/2013
|
| 4,502
|
|
| 38.08
|
|
| 2/23/2023
|
| vested
| ||||||||||||||||||||||||||||
| 11/11/2013
|
| 100,002
|
|
| 37.26
|
|
| 11/10/2023
|
| vested
| ||||||||||||||||||||||||||||
| 3/12/2014
|
| 49,288
|
|
| 24,644
|
|
| 48.76
|
|
| 3/11/2024
|
| 33% in 2016, 2017 and 2018
| |||||||||||||||||||||||||
| 2/12/2015
|
| 22,345
|
|
| 44,690
|
|
| 57.35
|
|
| 2/11/2025
|
| 33% in 2017, 2018 and 2019
| |||||||||||||||||||||||||
| 2/12/2016
|
| 64,940
|
|
| 55.75
|
|
| 2/11/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 2/14/2017
|
| 90,710
|
|
| 34.90
|
|
| 2/13/2027
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||
| RSUs
| 2/14/2017
|
| 17,132
|
|
| 324,651
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||||
| PSUs
| 2/12/2016
|
| 12,492
|
|
| 236,723
|
| 100% in 2019, subject to performance
| ||||||||||||||||||||||||||||||
| 2/14/2017
|
| 19,040
|
|
| 360,808
|
| 100% in 2020, subject to performance
| |||||||||||||||||||||||||||||||
Erez Vigodman
| Options
| 1/8/2014
|
| 187,134
|
|
| 93,568
|
|
| 41.05
|
|
| 1/7/2024
|
| 33% in 2016, 2017 and 2018
| |||||||||||||||||||||||
| 2/12/2015
|
| 54,619
|
|
| 54,619
|
|
| 57.35
|
|
| 2/11/2025
|
| 33% in 2017 and 2018 (2019 tranche forfeited)
| |||||||||||||||||||||||||
| 2/12/2016
|
| 58,276
|
|
| 55.75
|
|
| 2/11/2026
|
| 33% in 2018 (2019 and 2020 tranches forfeited)
| ||||||||||||||||||||||||||||
| 5/16/2016
|
| 18,540
|
|
| 50.43
|
|
| 5/15/2026
|
| 33% in 2018 (2019 and 2020 tranches forfeited)
| ||||||||||||||||||||||||||||
| RSUs
| 1/8/2014
|
| 5,220
|
|
| 98,919
|
| 33% in 2016, 2017 and 2018
| ||||||||||||||||||||||||||||||
Dr. Yitzhak Peterburg
| Options
| 8/31/2010
|
| 198,752
|
|
| 50.62
|
|
| 8/30/2020
|
| vested
| ||||||||||||||||||||||||||
| 2/14/2017
|
| 255,104
|
|
| 34.90
|
|
| 2/13/2027
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||
| RSUs
| 2/14/2017
|
| 48,185
|
|
| 913,106
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||||
| PSUs
| 2/14/2017
|
| 53,552
|
|
| 1,014,810
|
| 100% in 2020, subject to performance
| ||||||||||||||||||||||||||||||
Eyal Desheh
| Options
| 11/7/2011
|
| 198,003
|
|
| 41.72
|
|
| 11/6/2021
|
| vested
| ||||||||||||||||||||||||||
| 3/12/2014
|
| 65,720
|
|
| 32,861
|
|
| 48.76
|
|
| 3/11/2024
|
| 33% in 2016, 2017 and 2018
| |||||||||||||||||||||||||
| 2/12/2015
|
| 29,792
|
|
| 59,584
|
|
| 57.35
|
|
| 2/11/2025
|
| 33% in 2017, 2018 and 2019
| |||||||||||||||||||||||||
| 2/12/2016
|
| 99,904
|
|
| 55.75
|
|
| 2/11/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 5/16/2016
|
| 13,908
|
|
| 50.43
|
|
| 5/15/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 2/14/2017
|
| 113,382
|
|
| 34.90
|
|
| 2/13/2027
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||
| RSUs
| 2/14/2017
|
| 21,415
|
|
| 405,814
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||||
| PSUs
| 2/12/2016
|
| 19,219
|
|
| 364,200
|
| 100% in 2019, subject to performance
| ||||||||||||||||||||||||||||||
| 5/16/2016
|
| 2,672
|
|
| 50,634
|
| 100% in 2019, subject to performance
| |||||||||||||||||||||||||||||||
| 2/14/2017
|
| 23,801
|
|
| 451,029
|
| 100% in 2020, subject to performance
| |||||||||||||||||||||||||||||||
Dr. Rob Koremans
| Options
| 3/1/2012
|
| 250,001
|
|
| 45.29
|
|
| 2/28/2022
|
| vested
| ||||||||||||||||||||||||||
| 3/12/2014
|
| 65,720
|
|
| 32,861
|
|
| 48.76
|
|
| 3/11/2024
|
| 33% in 2016, 2017 and 2018
| |||||||||||||||||||||||||
| 2/12/2015
|
| 31,447
|
|
| 62,896
|
|
| 57.35
|
|
| 2/11/2025
|
| 33% in 2017, 2018 and 2019
| |||||||||||||||||||||||||
| 2/12/2016
|
| 99,904
|
|
| 55.75
|
|
| 2/11/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 5/16/2016
|
| 8,346
|
|
| 50.43
|
|
| 5/15/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 2/14/2017
|
| 141,728
|
|
| 34.90
|
|
| 2/13/2027
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||
| RSUs
| 2/14/2017
|
| 26,769
|
|
| 507,273
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||||
| PSUs
| 2/12/2016
|
| 19,219
|
|
| 364,200
|
| 100% in 2019, subject to performance
| ||||||||||||||||||||||||||||||
| 5/16/2016
|
| 1,603
|
|
| 30,377
|
| 100% in 2019, subject to performance
| |||||||||||||||||||||||||||||||
| 2/14/2017
|
| 29,751
|
|
| 563,781
|
| 100% in 2020, subject to performance
| |||||||||||||||||||||||||||||||
Option Awards
|
Stock Awards
| |||||||||||||||||||||||||||||||||||||
Name
| Award
| Grant
| Number of
| Number of
| Option
| Option
| Number
| Market
| Equity
| Equity
| Vesting Schedule
| |||||||||||||||||||||||||||
Gianfranco Nazzi | Options | 3/12/2014 | 30,003 | 48.76 | 3/12/2024 | vested | ||||||||||||||||||||||||||||||||
| 3/12/2015 | 18,505 | 60.21 | 3/12/2025 | vested | ||||||||||||||||||||||||||||||||||
| 3/17/2016 | 13,875 | 4,628 | 53.50 | 3/17/2026 | 25% in 2017, 2018, 2019 and 2020 | |||||||||||||||||||||||||||||||||
| 3/3/2017 | 15,000 | 15,001 | 34.70 | 3/3/2027 | 25% in 2018, 2019, 2020 and 2021 | |||||||||||||||||||||||||||||||||
| 9/18/2017 | 15,914 | 16.99 | 9/18/2027 | vested | ||||||||||||||||||||||||||||||||||
| 2/9/2018 | 91,326 | 18.61 | 2/9/2028 | 33% in 2020, 2021 and 2022 | ||||||||||||||||||||||||||||||||||
| RSUs | 3/17/2016 | 874 | 8,565 | 25% in 2017, 2018, 2019 and 2020 | ||||||||||||||||||||||||||||||||||
| 3/3/2017 | 2,799 | 27,430 | 25% in 2018, 2019, 2020 and 2021 | |||||||||||||||||||||||||||||||||||
| 2/9/2018 | 35,823 | 351,065 | 33% in 2020, 2021 and 2022 | |||||||||||||||||||||||||||||||||||
| 3/4/2019 | 38,805 | 380,289 | 33% in 2021, 2022 and 2023 | |||||||||||||||||||||||||||||||||||
| PSUs | 2/9/2018 | 39,800 | 390,040 | 100% in 2021, subject to performance | ||||||||||||||||||||||||||||||||||
| 3/4/2019 | 43,103 | 422,409 | 100% in 2022, subject to performance | |||||||||||||||||||||||||||||||||||
Michael McClellan | Options | 11/5/2015 | 13,927 | 60.92 | 11/5/2025 | vested | ||||||||||||||||||||||||||||||||
| 3/17/2016 | 10,500 | 53.50 | 3/17/2026 | vested | ||||||||||||||||||||||||||||||||||
| 3/3/2017 | 11,252 | 34.70 | 3/3/2027 | vested | ||||||||||||||||||||||||||||||||||
| 9/18/2017 | 12,341 | 16.99 | 9/18/2027 | vested | ||||||||||||||||||||||||||||||||||
Dr. Carlo de Notaristefani | Options | 8/1/2012 | 150,003 | 40.87 | 8/1/2022 | vested | ||||||||||||||||||||||||||||||||
| 3/12/2014 | 98,581 | 48.76 | 3/12/2024 | vested | ||||||||||||||||||||||||||||||||||
| 2/12/2015 | 89,376 | 57.35 | 2/12/2025 | vested | ||||||||||||||||||||||||||||||||||
| 2/12/2016 | 66,602 | 33,302 | 55.75 | 2/12/2026 | 33% in 2018, 2019 and 2020 | |||||||||||||||||||||||||||||||||
| 5/16/2016 | 5,564 | 2,782 | 50.43 | 5/16/2026 | 33% in 2018, 2019 and 2020 | |||||||||||||||||||||||||||||||||
| 2/14/2017 | 49,132 | 98,264 | 34.90 | 2/14/2027 | 33% in 2019, 2020 and 2021 | |||||||||||||||||||||||||||||||||
| 2/9/2018 | 159,819 | 18.61 | 2/9/2028 | 33% in 2020, 2021 and 2022 | ||||||||||||||||||||||||||||||||||
| RSUs | 2/14/2017 | 18,560 | 181,888 | 33% in 2019, 2020 and 2021 | ||||||||||||||||||||||||||||||||||
| 2/9/2018 | 62,690 | 614,362 | 33% in 2020, 2021 and 2022 | |||||||||||||||||||||||||||||||||||
| 3/4/2019 | 74,626 | 731,335 | 33% in 2021, 2022 and 2023 | |||||||||||||||||||||||||||||||||||
| PSUs | 2/14/2017 | 30,941 | 303,222 | 100% in 2020 | ||||||||||||||||||||||||||||||||||
| 2/9/2018 | 69,651 | 682,580 | 100% in 2021, subject to performance | |||||||||||||||||||||||||||||||||||
| 5/11/2018 | 70,000 | 686,000 | 100% in 2021, subject to performance | |||||||||||||||||||||||||||||||||||
| 3/4/2019
|
| 82,891
|
|
| 812,332
|
| 100% in 2022, subject to performance
| |||||||||||||||||||||||||||||||
Mr. Kalif did not have any outstanding equity awards as of December 31, 2019. In addition, upon resignation, Mr. McClellan forfeited his unvested equity and had 90 days to exercise vested options.
72 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
Option Awards
|
Stock Awards
| |||||||||||||||||||||||||||||||||||||
Name
| Award
| Grant
| Number of
| Number of (2)
| Option
| Option
| Number
| Market
| Equity
| Equity ($) (6)
| Vesting Schedule (7)
| |||||||||||||||||||||||||||
Dr. Michael Hayden
| Options
| 5/9/2012
|
| 275,000
|
|
| 42.19
|
|
| 5/8/2022
|
| vested
| ||||||||||||||||||||||||||
| 3/12/2014
|
| 65,720
|
|
| 32,861
|
|
| 48.76
|
|
| 3/11/2024
|
| 33% in 2016, 2017 and 2018
| |||||||||||||||||||||||||
| 2/12/2015
|
| 31,447
|
|
| 62,896
|
|
| 57.35
|
|
| 2/11/2025
|
| 33% in 2017, 2018 and 2019
| |||||||||||||||||||||||||
| 2/12/2016
|
| 99,904
|
|
| 55.75
|
|
| 2/11/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 5/16/2016
|
| 16,687
|
|
| 50.43
|
|
| 5/15/2026
|
| 33% in 2018, 2019 and 2020
| ||||||||||||||||||||||||||||
| 2/14/2017
|
| 113,382
|
|
| 34.90
|
|
| 2/13/2027
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||
| RSUs
| 2/14/2017
|
| 21,415
|
|
| 405,814
|
| 33% in 2019, 2020 and 2021
| ||||||||||||||||||||||||||||||
| PSUs
| 2/12/2016
|
| 19,219
|
|
| 364,200
|
| 100% in 2019, subject to performance
| ||||||||||||||||||||||||||||||
| 5/16/2016
|
| 3,207
|
|
| 60,773
|
| 100% in 2019, subject to performance
| |||||||||||||||||||||||||||||||
| 2/14/2017
|
| 23,801
|
|
| 451,029
|
| 100% in 2020, subject to performance
| |||||||||||||||||||||||||||||||
| (1) | Amounts disclosed in this column reflect the number of options granted to our NEOs that were subject to time based vesting and have vested. The options generally expire ten years from the date of grant, and have an exercise price of no less than 100% of the fair market value of a Teva share on the date of grant. See |
| (2) | Amounts disclosed in this column reflect the number of options granted to our NEOs that were subject to time based vesting that had not vested as of December 31, |
| (3) | Amounts disclosed in this column reflect the number of unvested RSUs granted |
| (4) | Amounts disclosed in this column reflect the market value of the RSUs and PSUs reported in the preceding column using the closing price of a Teva share as reported on the |
| (5) | Amounts disclosed in this column reflect the number of unvested PSUs held by our NEOs, based on achievement of all applicable performance goals at target level for open performance cycles ending in |
| (6) | Amounts disclosed in this column reflect the market value of the unvested PSUs held by our NEOs and reported in the preceding column using the closing price of a Teva share as reported on the |
72 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
20172019 Option Exercises and Stock Vested
The table below shows the number of shares each of our NEOs acquired and the values they realized upon the vesting of PSUs and RSUs, during 2017.2019. Values are shown before payment of any applicable withholding taxes or brokerage commissions. There were no sharestock options exercised by the NEOs in 2017.2019.
Stock Awards | ||||||||
Name
| Number of
| Value ($) (2)
| ||||||
Michael McClellan |
|
1,355 |
|
|
30,827 |
| ||
Dr. Carlo de Notaristefani |
|
22,642 |
|
|
753,979 |
| ||
Dr. Hafrun Fridriksdottir |
|
10,252 |
|
|
270,496 |
| ||
Mark Sabag |
|
23,703 |
|
|
644,405 |
| ||
Erez Vigodman |
|
5,220 |
|
|
177,480 |
| ||
Dr. Yitzhak Peterburg |
|
14,369 |
|
|
237,376 |
| ||
Eyal Desheh |
|
22,642 |
|
|
753,979 |
| ||
Dr. Rob Koremans |
|
22,642 |
|
|
753,979 |
| ||
Dr. Michael Hayden |
|
22,642 |
|
|
753,979 |
| ||
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 73
Executive Compensation
Stock Awards | ||||||||
Name
| Number of
| Value Vesting ($) (2)
| ||||||
Dr. Hafrun Fridriksdottir | 20,303 | 257,770 | ||||||
Brendan O’Grady | 4,324 | 60,388 | ||||||
Gianfranco Nazzi | 5,792 | 72,339 | ||||||
Michael McClellan | 5,800 | 60,422 | ||||||
Dr. Carlo de Notaristefani
|
| 55,791
|
|
| 804,802
|
| ||
| (1) | Amounts disclosed in this column reflect the number of PSUs and RSUs that vested during |
| (2) | Amounts disclosed in this column reflect the value realized upon vesting of the PSUs and RSUs, as calculated based on the price of a Teva share on the vesting date, multiplied by the number of shares underlying each award. |
20172019 Pension Benefits
None of our NEOs participate in or have accrued benefits under qualified ornon-qualified defined benefit plans sponsored by us.
20172019 Nonqualified Deferred Compensation
Name
| Plan Name
| Executive
| Company
| Aggregate
| Aggregate
| Aggregate
| ||||||||||||||||
Michael McClellan
| Supplemental Deferred Compensation Plan
|
| 121,476
|
|
| 16,933
|
|
| 26,269
|
|
| 0
|
|
| 228,560
|
| ||||||
Dr. Carlo de Notaristefani | Supplemental Deferred Compensation Plan
|
| 1,059,731
|
|
| 0
|
|
| 162,992
|
|
| 0
|
|
| 1,666,236
|
| ||||||
Defined Contribution Supplemental Executive Retirement Plan
|
| 0
|
|
| 125,460
|
|
| 80,664
|
|
| 0
|
|
| 582,120
|
| |||||||
Hafrun Fridriksdottir | Supplemental Deferred Compensation Plan
|
| 59,289
|
|
| 24,923
|
|
| 10,087
|
|
| 0
|
|
| 129,381
|
| ||||||
Name
| Plan Name
| Executive
| Company
| Aggregate
| Aggregate
| Aggregate
| ||||||||||||||||
Hafrun Fridriksdottir
| Supplemental Deferred Compensation Plan |
| 160,846
|
|
| 120,115
|
|
| 64,566
|
|
| (33,966
| )
|
| 529,465
|
| ||||||
| Actavis Executive Deferred Compensation Plan | — | — | 6,711 | — | 134,539 | |||||||||||||||||
Brendan O’Grady
| Supplemental Deferred Compensation Plan | — | — | 26,592 | — | 204,820 | ||||||||||||||||
| Teva Neuroscience Deferred Compensation Plan
| — | — | 47,160 | — | 287,702 | |||||||||||||||||
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 73
Executive Compensation
Name | Plan Name | Executive Contributions in Last FY ($) (1) | Company Contributions in Last FY ($) (2) | Aggregate Earnings in Last FY ($) (3) | Aggregate Withdrawals / Distributions ($) | Aggregate Balance at Last FY ($) (4) | ||||||||||||||||
Michael McClellan | Supplemental Deferred Compensation Plan | 609,594 | 31,015 | 94,100 | — | 1,093,219 | ||||||||||||||||
Dr. Carlo de Notaristefani | Supplemental Deferred Compensation Plan | 660,887 | — | 398,364 | — | 2,814,570 | ||||||||||||||||
| Defined Contribution Supplemental Executive Retirement Plan
| — | 125,460 | 129,134 | — | 929,802 | |||||||||||||||||
| (1) | Amounts disclosed in this column reflect elective deferrals made by our NEOs and are included in the amounts reported as “Salary” and“Non-Equity Incentive Plan Compensation,” as relevant, in the Summary Compensation Table |
| (2) | Amounts disclosed in this column are included within the amount reported in the “All Other Compensation” column of the Summary Compensation |
| (3) | Amounts disclosed in this column include earnings on the |
| (4) | Amounts disclosed in this column reflect the cumulative value of the applicable NEO’s contributions and Company matching contributions, which have been included in the amounts reported as “Salary,”“Non-Equity Incentive Plan Compensation,” and “All Other Compensation,” as appropriate, in the applicable Summary Compensation Tables, and investment earnings thereon. |
74 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
Teva’s North American subsidiaries provide a tax qualified defined contribution 401(k) Retirement Savings Plan for the benefit of employees. Under this plan, contribution amounts have been determined based on specified percentages of pay. The Internal Revenue Code limits the benefits that may be contributed into the 401(k) plan. As a complement to this plan, the Company maintains two supplemental retirement plans to bridge the gap between legally mandated limits on qualified plan benefits and the retirement benefits offered at comparable public companies, and to provide participants with supplemental benefits. The two plans include the Supplemental Deferred Compensation Plan which is a broad-based plan, and the Defined Contribution Supplemental Executive Retirement Plan (“DC SERP,”), which is available to grandfathered U.S. executive officers (no new U.S. executive officers are enrolled in this plan). While the Company has formally funded the 401(k) plan match contribution, the Supplemental Deferred Compensation Plan and the DC SERP are not formally funded.
Supplemental Deferred Compensation Plan
The Supplemental Deferred Compensation Plan is a nonqualified, unfunded deferred compensation plan under which certain eligible employees may defer up to 75% of base salary, annual bonuses and sales bonuses. The Company matches 100% of the first 6% of all eligible compensation deferred above the IRS qualified compensation limit, and makes restorative matching contributions to restore the Company match that were lost to the participant under the Retirement Savings Plan. Participants are vested in 100% of Company contributions once three years of service are completed. There are 27 investment options within the Supplemental Deferred Compensation Plan, and participants may change their investment allocations. Contributions plus earnings are paid out of the general assets of the Company. Participants that are age 55 with at least 15 years of service or age 65 with five years of service are retirement eligible, and may receive payment from the Plan in a lump sum or in annual installments for up to 20 years beginning on the first
74 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Executive Compensation
distribution date (January or July) that is at least 13 months after their retirement. Participants that terminate employment prior to retirement receive a lump sum beginning on the first distribution date that is at least six months after termination. Participants may change their distribution election at least 12 months prior to the originally scheduled payment date and as long as the change results in the payment date being delayed at least five years.
Defined Contribution Supplemental Executive Retirement Plan
The DC SERP is a nonqualified, unfunded plan in which certain executive officers may participate. Under this plan, the Company establishes an account on behalf of each participant and credits that account on the last day of the year with an amount equal to 15% of the participant’s base salary paid during the applicable calendar year as a future retirement benefit. If the participant has a separation from service after age 65 or dies or becomes disabled, the Company will credit the account with apro-rata amount in respect of the portion of the year during which the participant qualified as a participant. The participant may direct percentages of the amounts credited to the participant’s account to be notionally invested in notional investment funds, and the account is credited with earnings that mirror the actual investment results of such investment funds. As of a valuation date, the notional realized and unrealized gains and losses and the notional income are allocated for the benefit of the participant’s account. Participants vest in their accounts upon either the earliest of five full years as a participant, attaining age 65 while employed by the Company, death, disability, or a change in control as defined under Code Section 409A. If a participant separates from service before they are 100% vested, they will forfeit the entire account balance. If a participant breaches any noncompete or nonsolicit or other similar restrictive covenants under the plan, is terminated for cause or fails to execute a release of claims against the Company upon a termination of employment, theyhe or she will forfeit their account balance. A participant may receive the vested benefit in the account in a lump sum following theirthe participant’s separation from service or, if the participant so elects, in installments. If a participant does not have 10 years of service and is 55 at the time of separation from service, payment will be in the form of a single lump sum. If a participant dies after separation from service and prior to benefits being paid, such benefits will continue to be paid in the same form as elected by the participant. If the participant dies or becomes disabled, the vested value of the account will be distributed in a single lump sum. If installment payments are elected,
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 75
Executive Compensation
the installment amounts are determined as the remaining balance divided by the number of years over which the installments will be paid. Payments may be delayed due to certain tax rules or deferral elections made by the executive.
Actavis Executive Deferred Compensation Plan
In connection with Teva’s acquisition of Actavis Generics in November 2016, Teva assumed the Actavis Executive Deferred Compensation Plan. Certain former Actavis employees remain participants in the plan, although the plan has been frozen and further participant deferrals into the plan are no longer permitted. The plan is a nonqualified, unfunded deferred compensation plan under which certain eligible employees of Actavis Generics prior to its acquisition by Teva were able to defer up to 80% of base salary and 80% of performance bonus awards (100% after January 1, 2015). The plan also provided for Company matching credits, Company discretionary credits, and credits and debits for investment returns. Participants are fully vested in their base salary and performance bonus deferrals, and vest in Company matching contributions after certain numbers of years. Participants become 100% vested upon death or disability, and upon a change in control will receive a single lump sum payment within 12 months. Participants may elect to receive distributions in a lump sum or in annual installments of from two to 15 years.
Teva Neuroscience Deferred Compensation Plan
The Teva Neuroscience Deferred Compensation Plan is a nonqualifed, unfunded deferred compensation plan for certain employees of the Company. Under the plan, during the period 2001 to 2005, the Company contributed 10% of a participant’s total compensation up to the limits of Code Section 401 to an account for such participant. The participant was neither permitted nor required to make contributions to the plan,
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 75
Executive Compensation
and the balance in such participant’s account is fully vested at all times. Participants are entitled to a lump sum payment of their account balance on the date of their retirement after reaching age 65, disability, death or separation from service.
20172019 Potential Payments Upon Termination or Change in Control
In connection with any termination of employment, including if there is a termination in connection with a change in control of the Company, our NEO’sNEOs would be eligible to receive certain payments, benefits and treatment of the various forms of equity that such NEO holds (provided, in some cases, that certain conditions are met).
The amounts that the NEOs would receive are set forth below for the following types of termination of employment: termination for cause, death, disability, retirement, termination without cause, resignation for good reason, resignation without good reason and a change in control of the Company.
In accordance with SEC rules, we have used certain assumptions in determining the amounts shown. We have assumed that the termination of employment or change in control occurred on December 31, 2017,2019, and that the value of a Teva share on that day was $18.95,$9.80, the closing price on the NYSE on December 29, 2017,31, 2019, the last trading day of 2017.2019.
Under these SEC rules, the potential payments upon termination do not include certain distributions or benefits which are not enhanced by a qualifying termination of employment or change in control. These payments and benefits are referred to as “vested benefits” and include:
| ∎ | Amounts payable when employment terminates under programs generally applicable to the Company’s salaried employees; |
| ∎ | Vested benefits accrued under the 401(k) and pension plans; and |
| ∎ | Vested benefits under the Supplemental Deferred Compensation Plan, DC SERP, Teva Neuroscience Deferred Compensation Plan and the |
Current NEOs
Kåre Schultz
Mr. Schultz’s employment terms generally require the Company and Mr. Schultz to provide three months’ notice of termination of employment, other than in connection with a termination for cause, death or disability. We may waive Mr. Schultz’s services during such notice period or any part thereof, or accelerate the termination date upon mutual agreement, on the condition that we pay him his monthly base salary and all additional compensation and benefits in respect of such waived period.
Mr. Schultz’s employment terms provide that in connection with his termination of employment, Mr. Schultz will be entitled to receive payments associated with termination as required pursuant to applicable Israeli law and certain accrued obligations. Upon termination by the Company without cause or by Mr. Schultz with good reason, Mr. Schultz will generally be entitled to receive cash severance, together with severance amounts accumulated in his severance account, equal to the product of twelve times his monthly base salary (or the minimum amount required under applicable law, if greater). Mr. Schultz is also entitled to receive an amount equal to twenty-four times his monthly base salary, in consideration for, and conditioned upon, his undertaking not to compete with Teva for two years following termination and other restrictive covenants, and his compliance with such undertaking, which amount would be paid in connection with terminations other than in the event of his termination by the Company for cause or his death. In the event that his employment is terminated by the Company without cause or by Mr. Schultz with good reason within one year following certain mergers and as a result thereof, Mr. Schultz will be entitled to an additional lump sum cash payment equal to his current annual salary.
76 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Executive Compensation
Upon his termination due to death, disability, termination without cause and resignation with good reason, Mr. Schultz will receive payment of any unvested portion of hissign-on cash award, vesting of hissign-on RSU award on the later of the date of termination, and the first anniversary of the grant date, and continued vesting of hissign-on PSU awards (which will ultimately be settled based on actual performance through the end of the applicable three-year and five-year performance periods). In the event of a change in control before the terminations listed above, Mr. Schultz’ssign-on PSU awards will be treated as earned based on the price paid per share to shareholders (or if none, then based on the last per share trading price before the change in control). The awards may then either continue as time-vested awards over the remainder of the required vesting period or, if not assumed, settled upon the change in control. If thesign-on PSU awards are assumed and continue as time-vested awards, they will be immediately settled upon termination following the change in control due to death, disability, termination without cause and resignation with good reason.
All termination payments and benefits in excess of those required to be paid pursuant to applicable law are subject to the execution of a release of claims, and shall immediately terminate without further obligation of Teva, in the event that he breaches his restrictive covenants. In addition, in the event of continuous and willful breach of his restrictive covenants, the Company shall be entitled to a repayment of such termination payments, including forfeiture of any post-termination equity vesting.
Michael McClellanEli Kalif
Mr. McClellan’sKalif’s employment terms generally require the Company and Mr. McClellanKalif to provide threesix months’ notice of termination of employment, other than in connection with a termination for cause, death or disability. We may waive Mr. McClellan’sKalif’s services during such notice period or any part thereof, or accelerate the termination date, on the condition that we pay him his monthly base salary and all additional compensation and benefits in respect of such waived period.
Mr. Kalif’s employment terms provide that in connection with his termination of employment, Mr. Kalif will be entitled to receive payments associated with termination as required pursuant to applicable Israeli law and certain accrued obligations. Upon termination by the Company without cause or by Mr. McClellan forKalif with good reason, Mr. McClellanKalif will generally be entitled to receive cash severance, together with severance amounts accumulated in his severance account, equal to twice his monthly base salary multiplied by the productnumber of sixyears of employment, up to a maximum payment of eighteen times his monthly base salary and payment of certain costs associated with continued medical insurance for eighteen months. Mr. McClellan is also entitled to receive an(or the minimum amount equal to twelve times his monthly base salary, in consideration for, and conditioned upon, his undertaking not to compete with Teva for one year following termination and other restrictive covenants.required under applicable law, if greater). In the event that his employment is terminated by the Company without cause within one year following certain mergers and as a result thereof, Mr. McClellanKalif will be entitled to an additional lump sum cash payment ofequal to $1.5 million.
All termination payments and benefits in excess of those required to be paid pursuant to applicable law are subject to the execution of a release of claims, and shall immediately terminate without further obligation of Teva, and Mr. McClellanKalif shall promptly repay Teva any such payments or benefits provided, in the event that he breaches his restrictive covenants.
Dr. Carlo de Notaristefani
Dr. de Notaristefani’s employment terms generally require the Company and Dr. de Notaristefani to provide six months’ notice of termination of employment, other than in connection with a termination for cause, death or disability. We may waive Dr. de Notaristefani’s services during such notice period or any part thereof, on the condition that we pay him his monthly base salary and all additional compensation and benefits in respect of such waived period.
Upon termination by the Company without cause, by Dr. de Notaristefani for good reason, or by Dr. de Notaristefani without good reason on or after July 1, 2020, Dr. de Notaristefani will generally be entitled to receive cash severance equal to the product of twelve times his monthly base salary and payment of certain costs associated with continued medical insurance for eighteen months. Dr. de Notaristefani is also entitled to receivecovenants, including an amount equal to twelve times his monthly base salary, in consideration for, and conditioned upon, his undertaking not to compete with Teva for one yearsix months following termination and other restrictive
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 77
Executive Compensation
covenants. In the event that his employment is terminated without cause within one year following certain mergers and as a result thereof, Dr. de Notaristefani will be entitled to an additional lump sum cash payment of $1.5 million.
Dr. de Notaristefani is also entitled to continued vesting in full of equity-based awards following termination without cause and continued vesting in full of equity-based awards following resignation with or without good reason on or after July 1, 2020.
All termination payments and benefits in excess of those required to be paid pursuant to applicable law are subject to the execution of a release of claims, and shall immediately terminate without further obligation of Teva, and Dr. de Notaristefani shall promptly repay Teva any such payments or benefits provided, in the event that he breaches his restrictive covenants.termination.
Dr. Hafrun Fridriksdottir
Dr. Fridriksdottir’semployment terms generally require the Company and Dr. Fridriksdottir to provide six months’ notice of termination of employment, other than in connection with a termination for cause, death or disability. We may waive Dr. Fridriksdottir’s services during such notice period or any part thereof, or accelerate the termination date, on the condition that we pay her the monthly base salary and all additional compensation and benefits in respect of such waived period.
Upon termination by the Company without cause or by Dr. Fridriksdottir for good reason, Dr. Fridriksdottir will generally be entitled to receive cash severance equal to the product of twelve times her monthly base salary if terminated before August 3, 2018, and cash severance equal to the product of six times her monthly base salary if terminated on or after August 3, 2018. In addition, Dr. Fridriksdottir will be entitled toand payment of certain costs associated with continued medical insurance for eighteen months. Dr. Fridriksdottir is also entitled to receive an amount equal to twelve times her monthly base salary, in
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 77
Executive Compensation
consideration for, and conditioned upon, her undertaking not to compete with Teva for one year following termination and other restrictive covenants. In the event that her employment is terminated without cause within one year following certain mergers and as a result thereof, Dr. Fridriksdottir will be entitled to an additional lump sum cash payment of $1.5 million.
Because Dr. Fridriksdottir meets the requirements for a qualifying retirement and termination under the Company’s policy pursuant to its 2015 Long-termLong-Term Equity-Based Incentive Plan, if she is terminated without cause and the current retirement policy is in effect, she will be entitled to continued vesting of her outstanding awards granted by the Company after the acquisition of Actavis Generics. In addition, if she is terminated without cause, (or resigns for good reason) before August 3, 2018,reason, or resigns without good reason, she will also be entitled to immediate vestingcontinued exercisability of unvestedvested options until the earlier of the applicable expiration date or two years after termination for equity awards originally granted to her by Allergan plc and converted into Company equity awards at the time she joined the Company following Teva’s acquisition of Actavis Generics, (“Rollover Awards”). If she resigns without good reason, she will be entitled to continued exercisability of vested options until the earlier of the applicable expiration date or two years after termination for Rollover Awards only due to the legacy Allergan qualifying retirement policy.
All termination payments and benefits in excess of those required to be paid pursuant to applicable law are subject to the execution of a release of claims, and shall immediately terminate without further obligation of Teva, and Dr. Fridriksdottir shall promptly repay Teva any such payments or benefits provided, in the event that she breaches her restrictive covenants.
Mark SabagBrendan O’Grady
Mr. Sabag’sO’Grady’s employment terms generally require the Company and Mr. SabagO’Grady to provide ninethree months’ notice of termination of employment, other than in connection with a termination for cause, death or disability. We may waive Mr. Sabag’sO’Grady’s services during such notice period or any part thereof, or accelerate the termination date, on the condition that we pay him his monthly base salary and all additional compensation and benefits in respect of such waived period.
78 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
Upon termination by the Company without cause or by Mr. Sabag’s employment terms provide that in connection with his termination of employment,O’Grady for good reason, Mr. SabagO’Grady will generally be entitled to receive payments associated with termination as required pursuant to applicable Israeli law. In the event of retirement to pension at the statutory age, termination due to death or disability, termination without cause, or resignation for good reason, Mr. Sabag will be entitled to amake-up paymentcash severance equal to his monthly base salary multiplied by the numberproduct of his years of service, that together with severance amounts accumulated in his pension insurance fund account cannot exceed twice his monthly base salary multiplied by the number of his years of service. In the event of a resignation without good reason, themake-up payment will be equal to half his monthly base salary multiplied by the number of his years of service, that together with severance amounts accumulated in his pension insurance fund account cannot exceed 1.5six times his monthly base salary multiplied by the numberand payment of his years of service.certain costs associated with continued medical insurance for eighteen months. Mr. SabagO’Grady is also entitled to receive an amount equal to twelve times his monthly base salary, in consideration for, and conditioned upon, his undertaking not to compete with Teva for one year following termination. This amount would not be paid upon termination for cause or death.and other restrictive covenants. In the event that his employment is terminated without cause within one year following certain mergers and as a result thereof, Mr. SabagO’Grady will be entitled to an additional lump sum cash payment of $1.5 million.
All termination payments and benefits in excess of those required to be paid pursuant to applicable law are subject to the execution of a release of claims, and shall immediately terminate without further obligation of Teva, and Mr. Sabag is also entitled to continued vesting of equity-based awards for twenty-four months following termination without cause. In addition,O’Grady shall promptly repay Teva any such payments or benefits provided, in the event that he breaches his employment is terminated without cause within one year following certain mergers and as a result thereof, restrictive covenants.
Gianfranco Nazzi
Mr. Sabag will be entitled to accelerated vesting of unvested equity upon termination.
Thenon-compete payment is subject to compliance with thenon-compete covenant. In the event of a material breach, payment will cease and the Company will be entitled to reclaim amounts already paid.
Former NEOs
For all of the former NEOs, theNazzi’s employment terms generally require the partiesCompany to provide six months’ notice of termination of employment (ranging from 6 to 9 months), other(other than in connection with a termination for cause death or disability.and death) and Mr. Nazzi to provide three months’ notice of termination of employment. We may waive Mr. Nazzi’s services during such notice period or any part thereof, or accelerate the termination date, on the condition that we pay the executive thehim his monthly base salary and all additional compensation and benefits in respect of such waived period. We did not waive
Upon termination by the notice periodCompany (and other than termination for any former NEO. All of the former NEOs received notice during 2017, and with the exception ofcause, death or disability), Mr. Vigodman, who completed the notice period during 2017, all of the former NEOsNazzi will complete their notice periods during 2018.
Erez Vigodman
Pursuant to Mr. Vigodman’s terms of employment, in connection with his termination of employment, Mr. Vigodman wasgenerally be entitled to receive nine months’ notice, payments associated with termination as required pursuant to Israeli law, certain previously accrued obligations, including payoutthegreater of accrued vacation,(1) Dutch statutory severance and a payment that, together with severance amounts accumulatedcash supplement thereto, equal to in his existing pension insurance funds, equals the product of twice his monthlyaggregate eighteen months’ base salary multiplied byor (2) the number of his years of service.severance or damages to which Mr. Vigodman is also receiving an amount equal to eighteen times his monthly base salary in consideration for compliance with certainnon-competition covenants.
Under his employment agreement, Mr. Vigodman is also entitled to continued vesting of equity-based awards for twelve months following termination.
The severance, other than statutory severance, thenon-compete payment and the equity benefits, are subject to compliance withnon-compete and other restrictive covenants. In the event of a breach, payment and vesting cease and in the event of a material breach the Company will be entitled to reclaim amounts of the non-compete payment already paid.Nazzi
78 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 79
Executive Compensation
Dr. Yitzhak Peterburg
Pursuant to Dr. Peterburg’s terms of employment, in connection with his termination of employment, Dr. Peterburg is entitled to receive nine months’ notice, payments associated with termination as required pursuant to Israeli law, certain previously accrued obligations, including payout of accrued vacation, and a payment that, together with severance amounts accumulated in his existing pension insurance funds, equals the product of twice his monthly base salary multiplied by the number of his years of service as Interim President and CEO.
Under his employment agreement, Dr. Peterburg will alsowould be entitled to continued vesting in full of all equity-based awards granted to him as Interim President and CEO.
The severance, other than statutory severance, and equity benefits are subject to compliance withnon-compete and other restrictive covenants.under any Teva Pharmaceuticals Europe, B.V. Social Plan. In the event ofthat his employment is terminated by Company (other than termination for cause, death or disability) within one year following certain mergers and as a breach, payment and vesting cease and in the event of a material breach the Companyresult thereof, Mr. Nazzi will be entitled to reclaim any such benefits.an additional lump sum cash payment of $1.5 million.
Eyal Desheh
Pursuant toUpon resignation by Mr. Desheh’s terms of employment, in connection with his termination of employment,Nazzi, Mr. Desheh isNazzi will generally be entitled to receive nine months’ notice, payments associated with termination as required pursuant to Israeli law, certain previously accrued obligations, including payout of accrued vacation, amake-up payment equal to his monthly base salary multiplied by the number of his years of service, that together with severance amounts accumulated in his pension insurance fund account cannot exceed twice his monthly base salary multiplied by the number of his years of service, and eligibility to apro-rata annual cash incentive for the term active in position. Mr. Desheh is also receiving an amount equal to twelve times his monthly base salary, in consideration for, and conditioned upon, his undertaking not to compete with Teva for one year following termination.
Mr. Desheh is also entitledtermination and other restrictive covenants, unless the Company were to continued vesting in full of equity-based awards due to our qualifying retirement and qualifying termination policy.
Thenon-compete payment is subject to compliance withrelease him from thenon-compete covenant. In the eventrestrictions.
All termination payments and benefits in excess of a material breach, payment will cease and the Company willthose required to be entitled to reclaim amounts already paid.
Dr. Rob Koremans
Pursuant to Dr. Koremans’ terms of employment, in connection with his termination of employment, Dr. Koremans is entitled to receive six months’ notice, a severance payment equal to 12 monthly salaries and target annual cash incentive (for a total of 24 monthly salaries).
Dr. Koremans is also entitled to continued vesting of equity-based awards until March 1, 2020.
Dr. Michael Hayden
Pursuant to Dr. Hayden’s terms of employment, in connection with his termination of employment, Dr. Hayden is entitled to receive nine months’ notice, payments associated with termination as requiredpaid pursuant to Israeliapplicable law certain previously accrued obligations, including payout of accrued vacation, a payment equal to 12 monthly salaries, a payment that, together with severance amounts accumulated in his existing pension insurance funds, equals the product of twice his monthly base salary multiplied by the number of his years of service, a payment equal to the premium for continued health insurance coverage for eighteen months following the termination date, and certain relocation benefits in the event of a move back to Canada within one year following the termination date.
Dr. Hayden is also entitled to continued vesting of certain equity-based awards due to our qualifying retirement and qualifying termination policy.
80 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Executive Compensation
The severance amount, other than statutory severance, as well as the medical benefits, equity benefits and the relocation benefits are subject to the execution of a release of claims. These paymentsclaims, and benefits (other than the components required to be paid under applicable law) shall immediately terminate without further obligation of Teva, and the CompanyMr. Nazzi shall have no further obligations to Dr. Hayden with respect thereto,promptly repay Teva any such excess payments or benefits provided, in the event that he breaches any provisions related to confidentiality or his covenantrestrictive covenants, including an undertaking not to compete.compete with Teva for one year following termination.
Potential Payments Upon Termination or Change In Control
The following tables summarize the payments the current NEOs would receive upon termination and completion of the required notice period at December 31, 20172019 and the payments the former NEOs are eligible to receive upon termination and completion of the required notice period, as applicable. As the former NEOs have already received or given notice of termination, amounts for other termination events such as death, disability or change in control are not included. The U.S. dollar amounts in the tables below were converted from local currency, where needed, using the December monthly average exchange rate of 3.503.47 Israeli shekels per U.S. dollar and 0.840.90 euros per U.S. dollar, except accrued vacation for Mr. Vigodman since this payment was made in November 2017 (monthly average exchange rate of 3.52 shekels per U.S. dollar).
Current NEOsdollar.
Payments Resulting From Termination without Cause or Resignation with Good Reason
Category | Kåre Schultz | Michael McClellan | Dr. Carlo de Notaristefani | Dr. Hafrun Fridriksdottir | Mark Sabag | Kåre Schultz | Eli Kalif | Dr. Hafrun Fridriksdottir | Brendan O’Grady | Gianfranco Nazzi | ||||||||||||||||||||||||||||||
Severance payments (1)
|
|
1,972,120
|
|
|
350,000
|
|
|
836,400
|
|
|
720,000
|
|
|
872,505
|
|
|
1,629,015
|
|
|
1,405
|
|
|
360,000
|
|
|
350,000
|
|
|
544,041
|
| ||||||||||
Non-compete payments (2)
|
|
4,000,000
|
|
|
700,000
|
|
|
836,400
|
|
|
720,000
|
|
|
621,262
|
|
| 4,000,000
|
|
| 0
|
|
| 720,000
|
|
| 700,000
|
|
| 272,021
|
| ||||||||||
Accrued vacation
|
|
6,364
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
245,304
|
|
|
258
|
|
|
4,258
|
|
|
0
|
|
|
0
|
|
|
0
|
| ||||||||||
Health benefits continuation
|
|
0
|
|
|
36,937
|
|
|
27,123
|
|
|
11,254
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
12,533
|
|
|
41,103
|
|
|
0
|
| ||||||||||
Sign-on cash award (3)
|
|
20,000,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
| |||||||||||||||||||||||||
Post termination equity vesting (4)(5)
|
|
33,173,510
|
|
|
0
|
|
|
2,093,558
|
|
|
1,190,723
|
|
|
344,928
|
| |||||||||||||||||||||||||
Post-termination equity vesting (3)(4)
|
|
17,155,694
|
|
|
0
|
|
|
2,757,495
|
|
|
0
|
|
|
0
|
| |||||||||||||||||||||||||
Total amount without merger
|
$
|
59,151,994
|
|
$
|
1,086,937
|
|
$
|
3,793,481
|
|
$
|
2,641,977
|
|
$
|
2,083,999
|
|
$
|
22,784,967
|
|
$
|
5,663
|
|
$
|
3,850,028
|
|
$
|
1,091,103
|
|
$
|
816,062
|
| ||||||||||
Post-merger termination payment (6)
|
|
2,000,000
|
|
|
1,500,000
|
|
|
1,500,000
|
|
|
1,500,000
|
|
|
1,500,000
|
| |||||||||||||||||||||||||
Post-merger equity acceleration (7)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
922,183
|
| |||||||||||||||||||||||||
Post-merger termination payment (5)
|
|
2,000,000
|
|
|
1,500,000
|
|
|
1,500,000
|
|
|
1,500,000
|
|
|
1,500,000
|
| |||||||||||||||||||||||||
Total amount with merger
|
$
|
61,151,994
|
|
$
|
2,586,937
|
|
$
|
5,293,481
|
|
$
|
4,141,977
|
|
$
|
4,506,182
|
|
$
|
24,784,967
|
|
$
|
1,505,663
|
|
$
|
5,350,028
|
|
$
|
2,591,103
|
|
$
|
2,316,062
|
| ||||||||||
| (1) | In addition to the amounts reported above, Mr. Schultz would receive |
| (2) | For Mr. Schultz, thenon-compete payment would be paid, assuming his compliance with thenon-compete covenant, in connection with terminations other than his termination by the Company for cause or his death. For Mr. |
| (3) |
Amounts reported are based on the price of a Teva share on December |
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 81
Executive Compensation
For Mr. Schultz, the equity vesting also applies in the event of death or disability. For Dr. |
Assumes merger, which is the only change in control trigger for additional cash payments, followed by a termination without cause, or by Mr. Schultz with good reason, on December 31, |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 79
Executive Compensation
Accelerated/Continued Equity Vesting Upon Death or Disability
Under our 2015 Long-Term Equity-Based Incentive Plan, upon death or disability, performance awards, such as PSUs, will immediately vest and pay out based on the target level of performance as of the date of termination, RSUs will immediately be vested and settled and options will immediately vest and remain exercisable through the original expiration date. For treatment of Mr. Schultz’ssign-on equity awards upon death or disability, see the summary of his termination terms above.
Under our 2010 Long-Term Equity-Based Incentive Plan, upon death or disability, RSUs, restricted shares and options will continue to vest, as if no termination had occurred, and will remain exercisable through their original expiration date or settle in accordance with the schedule set forth in the applicable award agreement.
Category | Kåre Schultz | Michael McClellan | Dr. Carlo de Notaristefani | Dr. Hafrun Fridriksdottir | Mark Sabag | Kåre Schultz | Eli Kalif | Dr. Hafrun Fridriksdottir | Brendan O’Grady | Gianfranco Nazzi | ||||||||||||||||||||||||||||||
Value (1) | $ | 45,280,738 | $ | 245,126 | $ | 2,093,558 | $ | 1,190,723 | $ | 922,183 |
$
|
26,733,106
|
|
$
|
0
|
|
$
|
2,757,495
|
|
$
|
2,208,097
|
|
$
|
1,579,799
|
| |||||||||||||||
| (1) | Amounts reported are based on the price of a Teva share on December |
Former NEOsMichael McClellan
Pursuant to Mr. McClellan’s employment terms, in connection with his resignation, Mr. McClellan was entitled to receive three months’ notice. Mr. McClellan provided notice and completed his notice period in 2019.
Payments Resulting From TerminationDr. Carlo de Notaristefani
Pursuant to Dr. de Notaristefani’s employment terms, in connection with his termination of employment, Dr. de Notaristefani is entitled to receive nine months’ notice. We may waive Dr. de Notaristefani’s services during such notice period or any part thereof, or accelerate the termination date, on the condition that we pay him his monthly base salary and all additional compensation and benefits in respect of such waived period. Dr. de Notaristefani will complete his notice period during 2020.
Under his employment agreement, Dr. de Notaristefani is entitled to receive cash severance equal to the product of twelve times his monthly base salary ($836,400) and payment of certain costs associated with continued medical insurance for eighteen months ($42,313). Dr. de Notaristefani is also entitled to receive an amount equal to twelve times his monthly base salary ($836,400), in consideration for, and conditioned upon, his undertaking not to compete with Teva for one year following termination and other restrictive covenants. Dr. de Notaristefani is also entitled to continued vesting in full of equity-based awards ($4,011,718 based on the price of a Teva share on December 31, 2019, the last trading day of 2019 and, with respect to PSUs, target performance, except for 2017-2019 PSUs, for which actual performance was used).
All termination payments and benefits in excess of those required to be paid pursuant to applicable law are subject to the execution of a release of claims, and shall immediately terminate without Causefurther obligation of Teva, and Dr. de Notaristefani shall promptly repay Teva any such payments or benefits provided, in the event that he breaches his restrictive covenants.
Category | Erez Vigodman | Dr. Yitzhak Peterburg | Eyal Desheh | Dr. Rob Koremans | Dr. Michael Hayden | |||||||||||||||
Severance payments (1)
|
|
528,836
|
|
|
286,549
|
|
|
967,056
|
|
|
1,641,994
|
|
|
1,658,877
|
| |||||
Non-compete payments (1)
|
|
2,511,139
|
|
|
0
|
|
|
854,289
|
|
|
0
|
|
|
0
|
| |||||
Accrued vacation (1)
|
|
370,195
|
|
|
174,396
|
|
|
113,416
|
|
|
0
|
|
|
335,523
|
| |||||
Health benefits continuation
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
18,666
|
| |||||
Post termination equity vesting (2)
|
|
98,919
|
|
|
1,927,916
|
|
|
1,271,678
|
|
|
1,296,540
|
|
|
560,238
|
| |||||
Total
|
$
|
3,509,089
|
|
$
|
2,388,861
|
|
$
|
3,206,439
|
|
$
|
2,938,534
|
|
$
|
2,573,304
|
| |||||
8280 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Rosemary A. Crane (chair), Jean-Michel Halfon, Gerald M. Lieberman and Nechemia (Chemi) J. Peres. During fiscal year 2017,2019, no member of the Compensation Committee was an employee, officer or former officer of Teva or any of its subsidiaries. During fiscal year 2017,2019, no member of the Compensation Committee had a relationship that must be described under the SEC rules relating to disclosure of related party transactions. During fiscal year 2017,2019, none of our executive officers served on the Board of Directors or compensation committee of any entity that had one or more of its executive officers serving on Teva’s Board of Directors or Compensation Committee.
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 8381
Proposal 2: Advisory Vote on Compensation of Named Executive Officers
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and Schedule 14A of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are providing our shareholders with the opportunity to approve, by advisory vote, the compensation of our named executive officers,NEOs, as disclosed in this proxy statementProxy Statement in accordance with the rules of the SEC.
This proposal, commonly referred to as the“say-on-pay” vote, gives our shareholders the opportunity to express their views on the compensation of our named executive officers.NEOs. This vote is not intended to address any specific item of compensation or any specific named executive officer,NEOs, but rather the overall compensation of our named executive officersNEOs and our executive compensation philosophy, objectives and program, as described in this proxy statement.Proxy Statement. Accordingly, we ask our shareholders to approve the compensation of our named executive officers,NEOs, as disclosed pursuant to Item 402 of RegulationS-K of the Exchange Act in the section entitled “Executive Compensation” of this proxy statement,Proxy Statement, including the Compensation Discussion and Analysis,CD&A, the compensation tables and the related narrative disclosure, by casting anon-binding advisory vote “FOR” the following resolution:
“RESOLVED, that the shareholders of Teva Pharmaceutical Industries Limited approve, on anon-binding advisory basis, the compensation of its named executive officers, as disclosed pursuant to Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.”
As an advisory vote, the result will not be binding on the Board or the Compensation Committee. Thesay-on-pay vote will, however, provide us with important feedback from our shareholders about our executive compensation philosophy, objectives and program. Our Board and the Compensation Committee value the opinions of our shareholders and expect to take into account the outcome of the vote when considering future executive compensation decisions and when evaluating our executive compensation program. Following our 2020 Annual Meeting, the next advisory vote on named executive officer compensation is expected to occur at the 2021 annual meeting, unless the Board of Directors modifies its policy on the frequency of holding such advisory votes.
 |
The Board of Directors recommends that shareholders vote FOR the approval, on anon-binding advisory basis, of the compensation of Teva’s named executive officers, as disclosed in this |
8482 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Proposal 3: Advisory Vote on FrequencyApproval of Advisory Vote on Compensation of Named Executive OfficersTeva’s 2020 Long-Term Equity-Based Incentive Plan
The Dodd-Frank ActBoard of Directors has approved, and Schedule 14Arecommends that shareholders approve, the Company’s 2020 Long-Term Equity-Based Incentive Plan (the “2020 Plan”). The 2020 Plan allows for the grant of restricted shares, RSUs, performance awards, options, share appreciation rights (“SARs”) and other share-based awards.
If approved by our shareholders, the 2020 Plan will serve as the successor to the Company’s 2015 Long-Term Equity-Based Incentive Plan (the “2015 Plan”), which succeeded the Company’s 2010 Long-Term Equity-Based Incentive Plan (the “2010 Plan”) effective September 3, 2015. The 2020 Plan will become effective on July 1, 2020, following its approval by our shareholders. No additional grants may be made under the 2015 Plan upon the earlier of September 2, 2020 (the expiration date of the Exchange Act also enable2015 Plan) and the effective date of the 2020 Plan, and upon the expiration date of the 2015 Plan any remaining shares available for grant thereunder will expire. The maximum number of shares available for delivery in connection with awards under the 2020 Plan will be 68 million shares.
The terms and conditions of the 2015 Plan will continue to govern any outstanding awards granted under the 2015 Plan and the terms and conditions of the 2010 Plan will continue to govern any outstanding awards granted under the 2010 Plan. If the 2020 Plan is not approved by our shareholders, it will not become effective; the 2015 Plan will continue in effect until its expiration date.
As of December 31, 2019, 62.70 million shares remained available for grant under the 2015 Plan. As of such date, awards covering 56.04 million shares were outstanding under the 2015 Plan and the 2010 Plan.
Why Shareholders Should Vote to indicate, at least once every six years, how frequentlyApprove the 2020 Plan
Equity Compensation Is Important in a Competitive Labor Market
In the global pharmaceutical industry, there is significant competition for experienced and educated individuals with the skills necessary to execute our strategy and advance our business. Our success depends on such key employees. To compete in a competitive market for talent, we should seekbelieve that it is important to offer competitive compensation packages that include equity and cash components. Equity compensation is an advisory vote on named executive officerimportant part of our employment value proposition.
Equity Awards Are a Key Part of Our Compensation Program
Equity compensation is a key element of the total compensation we provide because equity grants align our employees’ and directors’ interests with those of our other shareholders, effectuate a culture of ownership among our employees and other recipients and preserve our cash resources. Equity incentives link long-term performance and payouts through the value of our shares. We believe that employees and other recipients with a personal stake in the future success of the Company are motivated to achieve our objectives and increase shareholder value. These unique and valuable aspects of equity compensation have made it a key element of our compensation strategy, and thus we grant equity compensation to multiple levels of our organization to provide opportunities to participate in ownership of the Company.
Equity Compensation Is Important to Talent Acquisition and Retention
Equity compensation is important to our ability to attract, motivate and retain employees and officers and, as noted above, to be successful in the competitive market for highly skilled individuals. We use equity incentives as a key tool to motivate and reward recipients to execute our long-term strategy and, through their equity, share in the shareholder value they create. Long-term equity grants also promote retention because recipients usually must remain in service in order for their equity to vest.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 83
Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
The 2020 Plan Is Intended to Protect Shareholder Interests and Is Consistent with Good Corporate Governance
| ∎ | No liberal share counting or “recycling” of shares. Shares delivered to the Company to pay the exercise price or base price of an award or to satisfy tax withholding obligations, or shares purchased on the open market using option proceeds or shares not issued in connection with a SAR share settlement, will not become available again for issuance under the 2020 Plan. |
| ∎ | Minimum vesting requirements.Subject to limited exceptions, awards granted under the 2020 Plan generally may not vest until the first anniversary of the date of grant (or, if earlier, the next annual meeting of shareholders that occurs 50 weeks or more after the date of grant for awards tonon-employee directors), subject to acarve-out for 5% of the maximum number of shares available under the 2020 Plan that may be granted without regard to theone-year minimum vesting period. |
| ∎ | Payment of dividends only if underlying awards vest. Under the 2020 Plan, dividends and dividend equivalents, if permitted to be earned on any award, will be paid only to the extent that the underlying award vests. |
| ∎ | No single trigger“change-in control” vesting. Grants under the 2020 Plan will vest only on the occurrence of a change in control that is accompanied by certain qualifying terminations of an individual’s employment. |
| ∎ | No repricing. The 2020 Plan prohibits the repricing of awards or the repurchase and/or cancellation of underwater awards in exchange for cash or other awards without shareholder approval. |
| ∎ | No automatic share replenishment or “evergreen” provision. There is no evergreen feature pursuant to which the shares authorized for issuance under the 2020 Plan will be automatically replenished. |
| ∎ | No increase in shares available without shareholder approval. The 2020 Plan prohibits any amendment that operates to increase the total number of shares that may be issued under the plan (other than customary adjustments in connection with certain corporate reorganizations or other events). |
| ∎ | No discounted options or SARs. Options and SARs may not be granted with an exercise or base price lower than the fair market value of the underlying shares on the date of grant (except in connection with substitute awards). |
| ∎ | Clawback. Awards granted under the 2020 Plan are subject to the Company’s clawback and/or recoupment policies. |
| ∎ | Limitation on amendments. No amendments to the 2020 Plan can be made without shareholder approval if any such amendment would require shareholder approval pursuant to applicable law or the applicable rules of the national securities exchange on which the Company’s shares are principally listed. |
| ∎ | Limitation on awards to Office Holders (as defined in the Israeli Companies Law). Unless otherwise determined by the Compensation Committee and approved in accordance with the Israeli Companies Law, any award granted under the 2020 Plan to a director or executive officer is subject to the Company’s Compensation Policy. |
The Size of Our Share Reserve Request Is Reasonable
If our request to approve the 2020 Plan and its share reserve is approved, we will have 68 million shares available for grant after July 1, 2020. We currently anticipate that this reserve will be a sufficient amount of equity for attracting, motivating and retaining employees, directors and consultants for approximately 4 years.
84 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
In addition to the number of shares we plan to reserve for issuance under the 2020 Plan, we also note that the 2020 Plan does not contain a “fungible ratio,” which was included in the 2015 Plan. Under this “fungible ratio,” full-value awards, such as Proposal 2 above. By votingPSUs and RSUs, are charged against the plan limit on this Proposal 3,a higher basis than 1:1 as a means of equating full value awards and options. Absent a fungible ratio, if the Compensation Committee grants full-value awards in the future, they will be charged against the 2020 Plan limit on aone-for-one basis. Where an outstanding award under the 2015 Plan or the 2010 Plan expires or is canceled, forfeited, settled in cash or otherwise terminated without a delivery to the participant of the shares to which the award related, such undelivered shares would return to the 2020 Plan at the same rate at which they were originally charged against the plan limit, notwithstanding that the ratio for new awards would beone-to-one.
Monitoring of Dilution, Burn Rate and Overhang
In connection with contemplating the number of shares to authorize for issuance under the 2020 Plan, the Compensation Committee considered the potential dilution to current shareholders, may indicate whether they would prefer an advisory voteas measured by the burn rate and overhang, and projected future share usage, among other things. The Compensation Committee is cognizant that the Company’s equity compensation programs have a dilutive effect on named executive compensation once every one, two or three years.
After careful consideration, our Board has determined that an advisorysay-on-pay vote should be held annually. Our Board believes that holding asay-on-pay vote annually is the most appropriate option because it will give us more frequent feedback from our shareholders, onand continuously strives to balance this concern with our executiveneed to compete for talent using practices that are prevalent in the market, including equity grants.
Burn Rate
A company’s burn rate shows how rapidly it is depleting its shares reserved for equity compensation philosophy, objectivesawards. We believe that our historical burn rate is reasonable for a company of our size in our industry. We will continue to monitor our equity use in future years in an attempt to ensure that our burn rate is within competitive market norms.
The following table sets forth information regarding historical awards granted for the 2017 through 2019 period, and program,the corresponding burn rate, which we define as the number of shares subject to time-based equity awards granted and performance-based equity awards granted in a year divided by the weighted-average number of ordinary shares outstanding for that year, for each of the last three fiscal years. Our three-year average annual burn rate, calculated using the Institutional Shareholder Services (“ISS”) methodology, is approximately 2.22%, which is well below the ISS burn rate threshold of 8.08% applied to the GICS Pharmaceuticals(3520) sub-industry for 2020.
A | B | B x 2.0 = C | D | (A + C) / D | ||||||
Fiscal Year | Option Awards | Full Value Awards | ISS Adjusted Full Value Awards | Weighted- Average Ordinary Shares Outstanding | Adjusted Burn Rate | |||||
2017 | 15.47 million | 5.46 million | 10.92 million | 1,016 million | 2.60% | |||||
2018 | 12.40 million | 5.90 million | 11.80 million | 1,021 million | 2.37% | |||||
2019 | 0 | 9.30 million | 18.61 million | 1,091 million | 1.70% | |||||
Three-year average | 2.22% |
Overhang
A company’s overhang reflects potential dilution of shareholders’ ownership by actual share-based awards as well as the compensation paid to our named executive officers.
For the reasons discussed above, our Board recommends that you voteshares available for every “1 Year” asgrant. In determining the frequency of futuresay-on-pay votes.
You may cast your advisory vote on the frequency of futuresay-on-pay votes by choosing the option of “1 Year,” “2 Years” or “3 Years,” or you may abstain from voting on this Proposal 3. The option of “1 Year,” “2 Years” or “3 Years” that receives the highest number of votes from shareholders present in person or represented by proxy and entitled to vote at the Annual Meeting will be deemed to be the frequency of futuresay-on-pay votes recommended byshares that would become available under our shareholders. Abstentions will have no effect on this proposal.
While our Board believes that its recommendation is appropriate at this time, the shareholders are not voting to approve or disapprove the recommendation, but are instead asked to recommend, on anon-binding advisory basis, whether thesay-on-pay vote should be held once every one, two or three years.
Our Board and our Compensation Committee value the opinions of our shareholders on this matter and, to the extent there is any significant vote in favor of one time period over another, will take into account the outcome of this vote when making decisions regarding the frequency of holding futuresay-on-pay votes. However, because this vote is advisory and not binding on Teva, the Board or2020 Plan, the Compensation Committee in any way,considered the Board may decide that it is inresulting overhang as an additional metric to measure the best interestscumulative effect of our shareholdersequity compensation.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 85
Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
The following tables set forth information regarding the current and Teva to hold asay-on-pay vote more or less frequently than the option recommended by our shareholders.proposed levels of overhang and dilution.
| As of December 31, 2019 | ||
| 56.04 million | |
Y = shares that remain available for issuance | 62.70 million (will expire upon the effective date of the 2020 Plan) | |
Z = new shares requested | 68.00 million | |
OSO = ordinary shares outstanding | 1,092.19 million |
As of December 31, 2019 | ||||||
Issued overhang | X / OSO | 5.13% | ||||
Current total overhang (“basic dilution”) | (X + Y) / OSO | 10.87% | ||||
Current full dilution | (X + Y) / (OSO + X + Y) | 9.81% | ||||
Total overhang (“basic dilution”) if this Proposal 3 is approved | (X + Z) / OSO | 11.36% | ||||
Full dilution if this Proposal 3 is approved | (X + Z) / (OSO + X + Z) | 10.20% | ||||
Key Data
The following table includes information regarding outstanding equity awards and shares available for future awards under all of our equity incentive plans as of December 31, 2019:
As of December 31, 2019 | ||
Options outstanding | 40.06 million | |
Weighted average exercise price of outstanding options | $37.90 | |
Weighted average remaining term of outstanding options | 5.89 years | |
Full value awards outstanding | 15.98 million | |
Ordinary shares outstanding | 1,092.19 million | |
Note Regarding Forecasts and Forward-Looking Statements
We do not, as a matter of course, make public forecasts as to our total shares outstanding and use of various equity awards due to the unpredictability of the underlying assumptions and estimates. In particular, the forecasts set forth above in this Proposal 3 include embedded assumptions regarding option exercises which are highly dependent on the public trading price of our ordinary shares and other factors, which we do not control and, as a result, we do not, as a matter of practice, provide forecasts. In evaluating these forecasts, our Compensation Committee and our Board recognized the high variability inherent in these assumptions.
The inclusion of the forecasts set forth above should not be regarded as an indication that these forecasts will be predictive of actual future outcomes, and the forecasts should not be relied upon as such. Neither we nor any other person makes any representation to any of our shareholders regarding actual outcomes compared to the information contained in the forecasts set forth above. Actual outcomes may be materially different than those reflected in the forecasts. We do not intend to update or otherwise revise the forecasts to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even if any or all of the assumptions underlying the forecasts are shown to be in error.
86 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
The forecasts are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21A of the Exchange Act. These statements involve risks and uncertainties that could cause actual outcomes to differ materially from those in the forward-looking statements, including our ability to attract and retain talent, achievement of performance metrics, if any, with respect to certain equity awards, the extent of option exercise activity, and others described in this proxy statement.
Summary of the 2020 Plan
The following is a summary of certain material features of the 2020 Plan.
Purpose
The purpose of the 2020 Plan is to assist the Company in (a) attracting, retaining, motivating and rewarding certain key employees, officers and directors of, and consultants to, the Company and its affiliates and (b) promoting the creation of long-term value for shareholders of the Company by closely aligning the interests of such individuals with those of our shareholders. The 2020 Plan will be the primary plan under which equity-based awards are granted on a worldwide basis to “eligible persons” (including employees andnon-employee directors).
Term of the 2020 Plan
If approved by shareholders, the 2020 Plan will be effective as of July 1, 2020 and will be active for 10 years, unless the Board of Directors terminates the 2020 Plan at an earlier date. No awards will be granted under the 2020 Plan on or after July 1, 2030, or on or after such earlier date that the Board of Directors terminates the 2020 Plan, although awards granted under the 2020 Plan may have terms that extend, and awards that may be exercised, beyond those dates.
Shares Available for Issuance Under the 2020 Plan
In general, and subject to adjustment as described below under “Changes in Capital Structure,” the number of ordinary shares, or American Depositary Shares representing ordinary shares (collectively, “Shares”) reserved and available for delivery in connection with awards under the 2020 Plan will be 68 million. Shares delivered under the 2020 Plan will consist of authorized and unissued shares or previously issued shares reacquired by the Company or its affiliates on the open market or by private purchase. No fractional shares will be issued under the 2020 Plan upon the exercise or settlement of any award. Upon the effective date of the 2020 Plan, shares available for issuance under the 2015 Plan will expire and no longer be available for issuance.
Any shares underlying an award granted under the 2020 Plan that are not delivered as a result of an award that has expired, or has been canceled, forfeited, settled in cash or otherwise terminated without delivery to the participant of the full number of shares to which the award related may be used for the grant of additional awards under the 2020 Plan; however, shares withheld from an award in payment of the exercise price, base price or taxes relating thereto, or shares purchased on the open market by the Company or its affiliates using option proceeds or shares not issued in connection with a SAR share settlement, will constitute shares delivered under the 2020 Plan and will not again be available for issuance thereunder. To the extent that any outstanding award granted prior to the effective date of the 2020 Plan under the 2015 Plan or the 2010 Plan expires or is canceled, forfeited, settled in cash or otherwise terminated without a delivery to the participant of the full number of shares to which the award related, the number of Shares that were reduced from the total number of available Shares under the 2015 Plan or 2010 Plan on account of such undelivered shares will increase the maximum number of shares available for grant under the 2020 Plan. Equity-based awards assumed or substituted by the Company or its affiliates as part of a corporate transaction (including, without limitation, from an entity that is merged into or with the Company or any of its affiliates, acquired by the Company or any of its affiliates or otherwise involved in a similar corporate transaction) will not count against the number of shares reserved and available for issuance pursuant to the Plan.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 87
Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
Awards and the shares authorized under the 2020 Plan are subject to adjustment as described below under “Changes in Capital Structure.”
Plan Administration
Except as described below and as required by law, the 2020 Plan will be administered by a committee of the Board of Directors (the “Committee”) consisting of two or more members of the Board of Directors, each of whom will be an “independent director” for purposes of the rules and regulations of the NYSE or other principal United States national securities exchange on which the Company’s shares are listed and traded on the relevant date. Unless otherwise determined by the Board of Directors, the Compensation Committee will act as the Committee. Subject to applicable law, the Committee will have the power to, among other things, allocate shares to each subplan under the 2020 Plan (each a “Subplan” and, collectively, “Subplans”) and determine the types of awards to be granted thereunder, establish policies applicable to awards, approve eligible participants, determine the type or types of incentives to be granted to each participant, and the terms and conditions of any awards granted, and interpret and administer the 2020 Plan or applicable Subplan and any award agreement. The terms and provisions of awards and the related agreements need not be uniform among participants, whether or not such participants are similarly situated. Any action taken or to be taken by the Committee arising out of or in connection with the administration of the 2020 Plan or any Subplan will, to the extent permitted by applicable law, be within its discretion and will be final, binding and conclusive upon the Company, its affiliates and all participants (subject to and consistent with the provisions of the 2020 Plan).
The Committee may delegate its authority to perform certain functions to officers or employees of the Company or its affiliates, to the extent permitted under applicable law.
The Board of Directors retains exclusive authority to approve one or more Subplans that will be established within the parameters and in accordance with the overall terms of the 2020 Plan to facilitate local administration of the 2020 Plan in various jurisdictions in which the Company or its affiliates operate, to conform the 2020 Plan with legal requirements of such jurisdictions or to allow for favorable tax treatment under applicable tax laws.
Eligibility
Directors, employees and consultants of, and persons who have accepted employment with or entered into a service agreement with, the Company or its affiliates who have been approved by the Committee as participants will be eligible to receive awards under the 2020 Plan; except that any such person may not receive payment or exercise any right relating to any award until he or she has commenced employment or service with the Company or its affiliates. However, awards granted to “Office Holders” of the Company (as defined in the Israeli Companies Law) will be subject to the Company’s Compensation Policy, which was adopted by the Company in accordance with the Israeli Companies Law, unless otherwise approved by applicable law.
Types of Awards Available Under the 2020 Plan
Restricted Shares; RSUs; Performance Awards; Options; SARs; Other Share-Based Awards. Restricted shares, RSUs (which are notional units that each represent the right to receive one share (or the cash value thereof, if determined by the Committee) upon a specified settlement date), performance awards, options, SARs and other share-based awards may be granted to participants under the 2020 Plan on such terms and conditions as the Committee may determine, subject to certain limitations imposed by the 2020 Plan. While subject to vesting conditions, restricted shares may not be transferred, sold, pledged or otherwise encumbered.
88 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
The exercise price of each option or SAR will be set by the Committee and may not be less than 100% of the fair market value of one share on the date the option or SAR, as the case may be, is granted. The term of each option or SAR may not exceed 10 years from the date of grant.
Generally, the vesting of awards granted under the 2020 Plan will be subject to the participant’s continued employment or engagement with the Company or an affiliate, as applicable, during a period designated by the Committee at the time of grant. No awards granted under the 2020 Plan may vest, earlier than the first anniversary of the date of grant, and in the case ofnon-employee directors of the Company or its affiliates, earlier than the first anniversary of the date of grant or the next annual meeting of shareholders that occurs 50 weeks or more after the date of grant, subject to (i) acarve-out for 5% of the maximum number of shares available under the 2020 Plan that may be granted without regard to the minimum vesting conditions described below, (ii) any acceleration of vesting in connection with a change in control of the Company (as defined in the 2020 Plan) or certain similar corporate transactions, and (iii) any acceleration of vesting in connection with qualifying terminations of employment. In addition, the Committee may require that certain performance objectives be met for purposes of vesting of awards granted under the 2020 Plan.
Unless otherwise provided in a Subplan or award agreement, or otherwise determined by the Committee, if a participant ceases to be employed by or provide services to the Company or an affiliate, as applicable, for any reason other than death, disability, or by the Company or such affiliate for cause, such participant’s restricted shares, unvested RSUs and unearned and unvested performance awards will be forfeited for no consideration; such participant’s vested RSUs will be settled in accordance with the settlement schedule set forth in the applicable award agreement; and such participant’s options and SARs will remain exercisable, to the extent exercisable at the time of cessation of employment or service, generally for a period not extending beyond 90 days after the date of cessation of employment or service, and in no event beyond the original expiration date of the respective option or SAR. If a participant’s employment is terminated for cause, or the participant resigns in circumstances where the Company or an affiliate, as applicable, is entitled to terminate such participant’s employment for cause, such participant’s unvested restricted shares, RSUs (both vested and unvested) and performance awards (to the extent not yet paid or settled) will be forfeited for no consideration and such participant’s options and SARs (both vested and unvested) will expire immediately. In the event of termination due to death or disability, the participant’s restricted shares and RSUs will become immediately vested and the participant’s performance awards will become immediately vested and paid out based on the target level of performance, and any options or SARs will immediately become vested (with any performance-based options and SARs vesting based on the target level of performance) and will remain exercisable through the original expiration date of such options or SARs.
During the vesting period for restricted shares granted under the 2020 Plan, a participant will generally be entitled to vote such shares. Dividends, if any, with respect to the restricted shares shall be withheld by the Company for the participant’s account, and shall be subject to vesting and forfeiture to the same degree as the restricted shares to which such dividends relate. If so determined in an award agreement or Subplan, dividends or dividend equivalents, if any, with respect to RSUs, performance awards or other share-based awards may accrue and such dividends or dividend equivalents, if any, will be withheld by the Company for the participant’s account, and will be subject to vesting and forfeiture to the same degree as the awards to which such dividends or dividend equivalents relate. No dividends or dividend equivalents will accrue or be paid with respect to options or SARs.
The Committee, subject to applicable law, may grant other awards payable or denominated in shares, which may be granted to eligible persons based on such terms as deemed by the Committee to be consistent with the purposes of the 2020 Plan. The Committee may also grant shares as a bonus, or may grant other awards in lieu of obligations of the Company or an affiliate to pay cash or deliver other property under the 2020 Plan or under other plans or compensatory arrangements, subject to the terms of any Subplan and other terms determined by the Committee.
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Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
Performance Objectives
As noted above, the Committee may condition the grant of restricted shares, RSUs, performance awards, options, SARs or other share-based awards on the satisfaction of performance objectives established by the Committee for participants who have received awards based on performance. A performance objective may consist of a single performance goal or may consist of a requirement to achieve a certain level of performance within a performance category.
Other Information
Amendments to or Termination of the Plan; Amendments to Awards. The Board of Directors may, at any time, and from time to time, amend the 2020 Plan, except that the Board will not, without shareholder approval, make any amendment to the 2020 Plan that requires shareholder approval pursuant to applicable law or the applicable rules of the national securities exchange on which the shares are principally listed, or effect any repricing of awards under the 2020 Plan. The Committee, at any time and from time to time, may amend the terms of any one or more awards, prospectively or retroactively, except that the rights under any award will not be impaired by any such amendment unless the participant consents in writing. The Committee may, without the participant’s consent, amend the terms of any one or more awards if necessary to bring the award into compliance with any applicable tax legislation, rule, regulation or guidance, including, without limitation, Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder. The Board of Directors may suspend or terminate the 2020 Plan at any time.
Transferability. Awards granted under the 2020 Plan are not assignable or transferable, except for limited circumstances upon a participant’s death or as determined by the Committee pursuant to the terms of any written award agreement, in accordance with applicable law, rule or regulation.
Changes in Capital Structure. In the event of any change in the outstanding shares or the capital structure of the Company, the declaration and payment of any extraordinary dividend, or any change in applicable laws or circumstances that result or could result in the substantial dilution or enlargement of participants’ rights, the Committee will equitably and proportionally adjust the aggregate number of shares that may be granted pursuant to awards, the number of shares covered by outstanding awards and the price per share of each award under the 2020 Plan, as applicable, and as determined by the Committee in its sole discretion.
Change in Control Provisions. Under the 2020 Plan, unless otherwise provided in a Subplan, an award agreement or guidelines under the 2020 Plan, or as approved by the Committee, in the event of a change in control of the Company: (i) all outstanding awards will be assumed or substituted in connection with such change in control, with any outstanding performance objectives deemed achieved at the greater of target and actual performance (as determined by the Committee); (ii) awards will be subject to adjustment for a change in capital structure; and (iii) the vesting, payment, purchase or distribution of an award will not be accelerated by reason of the change in control for any participant unless the participant’s employment is involuntarily terminated (other than for cause and including resignation for “good reason” or “constructive termination” or similar term) during thetwo-year period commencing on the change in control.
Events constituting a change in control of the Company or similar corporate transaction under the 2020 Plan generally include (i) a change in the ownership or control of the Company pursuant to which any person acquires more than 50% of the total combined voting power of the Company’s securities; (ii) the replacement of at least a majority of the members of the Board of Directors (other than directors whose election or nomination for election are approved bytwo-thirds of the then-current members of the Board of Directors) within a24-month period; (iii) a merger or consolidation in which the Company is not the surviving entity or in which the Company’s shareholders receive securities of another corporation, cash and/or other property; and (iv) a sale of all or substantially all of the Company’s assets.
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Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
Other Corporate Events. The Committee may provide that all outstanding awards will be assumed and may be subject to the adjustment provisions of the 2020 Plan, in connection with the following corporate events that are not a change in control: (i) a merger involving the Company in which the Company is not the surviving corporation; (ii) a merger involving the Company in which the Company is the surviving corporation but shareholders receive securities of another corporation and/or other property, including cash (iii) a sale, divesture,spin-off or other similar transaction in which any affiliate of the Company ceases to be an affiliate of the Company; (iv) the Company closing a business unit or facility or diminishing its ownership interests so that such operating unit ceases to be majority owned by the Company, with respect to outstanding awards held by participants that experience a termination on account of such event only; or (v) the reorganization or liquidation of the Company.
Withholding.As a condition to the grant, vesting, exercise, sale or other transaction of any award or any other rights associated with an award, the Committee may require that a participant satisfy, through deduction or withholding from any payment due to the participant, or through such other arrangements as are satisfactory to the Committee, the amount of all federal, state, and local income and other taxes or other mandatory payments of any kind required or permitted to be withheld in connection with such transaction, as well as amounts payable to any third party for escrow services and escrow fees, bank fees, exercise fees, account fees and other related fees and expenses.
United States Federal Income Tax Consequences
The following is a brief discussion of the U.S. federal income tax consequences for awards granted under the 2020 Plan. The 2020 Plan is not subject to the requirements of the Employee Retirement Income Security Act of 1974, as amended, and it is not, nor is it intended to be, qualified under Section 401(a) of the Code. This discussion is based on current law, is not intended to constitute tax advice, and does not address all aspects of U.S. federal income taxation that may be relevant to a particular participant in light of his or her personal circumstances and does not describe foreign, state or local tax consequences, which may be substantially different.
Restricted Shares; RSUs; Options; SARs. With respect to restricted shares, RSUs,non-qualified options and SARs, generally no income is realized by a participant at the time the award is granted. Instead, for participants, ordinary income generally is required to be recognized (i) with respect to restricted shares, when the restricted shares vest, (ii) with respect to RSUs, upon the issuance of shares or the payment of cash pursuant to the terms of the RSUs when such RSUs vest and (iii) with respect to options or SARs, when such options or SARs are exercised in an amount equal to the difference between the exercise or base price paid for the shares and the fair market value of the shares on the date of exercise. No options granted under the 2020 Plan will qualify as incentive stock options intended to satisfy the requirements of Section 422 of the Code.
Other Share-Based Awards. The tax effects and treatment related to other share-based awards under the 2020 Plan are dependent upon the structure of the particular award.
Withholding. At the time a participant is required to recognize ordinary compensation income resulting from an award, such income generally will be subject to federal (including any applicable Social Security and Medicare tax) and applicable state and local income tax and applicable tax withholding requirements. The Company generally is required to report to the appropriate taxing authorities the ordinary income received by the participant, together with the amount of taxes withheld to the Internal Revenue Service and the appropriate state and local taxing authorities.
Section 409A. Certain awards under the 2020 Plan may be subject to Section 409A of the Code, which regulates “nonqualified deferred compensation” (as defined in Section 409A of the Code). Section 409A of the Code imposes complex rules on nonqualified deferred compensation arrangements, including requirements with respect to elections to defer compensation and the timing of payment of deferred
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Proposal 3: Approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan
amounts. If an award under the 2020 Plan (or any other Company plan) that is subject to Section 409A of the Code is not administered in compliance with Section 409A of the Code, then all compensation under the 2020 Plan that is considered “nonqualified deferred compensation” (and awards under any other Company plan that are required, pursuant to Section 409A of the Code, to be aggregated with the award under the 2020 Plan) with respect to a participant may be taxable to the participant as ordinary income in the year of the violation, or if later, the year in which the compensation subject to the award is no longer subject to a substantial risk of forfeiture. In addition, the participant may be subject to an additional tax equal to 20% of the compensation that is required to be included in income as a result of the violation, plus interest from the date that the compensation subject to the award was required to be included in taxable income.
New Plan Benefits
Because awards to be granted in the future under the 2020 Plan are generally at the discretion of the Committee, it is generally not possible to determine the benefits or the amounts received or that will be received under the 2020 Plan by eligible participants other than the awards described below. As of December 31, 2019, 10 executive officers, 10non-employee members of the Board of Directors and approximately 3,000 other employees and consultants were eligible to participate in the 2020 Plan. As of December 31, 2019, the closing price of the Company’s ordinary shares was $9.80. If the 2020 Plan is approved by our shareholders, the Company is expected to make the following annual grants to its CEO Kåre Schultz andnon-employee members of the Board of Directors under the 2020 Plan:
Name and Position | Dollar Value ($) | Number of Units—Type of Award | ||
Kåre Schultz, President and CEO (1) | 6,000,000 (2) | To be determined | ||
Non-Employee Members of the Board of Directors (3) | 1,440,000 (4) | To be determined—RSUs |
| (1) | Pursuant to section 4.2 of Mr. Schultz’s employment agreement, dated September 7, 2017, and filed as an exhibit to the Company’s Annual Report on Form10-K for the year ended December 31, 2019, Mr. Schultz is entitled to an annual equity award with a target grant date fair value of $6,000,000, subject to the terms of the 2015 Plan (or any successor thereto). The award may take the form of stock options, performance stock units and/or restricted stock units and may have terms and conditions (including vesting conditions and performance conditions) determined by the Committee in its discretion. |
| (2) | If Proposal 4 set forth in this Proxy Statement is approved by shareholders, the amount will be $10,000,000. The shareholder vote to approve Proposal 4 is separate from the shareholder vote to approve this Proposal 3. |
| (3) | Pursuant to the shareholder approvednon-employee director compensation structure described in Proposal 4 of the Company’s Definitive Proxy Statement filed on April 16, 2019, eachnon-employee director who is in office immediately following any annual general meeting of shareholders of the Company will be granted RSUs with an approximate aggregate fair market value of $160,000 as of the date of grant. |
| (4) | Assuming nine directors excluding the CEO. |
The overview above is a summary of material provisions included in Teva’s proposed 2020 Plan and is qualified in its entirety by reference to the full text of Teva’s proposed 2020 Plan, which is attached hereto asAppendix A.
|
The Board of Directors recommends that shareholders vote |
92 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 85
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Background
As required by the Israeli Companies Law, the Company seeks shareholder approval of our proposal to amend the terms of office and employment of our President and CEO, Mr. Kåre Schultz.
In September 2017, our Board appointed Mr. Schultz as President and CEO based on his experience as a leader with extensive global pharmaceutical experience and a strong track record in corporate turnarounds, as well as in driving growth and leading international expansion.
During his tenure to date, Mr. Schultz has successfully executed ourtwo-year restructuring plan, reduced the Company’s spend base by $3 billion, reduced debt and overseen the launch of new products, as described in more detail below. Through these achievements, Mr. Schultz has demonstrated his commitment to taking actions aimed at generating shareholder value and has positioned the Company for a return to growth. The Compensation Committee and the Board continue to believe that Mr. Schultz is best-suited to lead the organization forward at this critical juncture. To that end, the Compensation Committee and the Board seek to (i) extend the initial term of Mr. Schultz’s employment agreement by one year (from November 2022 to November 2023), which Mr. Schultz has agreed to do, and (ii) in light of Mr. Schultz agreeing to extend the term of his employment, amend his agreement to increase the performance-based portion of his target annual long-term incentive equity award and provide Mr. Schultz with the right to retain, subject to his continued compliance with certain restrictive covenants, annual long-term incentive equity awards in connection with certain qualifying terminations of employment described below. The Compensation Committee and the Board believe that the proposed changes establish an overall compensation program that motivates and retains Mr. Schultz through our turnaround period, within the bounds of market practices among our peer group.
Approval Requirements Under Israeli Law
The Israeli Companies Law provides that any arrangement between a company and a chief executive officer, who also serves as a director, relating to his or her compensation must be consistent with the company’s compensation policy and requires the approval of the compensation committee, the board of directors and the shareholders by a simple majority, in that order. Accordingly, the employment agreement amendments described above, which were approved, and recommended for shareholder approval, by our Compensation Committee and Board, also require shareholder approval at the Annual Meeting.
Unlike our“say-on-pay” vote, the shareholder vote on this matter is binding under Israeli law and is not merely advisory. If this Proposal 4 is not approved by the affirmative vote of our shareholders, the Company will NOT be authorized to enter into the amendment to employment agreement or award the additional equity value to our President & CEO in 2020 or thereafter.
Overall Compensation Strategy
In order to accomplish our key corporate objectives, we must attract, motivate and retain highly skilled and experienced people to execute our corporate strategy and lead our team. To that end, our executive officer compensation program is designed to:
| (i) | link pay to performance; |
| (ii) | align executive officers’ interests with those of Teva and its shareholders over the long term; |
| (iii) | provide competitive compensation to attract and retain talent; and |
| (iv) | encourage balanced risk management. |
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Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Compensation Policy under the Israeli Companies Law. As required by the Israeli Companies Law, at our 2019 annual meeting of shareholders, our shareholders approved an update to our Compensation Policy regarding the terms of office and employment that can be offered to our “office holders” (as defined under the Israeli Companies Law), which includes the President and CEO, including cash compensation, equity-based awards and other items. Pursuant to the Israeli Companies Law, arrangements between Teva and our President and CEO must generally be consistent with the Compensation Policy.
CEO Performance Assessment
In seeking to amend the President and CEO’s employment agreement, the Compensation Committee and the Board evaluated the performance of our President and CEO, in his first two years, including the following:
| ∎ | We successfully achieved our goal of reducing our total spend base by $3 billion as a result of our comprehensivetwo-year restructuring plan; |
| ∎ | We reduced our net debt by 21% to $24.9 billion at the end of 2019, compared to $31.5 billion at the end of 2017; |
| ∎ | Sales of AUSTEDO® for Huntington’s disease and other movement disorders continue to grow rapidly, with $412 million in revenues in the U.S. in 2019, an increase of 102% compared to 2018; |
| ∎ | We launched AJOVY® for the preventive treatment of migraines in adults in the U.S. in 2018, and in Europe in 2019, and we secured auto-injector approval in the U.S and Europe; and |
| ∎ | In November 2019, we launched TRUXIMA®, our first oncology biosimilar product in the U.S. and the first rituximab biosimilar to be approved in the U.S. |
Mr. Schultz has led all of these accomplishments and in so doing has positioned the Company for future growth. The Committee and the Board of Directors also considered the share price performance during Mr. Schultz’s tenure and noted certain factors contributing to external pressure on the Company’s share price, such as the opioid and alleged price-fixing litigations in the U.S., both of which involve events that largely predate Mr. Schultz’s tenure.
Benchmark Positioning Relative to Market Median
In order to understand how the level of President and CEO annual total direct compensation, and its individual components, compares to market practice of our peers, the Compensation Committee and the Board reviewed the President and CEO’s total direct compensation, including base salary, annual incentive target opportunity and actual payout, total cash compensation, annual long-term incentive equity target opportunity and actual payout, excluding any one time cash and equity awards, relative to the opportunities and amounts delivered to chief executive officers at companies in our peer group, as presented in a benchmark study prepared by Willis Towers Watson.
We continue to use the same peer group for benchmarking purposes, including publicly traded global companies from the pharmaceutical and biotechnology sectors with comparable revenues and size to Teva. The peer group contains 15 companies including AbbVie Inc., Allergan plc, Amgen Inc., Astellas Pharma Inc., AstraZeneca plc, Biogen Inc., Bristol-Myers Squibb Company, Eli Lilly and Company, Gilead Sciences Inc., GlaxoSmithKline plc, Merck KGaA, Mylan NV, Novo Nordisk A/S, Sanofi and Takeda Pharmaceutical Company Ltd.
The Compensation Committee and the Board also considered the Company’s compensation philosophy and objectives, internal fairness and market trends, and other relevant factors as required by law and the Compensation Policy. The Compensation Committee and the Board considered the pastsign-on cash and
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Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
equity awards granted to Mr. Schultz in 2017 and determined that they should not be included in the analysis as they wereone-time awards provided to Mr. Schultz to induce him to join the Company during challenging times.
The Compensation Committee and the Board’s review of the Willis Towers Watson study indicated that the President and CEO’s target annual total direct compensation of $10.8 million, which complied with the shareholder-approved Compensation Policy, was significantly below competitive market levels as a result of the CEO’s target annual long-term incentive equity component of $6.0 million being set substantially below the peer median. The Compensation Committee and the Board also considered the fact that since Mr. Schultz’s date of hire in 2017, no increases have been provided to the President and CEO’s target annual total direct compensation or to any component thereof.
For a detailed description of the compensation of our President and CEO, please see “Executive Compensation—Compensation Discussion and Analysis” above.
Proposed Amendments to Mr. Schultz’s Agreement
Extension of Employment Agreement Term. The Compensation Committee and the Board believe that Mr. Schultz is best-suited to lead the Company at this time, and in seeking to ensure the services of Mr. Schultz through a longer time horizon, the Company proposes to enter into an amendment to Mr. Schultz’s existing employment agreement that extends the initial term of Mr. Schultz’s employment by one year to a sixth year, from November 1, 2022 to November 1, 2023.
Align Target Annual Total Direct Compensation with Market Median. In general, the Compensation Committee and the Board seek to align executive officer compensation with the market median range in order to be able to attract, motivate and retain experienced executive talent who are critical to our long-term success, and especially so with the President and CEO.
The Compensation Committee and the Board reviewed the target annual total direct compensation of the President and CEO and each of its components. As described above, the Compensation Committee and the Board determined that the President and CEO’s target annual total direct compensation and target long-term incentive equity award were positioned below market median. In order to bring target annual total direct compensation to the market median range for the duration of the President and CEO’s tenure, and in accordance with our pay for performance and shareholder alignment philosophy, the Compensation Committee and the Board propose to increase the target grant date fair value of the President and CEO’s annual long-term incentive equity award by $4 million, all of which would vest solely subject to achievement ofpre-established performance metrics designed to further align the President and CEO’s interests with those of Teva’s shareholders. The resulting total target long-term incentive equity grant would remain below the limit set forth in the Company’s Compensation Policy as approved by shareholders.
No increases are proposed to the President and CEO’s annual base salary or annual cash incentive target opportunity. The pay mix, which in 2019 consisted of approximately 82% variable,at-risk pay, would increase to approximately 86% variable,at-risk pay. If this Proposal 4 is approved, his long-term incentive equity award (based on the 2019 allocation of the long-term incentive equity grants of 50% PSUs and 50% RSUs) would be increased to, in total, an award that is 70% performance-based.
| Base Salary | Target Annual Incentive | PSUs | RSUs | Target Total Compensation | ||||||||||
2019 | $2,000,000 | $2,800,000 | $3,000,000 | $3,000,000 | $10,800,000 | |||||||||
Proposed Additional Performance-Based Equity | $4,000,000 | |||||||||||||
Proposed 2020 | $2,000,000 | $2,800,000 | $7,000,000 | $3,000,000 | $14,800,000 | |||||||||
Proposed Pay Mix | 14% | 19% | 47% | 20% | ||||||||||
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Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Post-Termination Equity Treatment. As part of the extension of the employment agreement, the Compensation Committee also approved a revision to Mr. Schultz’s employment agreement to change the treatment of outstanding long-term incentive awards upon certain qualifying terminations of employment. Following the effective date of the employment agreement amendment, in the event Mr. Schultz incurs a termination of employment with the Company (a) by the Company without “cause”, (b) by Mr. Schultz for “good reason”, (c) following the Company’s decision not to renew the employment agreement, or (d) by Mr. Schultz following his decision not to renew the employment agreement due to his retirement, defined as a cessation to work as an employee in a full-time managerial capacity for anyfor-profit organization, any then-outstanding long-term incentive equity grants (both time and performance-based equity grants) would continue to vest following such a termination of employment in accordance with their terms. Continued vesting following a qualifying termination of employment will be subject to Mr. Schultz’s continued compliance with thenon-compete,non-solicitation,non-disparagement and confidentiality covenants contained within his employment agreement. In addition, following the amendment to Mr. Schultz’s employment agreement, thenon-compete covenant will also apply following a termination of employment due to the Company’s decision not to renew the employment agreement and following Mr. Schultz’s decision not to renew the employment agreement due to his retirement.
SeeAppendix B to this Proxy Statement for the proposed amendment to Mr. Schultz’s employment agreement.
Additional Long-Term Incentive Equity Opportunity Value is Exclusively Performance-Based
In order to further enhance the link between pay and performance and promote the alignment of the interests of the President and CEO with those of Teva’s shareholders, the Compensation Committee and the Board allocate a substantial portion of target annual total direct compensation to long-term incentive equity grants. In 2019, 50% of the long-term incentive equity granted to the President and CEO was in the form of PSUs. If this Proposal 4 is approved, and based on the current allocation of the long-term incentive equity grants of 50% PSUs and 50% RSUs, 70% of future annual long-term incentive equity grants to the President and CEO will be performance-based and awarded in the form of PSUs while 30% will be awarded in the form of RSUs.
If this Proposal 4 is approved by the shareholders, the Company will grant the President and CEO, following the Annual Meeting, in addition to the RSUs and PSUs already granted as part of the 2020 annual grant in February 2020, an additional equity grant with target grant date fair value of $4 million in the form of PSUs, with the same performance targets, vesting and other terms as the PSUs granted at the 2020 annual grant, except for the vesting which will start at the grant date. The 2020 performance targets, as approved by our Compensation Committee and Board, are rigorous and challenging, requiring threshold level of 85% of target for each metric in order for the President and CEO to earn any PSUs for the respective metric, in addition to meeting relative TSR goals. The value of the PSUs also depends on the price of Teva shares.
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Type of Long- | Proportion | Vesting Schedule | Performance | Rationale for Use of Performance Metric | ||||
1) 2020-2022non-GAAP Operating Profit (50%) | 1) Leading indicator of profitability, expense control and sustained long-term performance. | |||||||
Performance Share Units | 70% | Three-year cliff vesting | 2) 2020-2022 Net Revenue (50%) | 2) Serves to focus executive officers on top line growth. | ||||
| 3) 2020-2022 Relative TSR (Modifier) | 3) Strong performance as measured by the other two operating metrics is fully rewarded only if it also results in above median shareholder returns. The relative TSR modifier for the 2020 award decreases or increases the average earning percentage by up to 20%. |
Responsible Use of Equity
A company’s burn rate shows how rapidly it is depleting its shares reserved for equity compensation awards. We believe that our historical burn rate is quite reasonable for a company of our size in our industry. Our three-year average burn rate, calculated using the ISS methodology, is approximately 2.19%, which is lower than the ISS burn rate threshold of 8.08% applied to the GICS Pharmaceuticals(3520) sub-industry for 2020. We will continue to monitor our equity use in future years to ensure that our burn rate is within competitive market norms.
Share Ownership Guidelines; Clawback Policy
Mr. Schultz is subject to the Company’s share ownership guidelines, which require the President and CEO to hold 6x base salary in Teva’s equity to further strengthen the alignment of interests between the CEO and our shareholders.
Mr. Schultz is also required to return any compensation paid to him on the basis of results included in financial statements that turned out to be erroneous and that were subsequently restated, during the three-year period following filing thereof. In addition, in the event that it is discovered that he engaged in conduct that resulted in a material inaccuracy in Teva’s financial statements or caused severe financial or reputational damage to Teva, or in the event that it is discovered that he breached confidentiality and/ornon-compete obligations to Teva (as determined by the Company), the Company shall have broad remedial and disciplinary authority.
For additional details on our stock ownership guidelines and clawback policy, see Compensation Discussion and Analysis in this Proxy Statement.
Conclusion and Proposed Resolution
The Compensation Committee and the Board believe that it is in the best interests of the Company and our shareholders to enter into the amendment to the employment agreement with Mr. Schultz to secure the services of Mr. Schultz as the Company seeks a return to growth, bring his target annual total direct compensation and long-term incentive equity awards in line with the market median range and provide a performance-based incentive that aligns with the interests of shareholders and links pay to performance.
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Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
If this Proposal 4 is not approved, it could affect our ability to execute on our executive compensation program including motivating Mr. Schultz and retaining him over a longer period of time.
As noted above, unlike our“say-on-pay,” the shareholder vote on this matter is binding under Israeli law and is not merely advisory. If this Proposal 4 is not approved by the affirmative vote of our shareholders, the Company will NOT be authorized to enter into the amendment to employment agreement or award the additional equity value to our President & CEO in 2020 or thereafter.
| The Board of Directors recommends that shareholders vote FOR an amendment to the terms of office and employment of Teva’s President and CEO as described herein. |
98 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 5: Approval of an Amendment to Teva’s Articles of Association
Our Board of Directors believes that it should be composed of directors with diverse, complementary backgrounds with proven leadership capabilities and experience, and with a high level of expertise within their chosen fields. Given our growing need to identify candidates with broad experience in global markets outside of Israel and in the global pharmaceutical industry, the Corporate Governance and Nominating Committee and our Board of Directors view the requirement for a majority of Board members to be Israeli residents as constraining the Company’s ability to identify the best candidates. Therefore, we are asking shareholders to approve an amendment to Teva’s Articles of Association, which would eliminate the requirement that a majority of the members of our Board of Directors shall be residents of Israel, as well as two other provisions that no longer bear on the governance of Teva and are no longer necessary under the Israeli Companies Law due to amendments to the law over the years.
The current text of Article 59 states:
| “a) | A Director shall not be required to hold any shares whatsoever in the Company. |
| b) | A corporation is not qualified to serve as a Director of the Company. |
| c) | The majority of the members of the Board of Directors shall be residents of Israel, unless the Company’s center of management shall have been transferred to another country in accordance with the provisions of these Articles.” |
The complete text of Article 59, as amended (English translation of official Hebrew original which is attached hereto asAppendix C), will read:
“The Board shall consist of a meaningful representation of Israeli resident directors, which need not be a majority, unless the Company’s center of management shall have been transferred to another country in accordance with the provisions of these Articles.”
Teva is proud of its Israeli heritage and committed to upholding this legacy and connection through its approach to corporate governance and in many other manners. However, after careful consideration, the Board believes that the Company and its shareholders would be best served by a more relaxed requirement for Israeli representation on the Board. Replacing the current majority requirement with that of “meaningful representation of Israeli residents” will afford the Board greater flexibility in director recruitment—facilitating the constitution of a Board with appropriate expertise for Teva, both geographically and otherwise. Still, the requirement of meaningful Israeli representation affirms Teva’s longstanding commitment to Israel and assures that this heritage will be appropriately accounted for in governance decisions.
Candidates for Teva’s Board are selected for their integrity, experience, leadership and ability to exercise sound judgment. The Board considers candidates representing a diversity of backgrounds, perspectives, ethnicity and genders. When selecting candidates, the Board will also assess and ensure that a meaningful representation of Israeli residents is maintained.
In addition, Teva proposes to remove the provision specifying that Directors are not required to hold Teva shares, and the provision that a corporation is not qualified to serve as a Director of the Company. These items relate to provisions that are no longer necessary under the Israeli Companies Law due to amendments to the law over the years.
If this Proposal 5 is not approved by our shareholders, and the composition of our Board following the Annual Meeting would not otherwise comply with our Articles of Association due to a majority of the members of the Board not being residents of Israel, then we expect that the Board will appoint individuals who are Israeli residents to fill such vacancies in such number as is required so that a majority of the members of the Board are residents of Israel.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 99
Proposal 5: Approval of an Amendment to Teva’s Articles of Association
The Hebrew language version of Teva’s Articles of Association is the binding version. The English translation above is for convenience purposes only.
| The Board of Directors recommends that shareholders vote FOR the amendment to Teva’s Articles of Association as described herein. |
100 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 6: Appointment of Independent Registered Public Accounting Firm
The Audit Committee recommends that, as required under Israeli law, shareholders appoint Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited (“PwC”), as Teva’s independent registered public accounting firm until the 2019 Annual MeetingTeva’s 2021 annual meeting of Shareholders.shareholders. PwC has been our independent registered public accounting firm since at least 1976, when Teva Pharmaceutical Industries Limited was established through the merger of several predecessor companies.1976.
Pursuant to Teva’s Articles of Association, the Board of Directors is authorized to fixdetermine the remuneration of Teva’s independent registered public accounting firm.
Representatives of PwC are expected to be present at the Annual Meeting and will also be available to respond to questions from shareholders. They also will have the opportunity to make a statement if they desire to do so.
Audit Committee Report
The Audit Committee has reviewed and discussed with management Teva’s audited consolidated financial statements as of and for the year ended December 31, 2017.2019.
The Audit Committee has also discussed with Kesselman & Kesselman the matters required to be discussed by the Public Company Accounting Oversight Board (PCAOB)(“PCAOB”) Auditing Standard No. 1301, Communications with Audit Committees.
The Audit Committee has received and reviewed the written disclosures and the letter from Kesselman & Kesselman required by the applicable requirements of the PCAOB regarding Kesselman & Kesselman’s communication with the Audit Committee concerning independence and has discussed with Kesselman & Kesselman their independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements referred to above be included in Teva’s Annual Reporton Form 10-K for the year ended December 31, 20172019 for filing with the SEC.
Audit Committee of the Board of Directors
Gerald M. Lieberman, Chair
Amir Elstein
Murray A. Goldberg
Galia Maor
Dan S. SuesskindRoberto A. Mignone
Policy onPre-Approval of Audit andNon-Audit Services of Independent Auditors
Teva’s Audit Committee is responsible for overseeing the work of its independent auditors. The Audit Committee’s policy is topre-approve all audit andnon-audit services provided by PwC and other members of PricewaterhouseCoopers International Limited. These services may include audit services, audit-related services, tax services and other services, as further described below. The Audit Committee sets forth the basis for itspre-approval in detail, listing the particular services or categories of services which arepre-approved, and setting forth a specific budget for such services. Tax services and otherOther services are approved by the Audit Committee on an individual basis. Once services have beenpre-approved, PwC and management then report to the Audit Committee on a periodic basis regarding the extent of services
86 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Proposal 4: Appointment of Independent Registered Public Accounting Firm
actually provided in accordance with the applicablepre-approval, and regarding the fees for the services performed. Such fees for 20172019 and 20162018 werepre-approved by the Audit Committee in accordance with these procedures.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 101
Proposal 6: Appointment of Independent Registered Public Accounting Firm
Principal Accountant Fees and ServicesNew Plan Benefits
Teva paidBecause awards to be granted in the following fees for professional services renderedfuture under the 2020 Plan are generally at the discretion of the Committee, it is generally not possible to determine the benefits or the amounts received or that will be received under the 2020 Plan by PwC andeligible participants other members of PricewaterhouseCoopers International Limited, forthan the years ended December 31, 2017 and 2016:
| 2017 | 2016 | |||||||
| (U.S. $ in thousands) | ||||||||
Audit fees | $ | 16,500 | $ | 18,495 | ||||
Audit-related fees | 482 | 505 | ||||||
Tax fees | 4,025 | 8,490 | ||||||
All other fees | 325 | 623 | ||||||
Total | $ | 21,332 | $ | 28,113 | ||||
The audit fees for the years ended December 31, 2017 and 2016 were for professional services rendered for the integrated audit of Teva’s annual consolidated financial statements and its internal control over financial reporting asawards described below. As of December 31, 20172019, 10 executive officers, 10non-employee members of the Board of Directors and 2016, reviewapproximately 3,000 other employees and consultants were eligible to participate in the 2020 Plan. As of consolidated quarterly financial statements, statutory audits of Teva and its subsidiaries, issuance of comfort letters, consents and assistance with review of documents filed with the SEC, as well as the audit of carve out financial statements prepared in connection with certain divestment activities.
The Audit-related fees for the years ended December 31, 2017 and 2016 were paid for2019, the closing price of the Company’s ordinary shares was $9.80. If the 2020 Plan is approved by our shareholders, the Company is expected to make the following services: due diligence relatedannual grants to mergersits CEO Kåre Schultz and acquisitions, accounting consultations and employee benefit plan audits, internal control reviews, attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.non-employee members of the Board of Directors under the 2020 Plan:
Tax fees for the years ended December 31, 2017 and 2016 were paid for the following services: services related to tax compliance, including the preparation of tax returns and claims for refund, tax planning and tax advice, including assistance with tax audits and appeals, advice related to mergers and acquisitions, tax services for employee benefit plans and assistance with respect to requests for rulings from tax authorities.
All other fees for the years ended December 31, 2017 and 2016 were paid mainly for an internal control review associated with the design and implementation plans of an ERP system, as well as for license fees for the use of accounting research tools and training regarding general financial reporting developments.
Name and Position | Dollar Value ($) | Number of Units—Type of Award | ||
Kåre Schultz, President and CEO (1) | 6,000,000 (2) | To be determined | ||
Non-Employee Members of the Board of Directors (3) | 1,440,000 (4) | To be determined—RSUs |
| (1) | Pursuant to section 4.2 of Mr. Schultz’s employment agreement, dated September 7, 2017, and filed as an exhibit to the Company’s Annual Report on Form10-K for the year ended December 31, 2019, Mr. Schultz is entitled to an annual equity award with a target grant date fair value of $6,000,000, subject to the terms of the 2015 Plan (or any successor thereto). The award may take the form of stock options, performance stock units and/or restricted stock units and may have terms and conditions (including vesting conditions and performance conditions) determined by the Committee in its discretion. |
| (2) | If Proposal 4 set forth in this Proxy Statement is approved by shareholders, the amount will be $10,000,000. The shareholder vote to approve Proposal 4 is separate from the shareholder vote to approve this Proposal 3. |
| (3) | Pursuant to the shareholder approvednon-employee director compensation structure described in Proposal 4 of the Company’s Definitive Proxy Statement filed on April 16, 2019, eachnon-employee director who is in office immediately following any annual general meeting of shareholders of the Company will be granted RSUs with an approximate aggregate fair market value of $160,000 as of the date of grant. |
| (4) | Assuming nine directors excluding the CEO. |
The Audit Committee believes thatoverview above is a summary of material provisions included in Teva’s proposed 2020 Plan and is qualified in its entirety by reference to the provisionfull text of allnon-audit services renderedTeva’s proposed 2020 Plan, which is compatible with maintaining PwC’s independence.attached hereto asAppendix A.
 | The Board of Directors recommends that shareholders vote FOR the approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan, substantially in the |
92 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Background
As required by the Israeli Companies Law, the Company seeks shareholder approval of our proposal to amend the terms of office and employment of our President and CEO, Mr. Kåre Schultz.
In September 2017, our Board appointed Mr. Schultz as President and CEO based on his experience as a leader with extensive global pharmaceutical experience and a strong track record in corporate turnarounds, as well as in driving growth and leading international expansion.
During his tenure to date, Mr. Schultz has successfully executed ourtwo-year restructuring plan, reduced the Company’s spend base by $3 billion, reduced debt and overseen the launch of new products, as described in more detail below. Through these achievements, Mr. Schultz has demonstrated his commitment to taking actions aimed at generating shareholder value and has positioned the Company for a return to growth. The Compensation Committee and the Board continue to believe that Mr. Schultz is best-suited to lead the organization forward at this critical juncture. To that end, the Compensation Committee and the Board seek to (i) extend the initial term of Mr. Schultz’s employment agreement by one year (from November 2022 to November 2023), which Mr. Schultz has agreed to do, and (ii) in light of Mr. Schultz agreeing to extend the term of his employment, amend his agreement to increase the performance-based portion of his target annual long-term incentive equity award and provide Mr. Schultz with the right to retain, subject to his continued compliance with certain restrictive covenants, annual long-term incentive equity awards in connection with certain qualifying terminations of employment described below. The Compensation Committee and the Board believe that the proposed changes establish an overall compensation program that motivates and retains Mr. Schultz through our turnaround period, within the bounds of market practices among our peer group.
Approval Requirements Under Israeli Law
The Israeli Companies Law provides that any arrangement between a company and a chief executive officer, who also serves as a director, relating to his or her compensation must be consistent with the company’s compensation policy and requires the approval of the compensation committee, the board of directors and the shareholders by a simple majority, in that order. Accordingly, the employment agreement amendments described above, which were approved, and recommended for shareholder approval, by our Compensation Committee and Board, also require shareholder approval at the Annual Meeting.
Unlike our“say-on-pay” vote, the shareholder vote on this matter is binding under Israeli law and is not merely advisory. If this Proposal 4 is not approved by the affirmative vote of our shareholders, the Company will NOT be authorized to enter into the amendment to employment agreement or award the additional equity value to our President & CEO in 2020 or thereafter.
Overall Compensation Strategy
In order to accomplish our key corporate objectives, we must attract, motivate and retain highly skilled and experienced people to execute our corporate strategy and lead our team. To that end, our executive officer compensation program is designed to:
| (i) | link pay to performance; |
| (ii) | align executive officers’ interests with those of |
| (iii) | provide competitive compensation to attract and retain talent; and |
| (iv) | encourage balanced risk management. |
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 8793
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Compensation Policy under the Israeli Companies Law. As required by the Israeli Companies Law, at our 2019 annual meeting of shareholders, our shareholders approved an update to our Compensation Policy regarding the terms of office and employment that can be offered to our “office holders” (as defined under the Israeli Companies Law), which includes the President and CEO, including cash compensation, equity-based awards and other items. Pursuant to the Israeli Companies Law, arrangements between Teva and our President and CEO must generally be consistent with the Compensation Policy.
CEO Performance Assessment
In seeking to amend the President and CEO’s employment agreement, the Compensation Committee and the Board evaluated the performance of our President and CEO, in his first two years, including the following:
| ∎ | We successfully achieved our goal of reducing our total spend base by $3 billion as a result of our comprehensivetwo-year restructuring plan; |
| ∎ | We reduced our net debt by 21% to $24.9 billion at the end of 2019, compared to $31.5 billion at the end of 2017; |
| ∎ | Sales of AUSTEDO® for Huntington’s disease and other movement disorders continue to grow rapidly, with $412 million in revenues in the U.S. in 2019, an increase of 102% compared to 2018; |
| ∎ | We launched AJOVY® for the preventive treatment of migraines in adults in the U.S. in 2018, and in Europe in 2019, and we secured auto-injector approval in the U.S and Europe; and |
| ∎ | In November 2019, we launched TRUXIMA®, our first oncology biosimilar product in the U.S. and the first rituximab biosimilar to be approved in the U.S. |
Mr. Schultz has led all of these accomplishments and in so doing has positioned the Company for future growth. The Committee and the Board of Directors also considered the share price performance during Mr. Schultz’s tenure and noted certain factors contributing to external pressure on the Company’s share price, such as the opioid and alleged price-fixing litigations in the U.S., both of which involve events that largely predate Mr. Schultz’s tenure.
Benchmark Positioning Relative to Market Median
In order to understand how the level of President and CEO annual total direct compensation, and its individual components, compares to market practice of our peers, the Compensation Committee and the Board reviewed the President and CEO’s total direct compensation, including base salary, annual incentive target opportunity and actual payout, total cash compensation, annual long-term incentive equity target opportunity and actual payout, excluding any one time cash and equity awards, relative to the opportunities and amounts delivered to chief executive officers at companies in our peer group, as presented in a benchmark study prepared by Willis Towers Watson.
We continue to use the same peer group for benchmarking purposes, including publicly traded global companies from the pharmaceutical and biotechnology sectors with comparable revenues and size to Teva. The peer group contains 15 companies including AbbVie Inc., Allergan plc, Amgen Inc., Astellas Pharma Inc., AstraZeneca plc, Biogen Inc., Bristol-Myers Squibb Company, Eli Lilly and Company, Gilead Sciences Inc., GlaxoSmithKline plc, Merck KGaA, Mylan NV, Novo Nordisk A/S, Sanofi and Takeda Pharmaceutical Company Ltd.
The Compensation Committee and the Board also considered the Company’s compensation philosophy and objectives, internal fairness and market trends, and other relevant factors as required by law and the Compensation Policy. The Compensation Committee and the Board considered the pastsign-on cash and
94 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
equity awards granted to Mr. Schultz in 2017 and determined that they should not be included in the analysis as they wereone-time awards provided to Mr. Schultz to induce him to join the Company during challenging times.
The Compensation Committee and the Board’s review of the Willis Towers Watson study indicated that the President and CEO’s target annual total direct compensation of $10.8 million, which complied with the shareholder-approved Compensation Policy, was significantly below competitive market levels as a result of the CEO’s target annual long-term incentive equity component of $6.0 million being set substantially below the peer median. The Compensation Committee and the Board also considered the fact that since Mr. Schultz’s date of hire in 2017, no increases have been provided to the President and CEO’s target annual total direct compensation or to any component thereof.
For a detailed description of the compensation of our President and CEO, please see “Executive Compensation—Compensation Discussion and Analysis” above.
Proposed Amendments to Mr. Schultz’s Agreement
Extension of Employment Agreement Term. The Compensation Committee and the Board believe that Mr. Schultz is best-suited to lead the Company at this time, and in seeking to ensure the services of Mr. Schultz through a longer time horizon, the Company proposes to enter into an amendment to Mr. Schultz’s existing employment agreement that extends the initial term of Mr. Schultz’s employment by one year to a sixth year, from November 1, 2022 to November 1, 2023.
Align Target Annual Total Direct Compensation with Market Median. In general, the Compensation Committee and the Board seek to align executive officer compensation with the market median range in order to be able to attract, motivate and retain experienced executive talent who are critical to our long-term success, and especially so with the President and CEO.
The Compensation Committee and the Board reviewed the target annual total direct compensation of the President and CEO and each of its components. As described above, the Compensation Committee and the Board determined that the President and CEO’s target annual total direct compensation and target long-term incentive equity award were positioned below market median. In order to bring target annual total direct compensation to the market median range for the duration of the President and CEO’s tenure, and in accordance with our pay for performance and shareholder alignment philosophy, the Compensation Committee and the Board propose to increase the target grant date fair value of the President and CEO’s annual long-term incentive equity award by $4 million, all of which would vest solely subject to achievement ofpre-established performance metrics designed to further align the President and CEO’s interests with those of Teva’s shareholders. The resulting total target long-term incentive equity grant would remain below the limit set forth in the Company’s Compensation Policy as approved by shareholders.
No increases are proposed to the President and CEO’s annual base salary or annual cash incentive target opportunity. The pay mix, which in 2019 consisted of approximately 82% variable,at-risk pay, would increase to approximately 86% variable,at-risk pay. If this Proposal 4 is approved, his long-term incentive equity award (based on the 2019 allocation of the long-term incentive equity grants of 50% PSUs and 50% RSUs) would be increased to, in total, an award that is 70% performance-based.
| Base Salary | Target Annual Incentive | PSUs | RSUs | Target Total Compensation | ||||||||||
2019 | $2,000,000 | $2,800,000 | $3,000,000 | $3,000,000 | $10,800,000 | |||||||||
Proposed Additional Performance-Based Equity | $4,000,000 | |||||||||||||
Proposed 2020 | $2,000,000 | $2,800,000 | $7,000,000 | $3,000,000 | $14,800,000 | |||||||||
Proposed Pay Mix | 14% | 19% | 47% | 20% | ||||||||||
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 95
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Post-Termination Equity Treatment. As part of the extension of the employment agreement, the Compensation Committee also approved a revision to Mr. Schultz’s employment agreement to change the treatment of outstanding long-term incentive awards upon certain qualifying terminations of employment. Following the effective date of the employment agreement amendment, in the event Mr. Schultz incurs a termination of employment with the Company (a) by the Company without “cause”, (b) by Mr. Schultz for “good reason”, (c) following the Company’s decision not to renew the employment agreement, or (d) by Mr. Schultz following his decision not to renew the employment agreement due to his retirement, defined as a cessation to work as an employee in a full-time managerial capacity for anyfor-profit organization, any then-outstanding long-term incentive equity grants (both time and performance-based equity grants) would continue to vest following such a termination of employment in accordance with their terms. Continued vesting following a qualifying termination of employment will be subject to Mr. Schultz’s continued compliance with thenon-compete,non-solicitation,non-disparagement and confidentiality covenants contained within his employment agreement. In addition, following the amendment to Mr. Schultz’s employment agreement, thenon-compete covenant will also apply following a termination of employment due to the Company’s decision not to renew the employment agreement and following Mr. Schultz’s decision not to renew the employment agreement due to his retirement.
SeeAppendix B to this Proxy Statement for the proposed amendment to Mr. Schultz’s employment agreement.
Additional Long-Term Incentive Equity Opportunity Value is Exclusively Performance-Based
In order to further enhance the link between pay and performance and promote the alignment of the interests of the President and CEO with those of Teva’s shareholders, the Compensation Committee and the Board allocate a substantial portion of target annual total direct compensation to long-term incentive equity grants. In 2019, 50% of the long-term incentive equity granted to the President and CEO was in the form of PSUs. If this Proposal 4 is approved, and based on the current allocation of the long-term incentive equity grants of 50% PSUs and 50% RSUs, 70% of future annual long-term incentive equity grants to the President and CEO will be performance-based and awarded in the form of PSUs while 30% will be awarded in the form of RSUs.
If this Proposal 4 is approved by the shareholders, the Company will grant the President and CEO, following the Annual Meeting, in addition to the RSUs and PSUs already granted as part of the 2020 annual grant in February 2020, an additional equity grant with target grant date fair value of $4 million in the form of PSUs, with the same performance targets, vesting and other terms as the PSUs granted at the 2020 annual grant, except for the vesting which will start at the grant date. The 2020 performance targets, as approved by our Compensation Committee and Board, are rigorous and challenging, requiring threshold level of 85% of target for each metric in order for the President and CEO to earn any PSUs for the respective metric, in addition to meeting relative TSR goals. The value of the PSUs also depends on the price of Teva shares.
96 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Type of Long- | Proportion | Vesting Schedule | Performance | Rationale for Use of Performance Metric | ||||
1) 2020-2022non-GAAP Operating Profit (50%) | 1) Leading indicator of profitability, expense control and sustained long-term performance. | |||||||
Performance Share Units | 70% | Three-year cliff vesting | 2) 2020-2022 Net Revenue (50%) | 2) Serves to focus executive officers on top line growth. | ||||
| 3) 2020-2022 Relative TSR (Modifier) | 3) Strong performance as measured by the other two operating metrics is fully rewarded only if it also results in above median shareholder returns. The relative TSR modifier for the 2020 award decreases or increases the average earning percentage by up to 20%. |
Responsible Use of Equity
A company’s burn rate shows how rapidly it is depleting its shares reserved for equity compensation awards. We believe that our historical burn rate is quite reasonable for a company of our size in our industry. Our three-year average burn rate, calculated using the ISS methodology, is approximately 2.19%, which is lower than the ISS burn rate threshold of 8.08% applied to the GICS Pharmaceuticals(3520) sub-industry for 2020. We will continue to monitor our equity use in future years to ensure that our burn rate is within competitive market norms.
Share Ownership Guidelines; Clawback Policy
Mr. Schultz is subject to the Company’s share ownership guidelines, which require the President and CEO to hold 6x base salary in Teva’s equity to further strengthen the alignment of interests between the CEO and our shareholders.
Mr. Schultz is also required to return any compensation paid to him on the basis of results included in financial statements that turned out to be erroneous and that were subsequently restated, during the three-year period following filing thereof. In addition, in the event that it is discovered that he engaged in conduct that resulted in a material inaccuracy in Teva’s financial statements or caused severe financial or reputational damage to Teva, or in the event that it is discovered that he breached confidentiality and/ornon-compete obligations to Teva (as determined by the Company), the Company shall have broad remedial and disciplinary authority.
For additional details on our stock ownership guidelines and clawback policy, see Compensation Discussion and Analysis in this Proxy Statement.
Conclusion and Proposed Resolution
The Compensation Committee and the Board believe that it is in the best interests of the Company and our shareholders to enter into the amendment to the employment agreement with Mr. Schultz to secure the services of Mr. Schultz as the Company seeks a return to growth, bring his target annual total direct compensation and long-term incentive equity awards in line with the market median range and provide a performance-based incentive that aligns with the interests of shareholders and links pay to performance.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 97
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
If this Proposal 4 is not approved, it could affect our ability to execute on our executive compensation program including motivating Mr. Schultz and retaining him over a longer period of time.
As noted above, unlike our“say-on-pay,” the shareholder vote on this matter is binding under Israeli law and is not merely advisory. If this Proposal 4 is not approved by the affirmative vote of our shareholders, the Company will NOT be authorized to enter into the amendment to employment agreement or award the additional equity value to our President & CEO in 2020 or thereafter.
| The Board of Directors recommends that shareholders vote FOR an amendment to the terms of office and employment of Teva’s President and CEO as described herein. |
98 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 5: Approval of an Amendment and Restatementto Teva’s Articles of Teva’s 2008 Employee Stock Purchase Plan for U.S. EmployeesAssociation
TheOur Board of Directors believes that it should be composed of directors with diverse, complementary backgrounds with proven leadership capabilities and experience, and with a high level of expertise within their chosen fields. Given our growing need to identify candidates with broad experience in global markets outside of Israel and in the global pharmaceutical industry, the Corporate Governance and Nominating Committee and our Board of Directors view the requirement for a majority of Board members to be Israeli residents as constraining the Company’s ability to identify the best candidates. Therefore, we are asking shareholders to approve an amendment to Teva’s Articles of Association, which would eliminate the requirement that a majority of the members of our Board of Directors shall be residents of Israel, as well as two other provisions that no longer bear on the governance of Teva and are no longer necessary under the Israeli Companies Law due to amendments to the law over the years.
The current text of Article 59 states:
| “a) | A Director shall not be required to hold any shares whatsoever in the Company. |
| b) | A corporation is not qualified to serve as a Director of the Company. |
| c) | The majority of the members of the Board of Directors shall be residents of Israel, unless the Company’s center of management shall have been transferred to another country in accordance with the provisions of these Articles.” |
The complete text of Article 59, as amended (English translation of official Hebrew original which is submittingattached hereto asAppendix C), will read:
“The Board shall consist of a meaningful representation of Israeli resident directors, which need not be a majority, unless the Company’s center of management shall have been transferred to another country in accordance with the provisions of these Articles.”
Teva is proud of its Israeli heritage and committed to upholding this legacy and connection through its approach to corporate governance and in many other manners. However, after careful consideration, the Board believes that the Company and its shareholders would be best served by a more relaxed requirement for approvalIsraeli representation on the Board. Replacing the current majority requirement with that of “meaningful representation of Israeli residents” will afford the Board greater flexibility in director recruitment—facilitating the constitution of a Board with appropriate expertise for Teva, both geographically and otherwise. Still, the requirement of meaningful Israeli representation affirms Teva’s longstanding commitment to Israel and assures that this heritage will be appropriately accounted for in governance decisions.
Candidates for Teva’s Board are selected for their integrity, experience, leadership and ability to exercise sound judgment. The Board considers candidates representing a diversity of backgrounds, perspectives, ethnicity and genders. When selecting candidates, the Board will also assess and ensure that a meaningful representation of Israeli residents is maintained.
In addition, Teva proposes to remove the provision specifying that Directors are not required to hold Teva shares, and the provision that a corporation is not qualified to serve as a Director of the Company. These items relate to provisions that are no longer necessary under the Israeli Companies Law due to amendments to the law over the years.
If this Proposal 5 is not approved by our shareholders, and the Teva Pharmaceutical Industries Limited 2008 Employee Stock Purchase Plan for U.S. Employees, as amended and restated effective September 7, 2017 (the “ESPP”), which amends and restatescomposition of our Board following the Teva Pharmaceutical Industries Limited 2008 Employee Stock Purchase Plan for U.S. Employees as amended and restated effective January 1, 2016, which was originally approved atAnnual Meeting would not otherwise comply with our 2008 annual shareholder meeting. The ESPP is effective for periods commencing September 7, 2017. The ESPP was amended and restated effective September 7, 2017 in orderArticles of Association due to (i) extend the terma majority of the ESPP for a term of ten years from the effective datemembers of the September 2017 amendment, (ii) increaseBoard not being residents of Israel, then we expect that the maximumBoard will appoint individuals who are Israeli residents to fill such vacancies in such number of ADSs authorized for issuance under the ESPP by an additional 5,000,000 ADSs, and (iii) make certain other ministerial changes to the ESPP.
The purposeas is required so that a majority of the ESPP is to provide employees of United States subsidiaries of Teva with the opportunity to purchase our ADSs, each representing one ordinary share, NIS 0.1 par value per share, through accumulated payroll deductions. The ESPP is intended to qualify under Section 423members of the Code. A summaryBoard are residents of the material terms of the ESPP appears below. This summary is qualified in its entirety by the text of the ESPP, which is included asAppendix A to this proxy statement.
Administration
The ESPP will be administered by the compensation committee of the board of directors of Teva Pharmaceuticals USA, Inc. (“Teva USA”). Subject to the provisions of the ESPP, the Teva USA compensation committee will have the discretionary authority to construe, interpret and adjudicate all disputed claims under the ESPP.
Shares Available Under ESPP
Up to an aggregate of 8,500,000 ADSs (representing 8,500,000 ordinary shares) may be purchased by participants under the ESPP, subject to adjustments upon changes in capitalization of Teva as provided in the ESPP. Such ADSs (as well as the underlying shares) may be either newly-issued or already outstanding. The closing price of the ADSs on the NYSE on April 23, 2018 was $17.85 per ADS.
Eligible Participants
Employees of each U.S. subsidiary of Teva are eligible to participate in the ESPP if they are employed by such a subsidiary on the first trading day of each offering period. However, no employee is eligible to participate who, after the grant of options under the ESPP, would own (including all ADSs which may be purchased under any outstanding options under the ESPP) five percent (5%) or more of the total combined voting power or value of all classes of stock of Teva. As of April 23, 2018, the number of employees eligible to participate in the ESPP was 6,917.
Participation
The ESPP provides for consecutive three-month offering periods (or other offering periods as determined by the board of directors of Teva USA) during which participating employees may authorizeafter-tax payroll deductions of a specific whole percentage of his or her compensation between 1% and 10%, subject to a limit of the amount that will purchase no more than $25,000 of ADSs in any one calendar year based on the fair market value of the ADSs measured as of the first trading day in the applicable offering period (the “enrollment date”).
Offering
On each enrollment date, each participating employee will be granted an option to purchase, on the last day of the applicable offering period (each, an “exercise date”), the number of ADSs that may be
88 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Proposal 5: Amendment and Restatement of Teva’s 2008 Employee Stock Purchase Plan for U.S. Employees
purchased with the accumulated payroll deductions in his or her account as of the applicable exercise date. The purchase price for each option will be 95% of the fair market value of the ADSs on the exercise date. Unless a participant withdraws from the ESPP, his or her accumulated payroll deductions will automatically be used to exercise the options on the applicable exercise date.
Upon a participant’s ceasing to be an employee of a United States subsidiary of Teva for any reason, he or she will be deemed to have elected to withdraw from the ESPP, and such participant’s account balance will be distributed to him or her as soon as practicable. No further ADSs will be purchased for such participant.
Adjustments Upon Changes in Capitalization
The number of ADSs that may be purchased pursuant to options granted under the ESPP and the price per share of each option under the ESPP that has not yet been exercised shall be proportionately adjusted by the Board of Directors for any increase or decrease in the number of issued ADSs resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the ADSs, or any other increase or decrease in the number of ADSs effected without receipt of consideration by Teva. In the event Teva proposes to merge with or into another corporation or proposes to sell all or substantially all of its assets, each option under the ESPP shall be assumed, or an equivalent option shall be substituted by the successor or amalgamated corporation, unless the Board of Directors elects to shorten the offering period then in effect by setting a new exercise date. The Board of Directors may also make provision for adjusting the number of ADSs reserved under the ESPP, as well as the price per ADS covered by each outstanding option, in the event Teva effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of its outstanding ADSs or ordinary shares, and in the event of Teva being consolidated with or merged into any other corporation.
Amendment and Termination
The Board of Directors may at any time and for any reason terminate or amend the ESPP without shareholder approval, except as required to satisfy Section 423 of the Code. Except as provided above in “Adjustments Upon Changes in Capitalization,” no termination or amendment may adversely affect options previously granted; provided, that an offering period may be terminated by the Board of Directors on any exercise date if it determines that the termination of the ESPP is in the best interests of Teva and its shareholders.
The amended and restated ESPP became effective (subject to the approval by the shareholders) upon its adoption by the Board of Directors on September 7, 2017 and will continue in effect for a term of ten years thereafter unless all ADSs authorized to be sold under it have been exhausted or the plan is otherwise terminated sooner.
Federal Income Tax Consequences
Generally, no federal income tax consequences will arise at the time an employee purchases ADSs under the ESPP. If an employee disposes of ADSs purchased under the ESPP less than one year after the ADS is purchased or within two years of the offering date, the employee will be deemed to have received compensation taxable as ordinary income for the taxable year in which the disposition occurs in the amount of the difference between the fair market value of the ADS at the time of purchase and the amount paid by the employee for the ADS. The amount of such ordinary income recognized by the employee will be added to the employee’s basis in the ADS for purposes of determining capital gain or loss upon the disposition of the ADS by the employee.
If an employee does not dispose of the ADSs purchased under the ESPP until at least one year after the ADSs are purchased and at least two years after the offering date, the employee will be deemed to have received compensation taxable as ordinary income for the taxable year in which the disposition occurs in anIsrael.
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 8999
Proposal 5: Approval of an Amendment and Restatementto Teva’s Articles of Teva’s 2008 Employee Stock Purchase Plan for U.S. EmployeesAssociation
amount equalThe Hebrew language version of Teva’s Articles of Association is the binding version. The English translation above is for convenience purposes only.
| The Board of Directors recommends that shareholders vote FOR the amendment to Teva’s Articles of Association as described herein. |
100 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 6: Appointment of Independent Registered Public Accounting Firm
The Audit Committee recommends that, as required under Israeli law, shareholders appoint Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited (“PwC”), as Teva’s independent registered public accounting firm until Teva’s 2021 annual meeting of shareholders. PwC has been our independent registered public accounting firm since at least 1976.
Pursuant to Teva’s Articles of Association, the Board of Directors is authorized to determine the remuneration of Teva’s independent registered public accounting firm.
Representatives of PwC are expected to be present at the Annual Meeting and will also be available to respond to questions from shareholders. They also will have the opportunity to make a statement if they desire to do so.
Audit Committee Report
The Audit Committee has reviewed and discussed with management Teva’s audited consolidated financial statements as of and for the year ended December 31, 2019.
The Audit Committee has also discussed with Kesselman & Kesselman the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301, Communications with Audit Committees.
The Audit Committee has received and reviewed the written disclosures and the letter from Kesselman & Kesselman required by the applicable requirements of the PCAOB regarding Kesselman & Kesselman’s communication with the Audit Committee concerning independence and has discussed with Kesselman & Kesselman their independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the lesserBoard of (a)Directors that the excessaudited consolidated financial statements referred to above be included in Teva’s Annual Reporton Form 10-K for the year ended December 31, 2019 for filing with the SEC.
Audit Committee of the fair market valueBoard of Directors
Gerald M. Lieberman, Chair
Amir Elstein
Murray A. Goldberg
Roberto A. Mignone
Policy onPre-Approval of Audit andNon-Audit Services of Independent Auditors
Teva’s Audit Committee is responsible for overseeing the ADSs onwork of its independent auditors. The Audit Committee’s policy is topre-approve all audit andnon-audit services provided by PwC and other members of PricewaterhouseCoopers International Limited. These services may include audit services, audit-related services, tax services and other services, as further described below. The Audit Committee sets forth the datebasis for itspre-approval in detail, listing the particular services or categories of disposition over the purchase price paidservices which arepre-approved, and setting forth a specific budget for such services. Other services are approved by the employee,Audit Committee on an individual basis. Once services have beenpre-approved, PwC and (b)management then report to the excessAudit Committee on a periodic basis regarding the extent of services actually provided in accordance with the fair market value ofapplicablepre-approval, and regarding the ADSs onfees for the offering date over the purchase price paidservices performed. Such fees for 2019 and 2018 werepre-approved by the employee. The amountAudit Committee in accordance with these procedures.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 101
Proposal 6: Appointment of such ordinary income recognized by the employee will be added to the employee’s basis in the ADSs for purposes of determining capital gain or loss upon the disposition of the ADSs by the employee. If an employee dies before disposing of the ADSs purchased under the ESPP, he or she will be deemed to have received compensation taxable as ordinary income in the taxable year closing with the employee’s death in an amount equal to the lesser of clauses (a) and (b) as set forth in the first sentence of this paragraph. The employee will not realize any capital gain or loss at death.Independent Registered Public Accounting Firm
We generally will not be entitled to a deduction with respect to the ADSs purchased by an employee under the ESPP, unless the employee disposes of the ADSs less than one year after the ADSs are transferred to the employee or less than two years after the offering date.
New Plan Benefits
No currentnon-employee directors will receive any benefitBecause awards to be granted in the future under the ESPP. The2020 Plan are generally at the discretion of the Committee, it is generally not possible to determine the benefits or the amounts received or that will be received or that would have been received duringunder the fiscal year ended2020 Plan by eligible participants other than the awards described below. As of December 31, 2017 if the ESPP had been in effect during such fiscal year, under the ESPP by our current2019, 10 executive officers, 10non-employee members of the Board of Directors and by all eligible employees are not currently determinable because the benefits depend upon the degree of participation byapproximately 3,000 other employees and with respectconsultants were eligible to future benefits,participate in the trading2020 Plan. As of December 31, 2019, the closing price of the ADSsCompany’s ordinary shares was $9.80. If the 2020 Plan is approved by our shareholders, the Company is expected to make the following annual grants to its CEO Kåre Schultz andnon-employee members of the Board of Directors under the 2020 Plan:
Name and Position | Dollar Value ($) | Number of Units—Type of Award | ||
Kåre Schultz, President and CEO (1) | 6,000,000 (2) | To be determined | ||
Non-Employee Members of the Board of Directors (3) | 1,440,000 (4) | To be determined—RSUs |
| (1) | Pursuant to section 4.2 of Mr. Schultz’s employment agreement, dated September 7, 2017, and filed as an exhibit to the Company’s Annual Report on Form10-K for the year ended December 31, 2019, Mr. Schultz is entitled to an annual equity award with a target grant date fair value of $6,000,000, subject to the terms of the 2015 Plan (or any successor thereto). The award may take the form of stock options, performance stock units and/or restricted stock units and may have terms and conditions (including vesting conditions and performance conditions) determined by the Committee in its discretion. |
| (2) | If Proposal 4 set forth in this Proxy Statement is approved by shareholders, the amount will be $10,000,000. The shareholder vote to approve Proposal 4 is separate from the shareholder vote to approve this Proposal 3. |
| (3) | Pursuant to the shareholder approvednon-employee director compensation structure described in Proposal 4 of the Company’s Definitive Proxy Statement filed on April 16, 2019, eachnon-employee director who is in office immediately following any annual general meeting of shareholders of the Company will be granted RSUs with an approximate aggregate fair market value of $160,000 as of the date of grant. |
| (4) | Assuming nine directors excluding the CEO. |
The overview above is a summary of material provisions included in future periods.Teva’s proposed 2020 Plan and is qualified in its entirety by reference to the full text of Teva’s proposed 2020 Plan, which is attached hereto asAppendix A.
 | The Board of Directors recommends that shareholders vote FOR the approval of Teva’s 2020 Long-Term Equity-Based Incentive Plan, substantially in the form attached to this Proxy Statement asAppendix A. |
92 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Background
As required by the Israeli Companies Law, the Company seeks shareholder approval of our proposal to amend the terms of office and employment of our President and CEO, Mr. Kåre Schultz.
In September 2017, our Board appointed Mr. Schultz as President and CEO based on his experience as a leader with extensive global pharmaceutical experience and a strong track record in corporate turnarounds, as well as in driving growth and leading international expansion.
During his tenure to date, Mr. Schultz has successfully executed ourtwo-year restructuring plan, reduced the Company’s spend base by $3 billion, reduced debt and overseen the launch of new products, as described in more detail below. Through these achievements, Mr. Schultz has demonstrated his commitment to taking actions aimed at generating shareholder value and has positioned the Company for a return to growth. The Compensation Committee and the Board continue to believe that Mr. Schultz is best-suited to lead the organization forward at this critical juncture. To that end, the Compensation Committee and the Board seek to (i) extend the initial term of Mr. Schultz’s employment agreement by one year (from November 2022 to November 2023), which Mr. Schultz has agreed to do, and (ii) in light of Mr. Schultz agreeing to extend the term of his employment, amend his agreement to increase the performance-based portion of his target annual long-term incentive equity award and provide Mr. Schultz with the right to retain, subject to his continued compliance with certain restrictive covenants, annual long-term incentive equity awards in connection with certain qualifying terminations of employment described below. The Compensation Committee and the Board believe that the proposed changes establish an overall compensation program that motivates and retains Mr. Schultz through our turnaround period, within the bounds of market practices among our peer group.
Approval Requirements Under Israeli Law
The Israeli Companies Law provides that any arrangement between a company and a chief executive officer, who also serves as a director, relating to his or her compensation must be consistent with the company’s compensation policy and requires the approval of the compensation committee, the board of directors and the shareholders by a simple majority, in that order. Accordingly, the employment agreement amendments described above, which were approved, and recommended for shareholder approval, by our Compensation Committee and Board, also require shareholder approval at the Annual Meeting.
Unlike our“say-on-pay” vote, the shareholder vote on this matter is binding under Israeli law and is not merely advisory. If this Proposal 4 is not approved by the affirmative vote of our shareholders, the Company will NOT be authorized to enter into the amendment to employment agreement or award the additional equity value to our President & CEO in 2020 or thereafter.
Overall Compensation Strategy
In order to accomplish our key corporate objectives, we must attract, motivate and retain highly skilled and experienced people to execute our corporate strategy and lead our team. To that end, our executive officer compensation program is designed to:
| (i) | link pay to performance; |
| (ii) | align executive officers’ interests with those of Teva and its shareholders over the long term; |
| (iii) | provide competitive compensation to attract and retain talent; and |
| (iv) | encourage balanced risk management. |
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 93
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Compensation Policy under the Israeli Companies Law. As required by the Israeli Companies Law, at our 2019 annual meeting of shareholders, our shareholders approved an update to our Compensation Policy regarding the terms of office and employment that can be offered to our “office holders” (as defined under the Israeli Companies Law), which includes the President and CEO, including cash compensation, equity-based awards and other items. Pursuant to the Israeli Companies Law, arrangements between Teva and our President and CEO must generally be consistent with the Compensation Policy.
CEO Performance Assessment
In seeking to amend the President and CEO’s employment agreement, the Compensation Committee and the Board evaluated the performance of our President and CEO, in his first two years, including the following:
| ∎ | We successfully achieved our goal of reducing our total spend base by $3 billion as a result of our comprehensivetwo-year restructuring plan; |
| ∎ | We reduced our net debt by 21% to $24.9 billion at the end of 2019, compared to $31.5 billion at the end of 2017; |
| ∎ | Sales of AUSTEDO® for Huntington’s disease and other movement disorders continue to grow rapidly, with $412 million in revenues in the U.S. in 2019, an increase of 102% compared to 2018; |
| ∎ | We launched AJOVY® for the preventive treatment of migraines in adults in the U.S. in 2018, and in Europe in 2019, and we secured auto-injector approval in the U.S and Europe; and |
| ∎ | In November 2019, we launched TRUXIMA®, our first oncology biosimilar product in the U.S. and the first rituximab biosimilar to be approved in the U.S. |
Mr. Schultz has led all of these accomplishments and in so doing has positioned the Company for future growth. The Committee and the Board of Directors also considered the share price performance during Mr. Schultz’s tenure and noted certain factors contributing to external pressure on the Company’s share price, such as the opioid and alleged price-fixing litigations in the U.S., both of which involve events that largely predate Mr. Schultz’s tenure.
Benchmark Positioning Relative to Market Median
In order to understand how the level of President and CEO annual total direct compensation, and its individual components, compares to market practice of our peers, the Compensation Committee and the Board reviewed the President and CEO’s total direct compensation, including base salary, annual incentive target opportunity and actual payout, total cash compensation, annual long-term incentive equity target opportunity and actual payout, excluding any one time cash and equity awards, relative to the opportunities and amounts delivered to chief executive officers at companies in our peer group, as presented in a benchmark study prepared by Willis Towers Watson.
We continue to use the same peer group for benchmarking purposes, including publicly traded global companies from the pharmaceutical and biotechnology sectors with comparable revenues and size to Teva. The peer group contains 15 companies including AbbVie Inc., Allergan plc, Amgen Inc., Astellas Pharma Inc., AstraZeneca plc, Biogen Inc., Bristol-Myers Squibb Company, Eli Lilly and Company, Gilead Sciences Inc., GlaxoSmithKline plc, Merck KGaA, Mylan NV, Novo Nordisk A/S, Sanofi and Takeda Pharmaceutical Company Ltd.
The Compensation Committee and the Board also considered the Company’s compensation philosophy and objectives, internal fairness and market trends, and other relevant factors as required by law and the Compensation Policy. The Compensation Committee and the Board considered the pastsign-on cash and
94 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
equity awards granted to Mr. Schultz in 2017 and determined that they should not be included in the analysis as they wereone-time awards provided to Mr. Schultz to induce him to join the Company during challenging times.
The Compensation Committee and the Board’s review of the Willis Towers Watson study indicated that the President and CEO’s target annual total direct compensation of $10.8 million, which complied with the shareholder-approved Compensation Policy, was significantly below competitive market levels as a result of the CEO’s target annual long-term incentive equity component of $6.0 million being set substantially below the peer median. The Compensation Committee and the Board also considered the fact that since Mr. Schultz’s date of hire in 2017, no increases have been provided to the President and CEO’s target annual total direct compensation or to any component thereof.
For a detailed description of the compensation of our President and CEO, please see “Executive Compensation—Compensation Discussion and Analysis” above.
Proposed Amendments to Mr. Schultz’s Agreement
Extension of Employment Agreement Term. The Compensation Committee and the Board believe that Mr. Schultz is best-suited to lead the Company at this time, and in seeking to ensure the services of Mr. Schultz through a longer time horizon, the Company proposes to enter into an amendment to Mr. Schultz’s existing employment agreement that extends the initial term of Mr. Schultz’s employment by one year to a sixth year, from November 1, 2022 to November 1, 2023.
Align Target Annual Total Direct Compensation with Market Median. In general, the Compensation Committee and the Board seek to align executive officer compensation with the market median range in order to be able to attract, motivate and retain experienced executive talent who are critical to our long-term success, and especially so with the President and CEO.
The Compensation Committee and the Board reviewed the target annual total direct compensation of the President and CEO and each of its components. As described above, the Compensation Committee and the Board determined that the President and CEO’s target annual total direct compensation and target long-term incentive equity award were positioned below market median. In order to bring target annual total direct compensation to the market median range for the duration of the President and CEO’s tenure, and in accordance with our pay for performance and shareholder alignment philosophy, the Compensation Committee and the Board propose to increase the target grant date fair value of the President and CEO’s annual long-term incentive equity award by $4 million, all of which would vest solely subject to achievement ofpre-established performance metrics designed to further align the President and CEO’s interests with those of Teva’s shareholders. The resulting total target long-term incentive equity grant would remain below the limit set forth in the Company’s Compensation Policy as approved by shareholders.
No increases are proposed to the President and CEO’s annual base salary or annual cash incentive target opportunity. The pay mix, which in 2019 consisted of approximately 82% variable,at-risk pay, would increase to approximately 86% variable,at-risk pay. If this Proposal 4 is approved, his long-term incentive equity award (based on the 2019 allocation of the long-term incentive equity grants of 50% PSUs and 50% RSUs) would be increased to, in total, an award that is 70% performance-based.
| Base Salary | Target Annual Incentive | PSUs | RSUs | Target Total Compensation | ||||||||||
2019 | $2,000,000 | $2,800,000 | $3,000,000 | $3,000,000 | $10,800,000 | |||||||||
Proposed Additional Performance-Based Equity | $4,000,000 | |||||||||||||
Proposed 2020 | $2,000,000 | $2,800,000 | $7,000,000 | $3,000,000 | $14,800,000 | |||||||||
Proposed Pay Mix | 14% | 19% | 47% | 20% | ||||||||||
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 95
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Post-Termination Equity Treatment. As part of the extension of the employment agreement, the Compensation Committee also approved a revision to Mr. Schultz’s employment agreement to change the treatment of outstanding long-term incentive awards upon certain qualifying terminations of employment. Following the effective date of the employment agreement amendment, in the event Mr. Schultz incurs a termination of employment with the Company (a) by the Company without “cause”, (b) by Mr. Schultz for “good reason”, (c) following the Company’s decision not to renew the employment agreement, or (d) by Mr. Schultz following his decision not to renew the employment agreement due to his retirement, defined as a cessation to work as an employee in a full-time managerial capacity for anyfor-profit organization, any then-outstanding long-term incentive equity grants (both time and performance-based equity grants) would continue to vest following such a termination of employment in accordance with their terms. Continued vesting following a qualifying termination of employment will be subject to Mr. Schultz’s continued compliance with thenon-compete,non-solicitation,non-disparagement and confidentiality covenants contained within his employment agreement. In addition, following the amendment to Mr. Schultz’s employment agreement, thenon-compete covenant will also apply following a termination of employment due to the Company’s decision not to renew the employment agreement and following Mr. Schultz’s decision not to renew the employment agreement due to his retirement.
SeeAppendix B to this Proxy Statement for the proposed amendment to Mr. Schultz’s employment agreement.
Additional Long-Term Incentive Equity Opportunity Value is Exclusively Performance-Based
In order to further enhance the link between pay and performance and promote the alignment of the interests of the President and CEO with those of Teva’s shareholders, the Compensation Committee and the Board allocate a substantial portion of target annual total direct compensation to long-term incentive equity grants. In 2019, 50% of the long-term incentive equity granted to the President and CEO was in the form of PSUs. If this Proposal 4 is approved, and based on the current allocation of the long-term incentive equity grants of 50% PSUs and 50% RSUs, 70% of future annual long-term incentive equity grants to the President and CEO will be performance-based and awarded in the form of PSUs while 30% will be awarded in the form of RSUs.
If this Proposal 4 is approved by the shareholders, the Company will grant the President and CEO, following the Annual Meeting, in addition to the RSUs and PSUs already granted as part of the 2020 annual grant in February 2020, an additional equity grant with target grant date fair value of $4 million in the form of PSUs, with the same performance targets, vesting and other terms as the PSUs granted at the 2020 annual grant, except for the vesting which will start at the grant date. The 2020 performance targets, as approved by our Compensation Committee and Board, are rigorous and challenging, requiring threshold level of 85% of target for each metric in order for the President and CEO to earn any PSUs for the respective metric, in addition to meeting relative TSR goals. The value of the PSUs also depends on the price of Teva shares.
96 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
Type of Long- | Proportion | Vesting Schedule | Performance | Rationale for Use of Performance Metric | ||||
1) 2020-2022non-GAAP Operating Profit (50%) | 1) Leading indicator of profitability, expense control and sustained long-term performance. | |||||||
Performance Share Units | 70% | Three-year cliff vesting | 2) 2020-2022 Net Revenue (50%) | 2) Serves to focus executive officers on top line growth. | ||||
| 3) 2020-2022 Relative TSR (Modifier) | 3) Strong performance as measured by the other two operating metrics is fully rewarded only if it also results in above median shareholder returns. The relative TSR modifier for the 2020 award decreases or increases the average earning percentage by up to 20%. |
Responsible Use of Equity
A company’s burn rate shows how rapidly it is depleting its shares reserved for equity compensation awards. We believe that our historical burn rate is quite reasonable for a company of our size in our industry. Our three-year average burn rate, calculated using the ISS methodology, is approximately 2.19%, which is lower than the ISS burn rate threshold of 8.08% applied to the GICS Pharmaceuticals(3520) sub-industry for 2020. We will continue to monitor our equity use in future years to ensure that our burn rate is within competitive market norms.
Share Ownership Guidelines; Clawback Policy
Mr. Schultz is subject to the Company’s share ownership guidelines, which require the President and CEO to hold 6x base salary in Teva’s equity to further strengthen the alignment of interests between the CEO and our shareholders.
Mr. Schultz is also required to return any compensation paid to him on the basis of results included in financial statements that turned out to be erroneous and that were subsequently restated, during the three-year period following filing thereof. In addition, in the event that it is discovered that he engaged in conduct that resulted in a material inaccuracy in Teva’s financial statements or caused severe financial or reputational damage to Teva, or in the event that it is discovered that he breached confidentiality and/ornon-compete obligations to Teva (as determined by the Company), the Company shall have broad remedial and disciplinary authority.
For additional details on our stock ownership guidelines and clawback policy, see Compensation Discussion and Analysis in this Proxy Statement.
Conclusion and Proposed Resolution
The Compensation Committee and the Board believe that it is in the best interests of the Company and our shareholders to enter into the amendment to the employment agreement with Mr. Schultz to secure the services of Mr. Schultz as the Company seeks a return to growth, bring his target annual total direct compensation and long-term incentive equity awards in line with the market median range and provide a performance-based incentive that aligns with the interests of shareholders and links pay to performance.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 97
Proposal 4: Approval of An Amendment to the Terms of Office and Employment of Teva’s President and Chief Executive Officer
If this Proposal 4 is not approved, it could affect our ability to execute on our executive compensation program including motivating Mr. Schultz and retaining him over a longer period of time.
As noted above, unlike our“say-on-pay,” the shareholder vote on this matter is binding under Israeli law and is not merely advisory. If this Proposal 4 is not approved by the affirmative vote of our shareholders, the Company will NOT be authorized to enter into the amendment to employment agreement or award the additional equity value to our President & CEO in 2020 or thereafter.
| The Board of Directors recommends that shareholders vote FOR an amendment to the terms of office and employment of Teva’s President and CEO as described herein. |
98 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Proposal 5: Approval of an Amendment to Teva’s Articles of Association
Our Board of Directors believes that it should be composed of directors with diverse, complementary backgrounds with proven leadership capabilities and experience, and with a high level of expertise within their chosen fields. Given our growing need to identify candidates with broad experience in global markets outside of Israel and in the global pharmaceutical industry, the Corporate Governance and Nominating Committee and our Board of Directors view the requirement for a majority of Board members to be Israeli residents as constraining the Company’s ability to identify the best candidates. Therefore, we are asking shareholders to approve an amendment to Teva’s Articles of Association, which would eliminate the requirement that a majority of the members of our Board of Directors shall be residents of Israel, as well as two other provisions that no longer bear on the governance of Teva and are no longer necessary under the Israeli Companies Law due to amendments to the law over the years.
The current text of Article 59 states:
| “a) | A Director shall not be required to hold any shares whatsoever in the Company. |
| b) | A corporation is not qualified to serve as a Director of the Company. |
| c) | The majority of the members of the Board of Directors shall be residents of Israel, unless the Company’s center of management shall have been transferred to another country in accordance with the provisions of these Articles.” |
The complete text of Article 59, as amended (English translation of official Hebrew original which is attached hereto asAppendix C), will read:
“The Board shall consist of a meaningful representation of Israeli resident directors, which need not be a majority, unless the Company’s center of management shall have been transferred to another country in accordance with the provisions of these Articles.”
Teva is proud of its Israeli heritage and committed to upholding this legacy and connection through its approach to corporate governance and in many other manners. However, after careful consideration, the Board believes that the Company and its shareholders would be best served by a more relaxed requirement for Israeli representation on the Board. Replacing the current majority requirement with that of “meaningful representation of Israeli residents” will afford the Board greater flexibility in director recruitment—facilitating the constitution of a Board with appropriate expertise for Teva, both geographically and otherwise. Still, the requirement of meaningful Israeli representation affirms Teva’s longstanding commitment to Israel and assures that this heritage will be appropriately accounted for in governance decisions.
Candidates for Teva’s Board are selected for their integrity, experience, leadership and ability to exercise sound judgment. The Board considers candidates representing a diversity of backgrounds, perspectives, ethnicity and genders. When selecting candidates, the Board will also assess and ensure that a meaningful representation of Israeli residents is maintained.
In addition, Teva proposes to remove the provision specifying that Directors are not required to hold Teva shares, and the provision that a corporation is not qualified to serve as a Director of the Company. These items relate to provisions that are no longer necessary under the Israeli Companies Law due to amendments to the law over the years.
If this Proposal 5 is not approved by our shareholders, and the composition of our Board following the Annual Meeting would not otherwise comply with our Articles of Association due to a majority of the members of the Board not being residents of Israel, then we expect that the Board will appoint individuals who are Israeli residents to fill such vacancies in such number as is required so that a majority of the members of the Board are residents of Israel.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 99
Proposal 5: Approval of an Amendment to Teva’s Articles of Association
The Hebrew language version of Teva’s Articles of Association is the binding version. The English translation above is for convenience purposes only.
|
The Board of Directors recommends that shareholders vote FOR the |
90100 Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement
Proposal 6: Appointment of Independent Registered Public Accounting Firm
The Audit Committee recommends that, as required under Israeli law, shareholders appoint Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited (“PwC”), as Teva’s independent registered public accounting firm until Teva’s 2021 annual meeting of shareholders. PwC has been our independent registered public accounting firm since at least 1976.
Pursuant to Teva’s Articles of Association, the Board of Directors is authorized to determine the remuneration of Teva’s independent registered public accounting firm.
Representatives of PwC are expected to be present at the Annual Meeting and will also be available to respond to questions from shareholders. They also will have the opportunity to make a statement if they desire to do so.
Audit Committee Report
The Audit Committee has reviewed and discussed with management Teva’s audited consolidated financial statements as of and for the year ended December 31, 2019.
The Audit Committee has also discussed with Kesselman & Kesselman the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301, Communications with Audit Committees.
The Audit Committee has received and reviewed the written disclosures and the letter from Kesselman & Kesselman required by the applicable requirements of the PCAOB regarding Kesselman & Kesselman’s communication with the Audit Committee concerning independence and has discussed with Kesselman & Kesselman their independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements referred to above be included in Teva’s Annual Reporton Form 10-K for the year ended December 31, 2019 for filing with the SEC.
Audit Committee of the Board of Directors
Gerald M. Lieberman, Chair
Amir Elstein
Murray A. Goldberg
Roberto A. Mignone
Policy onPre-Approval of Audit andNon-Audit Services of Independent Auditors
Teva’s Audit Committee is responsible for overseeing the work of its independent auditors. The Audit Committee’s policy is topre-approve all audit andnon-audit services provided by PwC and other members of PricewaterhouseCoopers International Limited. These services may include audit services, audit-related services, tax services and other services, as further described below. The Audit Committee sets forth the basis for itspre-approval in detail, listing the particular services or categories of services which arepre-approved, and setting forth a specific budget for such services. Other services are approved by the Audit Committee on an individual basis. Once services have beenpre-approved, PwC and management then report to the Audit Committee on a periodic basis regarding the extent of services actually provided in accordance with the applicablepre-approval, and regarding the fees for the services performed. Such fees for 2019 and 2018 werepre-approved by the Audit Committee in accordance with these procedures.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 101
Proposal 6: Appointment of Independent Registered Public Accounting Firm
Principal Accountant Fees and Services
Teva incurred the following fees for professional services rendered by PwC and other members of PricewaterhouseCoopers International Limited, for the years ended December 31, 2019 and 2018:
2019 | 2018 | |||||||
| (U.S. $ in thousands) | ||||||||
Audit fees | $ | 17,280 | $ | 15,690 | ||||
Audit-related fees | 480 | 535 | ||||||
Tax fees | 3,445 | 2,450 | ||||||
All other fees | 266 | 265 | ||||||
Total | $ | 21,472 | $ | 18,940 | ||||
The audit fees for the years ended December 31, 2019 and 2018 were for professional services rendered for the integrated audit of Teva’s annual consolidated financial statements and its internal control over financial reporting as of December 31, 2019 and 2018, review of consolidated quarterly financial statements, statutory audits of Teva and its subsidiaries, issuance of comfort letters, consents and assistance with review of documents filed with the SEC.
The audit-related fees for the years ended December 31, 2019 and 2018 were for the following services: sale side due diligence related to dispositions, accounting consultations and employee benefit plan audits, attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Tax fees for the years ended December 31, 2019 and 2018 were for the following services: (i) services related to tax compliance, including the preparation of tax returns and claims for refund, (ii) tax planning and tax advice, including assistance with tax audits and appeals, (iii) advice related to mergers and acquisitions, (iv) tax services for employee benefit plans, (v) assistance with respect to requests for rulings from tax authorities and (vi) other permitted tax services requested by management.
All other fees for the years ended December 31, 2019 and 2018 were mainly for thepre-implementation review of an ERP system, providing general advice related to new processes, as well as for license fees for the use of accounting research tools and training regarding general financial reporting developments.
The Audit Committee believes that the provision of allnon-audit services rendered is compatible with maintaining PwC’s independence.
| The Board of Directors recommends that shareholders vote FOR the approval of the appointment of Kesselman & Kesselman, a member of PwC, as Teva’s independent registered public accounting firm until Teva’s 2021 annual meeting of shareholders. |
102 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Presentation of 20172019 Financial Statements
The Board of Directors has approved, and is presenting to shareholders for receipt and consideration at the Annual Meeting, Teva’s annual consolidated financial statements for the year ended December 31, 2017,2019, which are included in Teva’s annual reportAnnual Report on Form10-K for the year ended December 31, 2017,2019, available on Teva’s website at www.tevapharm.com.
Section 16(a) Beneficial Ownership Reporting Compliance
As of January 1, 2018, Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than 10% of our ordinary shares to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of our ordinary shares. During 2017, our directors and executive officers and persons who own more than 10% of our ordinary shares were not required to comply with the reporting requirements of Section 16(a) because Teva was exempt from these requirements by virtue of being a “foreign private issuer.”
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 91103
The following table describes, as of April 12, 2018,March 10, 2020, the beneficial ownership of Teva ordinary shares (and ADSs representing ordinary shares) by:
| ∎ | each person we believe beneficially holds more than 5% of the outstanding ordinary shares based solely on our review of SEC filings; |
| ∎ | each of our |
| ∎ | each of our directors and director nominees; and |
| ∎ | all of our directors and executive officers as a group. |
Beneficial Owner | Ordinary Shares Beneficially Owned *** | Percent of Ordinary Shares Outstanding **** | ||||||||
Beneficial Owners of More than 5% of Our Ordinary Shares
| ||||||||||
Capital Research and Management Company (1)
|
|
162,196,740
|
|
|
15.93
|
%
| ||||
Franklin Resources, Inc. (2)
|
|
70,601,691
|
|
|
6.93
|
%
| ||||
Named Executive Officers and Directors:*
| ||||||||||
Dr. Sol J. Barer
|
|
—
|
|
|
*
|
*
| ||||
Kåre Schultz
|
|
—
|
|
|
*
|
*
| ||||
Rosemary A. Crane
|
|
5,850
|
|
|
*
|
*
| ||||
Amir Elstein
|
|
1,993,706
|
|
|
*
|
*
| ||||
Murray A. Goldberg
|
|
—
|
|
|
*
|
*
| ||||
Jean-Michel Halfon
|
|
—
|
|
|
*
|
*
| ||||
Gerald M. Lieberman
|
|
5,400
|
|
|
*
|
*
| ||||
Galia Maor
|
|
—
|
|
|
*
|
*
| ||||
Roberto A. Mignone
|
|
750,000
|
(3)
|
|
*
|
*
| ||||
Dr. Perry D. Nisen
|
|
—
|
|
|
*
|
*
| ||||
Nechemia (Chemi) J. Peres
|
|
—
|
|
|
*
|
*
| ||||
Prof. Ronit Satchi-Fainaro
|
|
—
|
|
|
*
|
*
| ||||
Dan S. Suesskind
|
|
318,836
|
|
|
*
|
*
| ||||
Gabrielle Sulzberger
|
|
—
|
|
|
*
|
*
| ||||
Michael McClellan
|
|
30,833
|
|
|
*
|
*
| ||||
Dr. Carlo de Notaristefani
|
|
346,980
|
|
|
*
|
*
| ||||
Dr. Hafrun Fridriksdottir
|
|
25,423
|
|
|
*
|
*
| ||||
Mark Sabag
|
|
297,992
|
|
|
*
|
*
| ||||
Eyal Desheh (4)
|
|
384,133
|
|
|
*
|
*
| ||||
Dr. Michael Hayden (4)
|
|
475,339
|
|
|
*
|
*
| ||||
Dr. Rob Koremans (4)
|
|
484,081
|
|
|
*
|
*
| ||||
Dr. Yitzhak Peterburg (4)
|
|
228,215
|
|
|
*
|
*
| ||||
Erez Vigodman (4)
|
|
482,813
|
|
|
*
|
*
| ||||
All directors and executive officers as a group (24 persons)
|
|
4,368,230
|
|
|
*
|
*
| ||||
92 Teva Pharmaceutical Industries Ltd.2018 Proxy Statement
Security Ownership
Beneficial Owner | Ordinary Shares Beneficially Owned*** | Percent of Ordinary Shares Outstanding**** | ||||||
Beneficial Owners of More than 5% of Our Ordinary Shares | ||||||||
Capital Research Global Investors (1) | 130,950,677 | 11.956 | % | |||||
Wellington Management Group LLP (2) | 81,123,996 | 7.406 | % | |||||
Named Executive Officers and Directors:* | ||||||||
Dr. Sol J. Barer | 222,912 | * | * | |||||
Kåre Schultz | 553,452 | * | * | |||||
Rosemary A. Crane | 10,792 | * | * | |||||
Amir Elstein | 1,998,648 | * | * | |||||
Murray A. Goldberg | — | * | * | |||||
Jean-Michel Halfon | 4,942 | * | * | |||||
Gerald M. Lieberman | 10,342 | * | * | |||||
Roberto A. Mignone | 1,500,000 | (3) | * | * | ||||
Dr. Perry D. Nisen | — | * | * | |||||
Nechemia (Chemi) J. Peres | — | * | * | |||||
Prof. Ronit Satchi-Fainaro | — | * | * | |||||
Eli Kalif | — | * | * | |||||
Dr. Hafrun Fridriksdottir | 246,773 | * | * | |||||
Brendan O’Grady | 167,586 | * | * | |||||
Gianfranco Nazzi | 186,498 | * | * | |||||
Michael McClellan (4) | — | * | * | |||||
Dr. Carlo de Notaristefani (4) | 665,799 | * | * | |||||
All directors and executive officers as a group (20 persons) | 6,050,626 | * | * | |||||
| * | The address of each named executive officer and director is c/o Teva Pharmaceutical Industries Limited, 5 Basel Street, Petach Tikva, Israel. |
104 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Security Ownership
| ** | Represents less than 1%. |
| *** | For purposes of this table, “beneficial ownership” is determined in accordance with Rule13d-3 under the Exchange Act pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any ordinary shares with respect to which such person has (or has the right to acquire within 60 days) sole or shared voting power or investment power. |
| **** | Percentage of beneficial ownership is based on |
| (1) | Based solely on a |
| (2) | Based solely on a Schedule 13G filed with the SEC on February |
| (3) | Held of record by Swiftcurrent Partners, L.P. and Swiftcurrent Offshore Master, Ltd. Bridger Management, LLC is the investment adviser to these funds and Mr. Mignone is the manager of Bridger Management, LLC. Mr. Mignone disclaims beneficial ownership of the |
| (4) | Based solely on company shareholder information as of |
Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement 93105
Securities Authorized for Issuance Underunder Equity Compensation Plans
The following table sets forth, as of December 31, 2017,2019, certain information related to our equity compensation plans:
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) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
Number of
|
Weighted-
|
Number of Securities
| ||||||||||||||||||
Equity compensation plans approved by security holders
| ||||||||||||||||||||||||
2015 Long-Term Equity-Based
|
| 51,162,412
|
|
| $40.09
|
|
| 99,426,185
| (1)
|
|
41,107,981
|
|
| $31.52
|
|
| 62,699,737
| (1)
| ||||||
2010 Long-Term Equity-Based
|
| 23,760,533
|
|
| $49.07
|
|
|
| (2)
|
| 14,933,128
|
|
| $48.64
|
|
| —
| (2)
| ||||||
2008 Employee Stock Purchase Plan For U.S. Employees
|
| —
|
|
| —
|
|
| 4,764,646
| (3)
|
|
—
|
|
| —
|
|
| 748,842
| (3)
| ||||||
Equity compensation plans not approved by security holders
|
| —
|
|
| —
|
|
| —
|
|
|
—
|
|
| —
|
|
| —
|
| ||||||
Total
|
|
74,922,945
|
|
|
$44.31
|
|
|
104,190,831
|
(1)
|
|
56,041,109
|
|
|
$37.9
|
|
|
63,448,579
|
(1)
| ||||||
| (1) | Includes awards that were cancelled or forfeited under the 2010 Long-Term Equity-Based Incentive Plan. |
| (2) | This plan expired and no future grants are available thereunder. |
| (3) | A total of 8,500,000 shares have been authorized for purchase at a discount |
94106 Teva Pharmaceutical Industries Ltd. 20182020 Proxy Statement
Certain Relationships and Related Party Transactions
In December 2012, weNovember 2019, Teva entered into two collaborative research agreements with Tel Aviv University pursuant to which Teva will provide funding in the amounts of€250,000 and $94,500, respectively, and will work with the Tel Aviv University scientists to advance cancer and brain studies. Prof. Ronit Satchi-Fainaro, a collaborative developmentmember of our Board of Directors, has been a professor at Tel Aviv University since 2015. Prof. Ronit Satchi-Fainaro holds various other positions at Tel Aviv University, including Head of the Cancer Research and exclusive worldwide license agreement with Xenon for its compound XEN402. XEN402 (now designated by us asTV-45070) targets sodium channels foundNanomedicine Laboratory since 2006, Chair of the Department of Physiology and Pharmacology at the Sackler Faculty of Medicine since 2014, Chair of The Kurt and Herman Lion Cathedra in sensory nerve endings that can increase in chronic painful conditions,Nanosciences and is currently in clinical development for neuropathic pain. Dr. Michael Hayden, who was our President of Global R&D and Chief Scientific Officer until November 27,Nanotechnologies since 2017 is a founder, a minority shareholder and a member of the board of directors of Xenon. We paid Xenon an upfront fee of $41 million and may have been required to pay development, regulatory and sales-based milestones of up to $335 million. Xenon was also entitled to royalties on sales and had an option to participate in commercialization in the United States. As required by the agreement, in November 2014, we invested an additional $10 million in Xenon, in connection with its initial public offering. In order to avoid potential conflicts of interest, we have established certain procedures to exclude Dr. Hayden from involvement in Teva’s decision-making related to Xenon. The phase 2 proof of concept study forTV-45070 did not meet primary and secondary endpoints in 2017.Preclinical Dean’s Committee since 2015.
The related party transaction described above was reviewed and approved in accordance with the provisions of the Israeli Companies Law, Teva’s Articles of Association and Teva policy, as described below.
On March 26, 2018, we terminated the collaborative development and exclusive worldwide license agreement by mutual agreement with Xenon.
Approval of Related Party Transactions
The Israeli Companies Law requires that an “office holder” (as defined in the Israeli Companies Law) of a company promptly disclose any personal interest that he or she may have and all related material information known to him or her, in connection with any existing or proposed transaction of the company.
Pursuant to the Israeli Companies Law, any transaction with an office holder or in which the office holder has a personal interest (other than with respect to such office holder’s Terms of Office and Employment, see “Compensation-Related“Executive Compensation—Compensation Discussion and Analysis—Compensation-Related Requirements of the Israeli Companies Law” above)) must be brought before the Audit Committee, in order to determine whether such transaction is an “extraordinary transaction” (defined as a transaction not in the ordinary course of business, not on market terms or likely to have a material impact on the company’s profitability, assets or liabilities).
Pursuant to the Israeli Companies Law, the Articles of Association and Teva written policy, in the event that the Audit Committee determines that the transaction is not an extraordinary transaction, the transaction will require only Audit Committee approval; if, however, it is determined to be an extraordinary transaction, Board approval is also required and, in some circumstances, shareholder approval may also be required. Such a transaction may only be approved if it is determined to be in the best interests of Teva.
A person with a personal interest in the matter generally may not be present at meetings of the Board or certain committees where the matter is being considered and, if a member of the Board or a committee, may generally not vote on the matter.
Transactions with Controlling Shareholders
Under Israeli law, extraordinary transactions with a controlling shareholder, or in which the controlling shareholder has a personal interest, and any engagement with a controlling shareholder, or a controlling shareholder’s relative, with respect to the provision of services to the company or their Terms of Office and Employment as an office holder or their employment, if they are not an office holder, generally require the approval of the Audit Committee (or with respect to Terms of Office and Employment, the Compensation
Teva Pharmaceutical Industries Ltd. 2018 Proxy Statement 95
Related Party Transactions
Committee), the Board of Directors and the shareholders. If required, shareholder approval must include (i) at least a majority of the shareholders who do not have a personal interest in the transaction and are present and voting at the meeting (abstentions are disregarded), or, alternatively, that (ii) the total shareholdings of the disinterested shareholders who vote against the transaction do not represent more than two percent of the voting rights in the company. Transactions for a period of more than three years generally need to be brought for approval in accordance with the above procedures every three years.
Teva Pharmaceutical Industries Ltd. 2020 Proxy Statement 107
Related Party Transactions
A shareholder who holds 25% or more of the voting rights in a company is considered a controlling shareholder for these purposes if no other shareholder holds more than 50% of the voting rights. If two or more shareholders are interested parties in the same transaction, their shareholdings are combined for the purposes of calculating percentages.
108 Teva Pharmaceutical Industries Ltd.2020 Proxy Statement
Shareholder Proposals for the 20182020 Annual Meeting and the 20192021 Annual Meeting
Under Israeli law, one or more shareholders holding 1% or more of the voting rights of Teva may requestpropose to include any matter appropriate for deliberation at a proposalshareholders meeting to be included on the agenda of a shareholders meeting (including proposing the nomination of a candidate to the Board of Directors which will be brought for consideration by Teva’s Corporate Governance and Nominating Committee) by submitting such proposal within seven days of publication of Teva’s notice with respect to its general meeting of shareholders.shareholders, unless Teva publishes a preliminary notice (as done with respect to this Annual Meeting) at leasttwenty-one days prior to a publication of the notice of the meeting, stating its intention to convene such meeting and the agenda thereof, in which case the shareholder proposal should be submitted within fourteen days of such preliminary notice. The Annual Meeting notice attached to this preliminary proxy statement serves as a preliminary notice regarding the Annual Meeting pursuant to Section 5C of the Israeli Companies Regulations (Notice and Announcement of a General Meeting and a Class Meeting in Public Company and Adding Subjects to the Agenda), 5760-2000. Accordingly, any shareholderone or more shareholders holding 1% or more of the voting rights of Teva may request to include a proposal on the agenda of this Annual Meeting by submitting such proposal in writing to Teva no later than MayApril 2, 2018,2020, at its executive offices located at 5 Basel Street, P.O. Box 3190, Petach Tikva 4951033, Israel, Attn: Dov Bergwerk, Company Secretary.
Under Teva’s Articles of Association, one or more shareholders holding 1% or more of the voting rights in Teva (or a shareholder interested in proposing the nomination of certain candidate(s) for election as director(s) for consideration by the Corporate Governance and Nominating Committee) may propose to include a matter on the agenda of the 20192021 annual meeting of shareholders by submitting the proposal in writing to Teva at its executive offices at 5 Basel Street, P.O. Box 3190, Petach Tikva 4951033, Israel, Attn: Dov Bergwerk, Company Secretary, no later than 14 days after the date of first publication by Teva of its 20182020 consolidated financial statements.
Any such shareholder proposal must comply with the requirements of applicable law and Teva’s Articles of Association. The requirements under Teva’s Articles of Association include providing information such as: (i) the number of ordinary shares held by the proposing shareholder, directly or indirectly, and, if any such ordinary shares are held indirectly, an explanation of how they are held and by whom; (ii) the shareholder’s purpose in making the request; (iii) any agreements, arrangements, understandings or relationships between the shareholder and any other person with respect to any securities of Teva or the subject matter of the request; and (iv) if the shareholder wishes to include a statement in support of his or her proposal in Teva’s proxy statement, if provided or published, a copy of such statement. If the proposal is to nominate a candidate for election to the Board of Directors, the proposing shareholder must also provide (a) a declaration signed by the nominee and any other information required under the Israeli Companies Law, (b) additional information in respect of the nominee as would be required in response to the applicable disclosure requirements in Israel or abroad, including the information responsive to Items 401, 403 and 404 of RegulationS-K under the U.S. Securities Act, of 1933, as amended, to the extent applicable, (c) a representation made by the nominee of whether the nominee meets the objective criteria for an independent director of a company such as Teva under any applicable law, regulation or stock exchange rules, in Israel or abroad, and if not, then an explanation of why not, and (d) details of all relationships and understandings between the proposing shareholder and the nominee.
Under Rule14a-8 of the Exchange Act, a shareholder proposal to be included in the proxy statement and proxy card for the 20192021 annual general meeting of shareholders pursuant to Rule14a-8 must be received at our principal office on or before December 26, 2018, 2020 and must comply withRule 14a-8.
96 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 109
Related Party Transactions
In accordance with SEC rules, notwithstanding anything to the contrary set forth in any of our previous or future filings under the U.S. Securities Act of 1933, as amended, or the Exchange Act that might incorporate this proxy statementProxy Statement or future filings made by Teva under those statutes, the information included under the caption “Compensation Committee Report” and those portions of the information included under the caption “Audit Committee Report” required by the SEC’s rules to be included therein shall not be deemed to be “soliciting material” or “filed” with the SEC and shall not be deemed incorporated by reference into any of those prior filings or into any future filings made by the CompanyTeva under those statutes, except to the extent we specifically incorporate these items by reference.
Householding of Proxy Materials
Some banks, brokers and other nominee record holders may participate in the practice of “householding” proxy statements. This means that only one copy of the proxy materials may have been sent to multiple shareholders in your household. Teva will promptly deliver a separate copy of the proxy statement, as well as its annual report,Annual Report, to you if you write to or call Teva at the following addressCompany at: TevaIR@tevapharm.com or phone numbers:mailing address: Teva Pharmaceutical Industries Ltd., 5 Basel Street, Petach Tikva, Israel, phone: +972(3) 926-7656,Attn: Investor Relations, or in the United States at +1phone: +972(215) 591-8912.(3) 914-8171. If you want to receive copies of Teva’s proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee record holder, or you may contact us at the above address and phone numbers.
* * *
110 Teva Pharmaceutical Industries Ltd.20182020 Proxy Statement 97
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
2008 Employee Stock Purchase Plan2020 LONG-TERM EQUITY-BASED INCENTIVE PLAN
for U.S. Employees
| 1. | Purpose. |
As amended and restated effective September 7, 2017
1. Purpose. The purpose of the Plan is to provideassist the Company (a) in attracting, retaining, motivating, and rewarding certain key employees, officers and directors of each Designated Employerand consultants to the Company and its Affiliates and (b) promoting the creation of long-term value for shareholders of the Company by closely aligning the interests of such individuals with an opportunitythose of such shareholders. The Plan authorizes the award of Share-based incentives to purchase ADSs,Eligible Persons to encourage such persons to expend their maximum efforts in the creation of shareholder value. The Plan shall serve as the primary plan under which equity-based incentives are awarded on a worldwide basis to Eligible Persons.
The Plan succeeds the 2015 Plan for Awards granted on or after the Effective Date. The 2015 Plan will expire on September 2, 2020; however, as of the Effective Date, no additional awards may be made under the 2015 Plan. The adoption and effectiveness of the Plan will not affect the terms or conditions of any outstanding awards granted prior to the Effective Date under the 2015 Plan or the 2010 Plan.
| 2. | Definitions. |
For purposes of the Plan, the following terms shall be defined as set forth below:
(a) “2010 Plan” means the Teva Pharmaceutical Industries Limited 2010 Long-Term Equity-Based Incentive Plan.
(b) “2015 Plan” means the Teva Pharmaceutical Industries Limited 2015 Long-Term Equity-Based Incentive Plan.
(c) “ADS” means an American Depositary Share, which represents one Ordinary Share.
(d) “Affiliate” means, with respect to any entity, any other entity that, directly or indirectly through accumulated payroll deductions. Itone or more intermediaries, controls, is controlled by, or is under common control with, such entity and any other entity determined by the intentionCommittee to be an “Affiliate” for purposes of the Issuer,Plan.
(e) “Award” means an Option, a Restricted Share, a Restricted Share Unit, a Share Appreciation Right, a Performance Award, or any other Share-based award granted under the Plan.
(f) “Award Agreement” means a written agreement (which may be in electronic form) between the Company and a Participant evidencing the other Designated Employersterms and conditions of such Participant’s Award.
(g) “Board” means the Board of Directors of the Company.
(h) “Cause” means, in the absence of an Award Agreement or Participant Agreement otherwise defining Cause, (i) a Participant’s conviction of or indictment for any criminal act (whether or not involving the Company or its Affiliates) (A) constituting a felony, (B) evidencing moral turpitude, or (C) that has, or could reasonably be expected to result in, an adverse impact on the performance of the Participant’s duties to the Employer, or otherwise has, or could reasonably be expected to result in, an adverse impact to the business or reputation of the Company or its Affiliates; (ii) conduct of the Participant, in connection with his or her employment, that has, or could reasonably be expected to result in, material injury to the business or reputation of the Company or its Affiliates; (iii) any material violation of the policies of the Company or its
Affiliates, including, but not limited to, those relating to sexual harassment, corruption, the disclosure or misuse of confidential information, or those set forth in the manuals or statements of policy of the Company or its Affiliates; or (iv) willful neglect in the performance of the Participant’s duties for the Employer or willful or repeated failure or refusal to perform such duties;provided,however, that if, subsequent to the Participant’s voluntary Termination for any reason or involuntary Termination by the Company or an Affiliate without Cause, it is discovered that the Participant’s employment could have been terminated for Cause, such Participant’s employment shall be deemed to have been terminated for Cause. In the Plan qualifyevent there is an Award Agreement or Participant Agreement defining Cause, “Cause” shall have the meaning provided in such agreement, and a Termination by the Employer for Cause hereunder shall not be deemed to have occurred unless all applicable notice and cure periods in such agreement are complied with.
(i) “Change in Control” means:
(i) Ownership Change. A change in ownership or control of the Company effected through a transaction or series of transactions (other than an offering of Shares to the general public through a registration statement filed with the United States Securities and Exchange Commission, the Israeli Securities Authority or such other governmental authorities regulating the issuance of securities in other countries, or pursuant to aNon-Control Transaction) whereby any “person” (as defined in Section 3(a)(9) of the Exchange Act) or any two or more persons deemed to be one “person” (as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), directly or indirectly acquire “beneficial ownership” (within the meaning of Rule13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities outstanding immediately after such acquisition (“Company Voting Securities”) excluding, however, the following: (A) any acquisition directly from the Company; (B) any acquisition by the Company or any of its Affiliates; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Affiliates; or (D) any underwriter temporarily holding securities pursuant to an offering of such securities;
(ii) Board Change. The cessation for any reason (other than death) by the individuals who, as of the Effective Date, constitute the Board (the“Incumbent Board”), to constitute at least a majority of the Board, within any consecutive twenty-four-month period commencing on or after the Effective Date;provided,however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at leasttwo-thirds of the directors then constituting the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such individual is named as a nominee for director, without objection to such nomination) shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an “employee stock purchase plan”actual or threatened election contest (including, but not limited to, a consent solicitation) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board;
(iii) Reorganization. The consummation of a merger, consolidation, share exchange, or similar form of corporate transaction involving the Company or any of its Affiliates (a “Reorganization”), unless immediately following such Reorganization (1) more than fifty percent (50%) of the total voting power of (A) the corporation resulting from such Reorganization (the “Surviving Company”) or (B) if applicable, the ultimate parent corporation that has, directly or indirectly, beneficial ownership of one hundred percent (100%) of the voting securities of the Surviving Company (the “Parent Company”), is represented by Company Voting Securities that were outstanding immediately prior to such Reorganization (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among holders thereof immediately prior to the Reorganization, (2) no person, other than an employee
benefit plan sponsored or maintained by the Surviving Company or the Parent Company (or its related trust), becomes, as a result of the Reorganization, the beneficial owner, directly or indirectly, of fifty percent (50%) or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Company, or if there is no Parent Company, the Surviving Company, and (3) at least a majority of the members of the board of directors of the Parent Company, or if there is no Parent Company, the Surviving Company, following the consummation of the Reorganization, are members of the Incumbent Board at the time of the Board’s approval of the execution of the initial agreement providing for such Reorganization (any Reorganization which satisfies all of the criteria specified in (1), (2), and (3) above shall be a “Non-Control Transaction”); or
(iv) Asset Transaction. The sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any “person” (as defined in Section 3(a)(9) of the Exchange Act) or to any two or more persons deemed to be one “person” (as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Company’s Affiliates.
Notwithstanding the foregoing, (x) a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of fifty percent (50%) or more of the Company Voting Securities as a result of an acquisition of Company Voting Securities by the Company that reduces the number of Company Voting Securities outstanding;provided,however, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then occur, and (y) with respect to the payment of any amount that constitutes a deferral of compensation subject to Section 409A of the Code payable upon a Change in Control, a Change in Control shall not be deemed to have occurred unless the Change in Control constitutes a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 423 of the Code. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section409A(a)(2)(A)(v) of the Code.
2. Definitions.
(a) “ADSs” shall mean the American Depositary Shares of the Issuer, each representing one Ordinary Share of the Issuer.
(b)(j) “Code” shall meanmeans the United States Internal Revenue Code of 1986, as amended.amended from time to time, including regulations thereunder and successor provisions and regulations thereto.
(c)(k) “Committee” means a committee of the Board consisting of two or more members of the Board, each of whom shall meanbe an “independent director” as defined under the rules and regulations of the New York Stock Exchange or any other principal United States national securities exchange on which the Shares are listed and traded on the relevant date. Unless otherwise determined by the Board, the Human Resources and Compensation Committee of the Company Board or an administrative committee appointed byshall act as the Issuer Board, which shall beCommittee hereunder.
(l) “Companies Law” means the administrative committee for the Plan.Israeli Companies Law, 5759-1999, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.
(d)(m) “Company” shall meanmeans Teva Pharmaceuticals USA, Inc.Pharmaceutical Industries Limited, an Israeli corporation.
(e)(n) “Company BoardVoting Securities” shall meanhas the Boardmeaning set forth inSection 2(i)(i) hereof.
(o) “Compensation Policy” means the Teva Pharmaceutical Industries Limited Compensation Policy for Executive Officers and Directors, to the extent adopted by the Company in accordance with the Companies Law and as in effect from time to time.
(p) “Consultant” means each person who (i) is a natural person, (ii) provides bona fide consulting or advisory services to the Company and/or its Affiliates (including through an entity which is a wholly owned alter ego of Directors ofsuch person) and (iii) is designated as eligible by the Company.
(f) “Compensation” shall mean all wages, salary, overtime, bonuses, and commissions.
(g) “Designated Employer” shall mean each United States Subsidiary.
(h) “Employee” shall mean any individual who is an employee of any Designated Employer for purposes of tax withholding under the Code.Committee. For purposes of the Plan, in the case of a Consultant, references to employment relationship shall be treateddeemed to refer to such Consultant’s service in such capacity, but in no event shall the Plan or any action taken hereunder be construed to create an employer-employee relationship between any such Consultant and the Company or of any of its Affiliates.
(q) “Corporate Event” means (i) a Change in Control; (ii) a merger or consolidation involving the Company in which the Company is not the surviving corporation; (iii) a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of Shares receive securities of another corporation and/or other property, including cash; (iv) a sale, divesture,spin-off or other similar transaction in which any Affiliate of the Company ceases to be an Affiliate of the Company; (v) in the event that the Company or any Affiliate of the Company closes or disposes of a business unit or facility or diminishes or eliminates ownership interests in any business unit of the Company or any Affiliate of the Company so that such operating unit ceases to be majority owned by the Company or any of its Affiliates, with respect to outstanding Awards held by Participants that experience a Termination on account of such event only; or (vi) the reorganization or liquidation of the Company.
(r) “Disability” means, in the absence of an Award Agreement or Participant Agreement otherwise defining Disability, the permanent and total disability of a Participant as continuing intact whiledefined by applicable law or in an applicable Subplan or, in the individualabsence of such definition, as defined in guidelines approved by the Board or the Committee. In the event there is an Award Agreement or Participant Agreement defining Disability, “Disability” shall have the meaning provided in such agreement.
(s) “Double Trigger Termination” means a Participant’s involuntarily termination other than for Cause (including the Participant’s resignation for “good reason” or “constructive termination” (or similar term) under an Award Agreement or Participant Agreement), or a Participant’s termination under circumstances which entitle the Participant to mandatory severance payment(s) pursuant to applicable law, in each case, at any time beginning on sick leavethe date of a Change in Control up to and including the second anniversary of the Change in Control.
(t) “Effective Date” means July 1, 2020.
(u) “Eligible Person” means (i) each employee of the Company or otherof any of its Affiliates, including each such person who may also be a director of the Company and/or its Affiliates; (ii) eachnon-employee director of the Company and/or its Affiliates; (iii) each Consultant; and (iv) any natural person who has accepted an offer of employment from the Company or an Affiliate of the Company or entered into a Participant Agreement;provided,however, that any such person may not receive any payment or exercise any right relating to an Award until such person has commenced employment or service with the Company or its Affiliates. An employee on an approved leave of absence approved by the Designated Employer,(including maternity leave) shall be considered as applicable. Where the period of leave exceeds 90 days and the individual’s right to reemployment is not guaranteed either by statute or by contract,still in the employment relationship will be deemedof the Company or its Affiliates for purposes of eligibility for participation in the Plan.
(v) “Employer” means either the Company or an Affiliate of the Company by which the Participant is principally employed or to have terminated onwhich the 91st dayParticipant provides services (including services as anon-employee director), as applicable (in each case determined without regard to any transfer of such leave.an Award in accordance withSection 17 hereof).
(i) “Enrollment Date” shall mean the first Trading Day of each Offering Period.
(j)(w) “Exchange Act” shall meanmeans the United States Securities Exchange Act of 1934, as amended.amended from time to time, including rules and regulations thereunder and successor provisions and rules thereto.
(k) “Exercise Date” shall mean the last Trading Day of each Offering Period.
(l)(x) “Fair Market Value” shall mean,means, as of any date when the value of the ADSs determined as follows:
(i) If the ADSsShares are listed on any established stockone or more United States securities exchanges, the closing price reported on the principal United States national securities exchange on which such Shares are listed and traded on such date, or, if not quoted on such date, then on the last preceding date on which the Shares were quoted. If the Shares are not listed on a United States exchange, or a national market system, including without limitation the New York Stock Exchange (“NYSE”),representative quotes are not otherwise available, the Fair Market Value shall mean the amount determined by the Board in good faith, and in a manner consistent with Section 409A of the Code, to be the averagefair market value per Share.
(y) “Federal Reserve Board” means the Board of Governors of the highUnited States Federal Reserve System.
(z) “GAAP” means accounting principles generally accepted in the United States from time to time.
(aa) “Grant Date” means the date on which the Committee, and, low saleif required, the Board, formally acts to grant an Award to a Participant or such other date as the Committee, and, if applicable, the Board, shall so designate at the time of taking such formal action and as set forth in the Award Agreement.
(bb) “Incumbent Board” has the meaning set forth inSection 2(i)(ii) hereof.
(cc) “Non-Control Transaction” has the meaning set forth inSection 2(i)(iii) hereof.
(dd) “Office Holder” has the meaning ascribed to such term in the Companies Law.
(ee) “Option” means a conditional right granted to a Participant underSection 8 hereof, to purchase one Share at a specified price during a specified period. No Option granted pursuant to the Plan shall be considered an “incentive stock option” (within the meaning ascribed to such term in Section 422 of the Code).
(ff) “Option Expiration Date” has the meaning set forth inSection 8(b) hereof.
(gg) “Ordinary Shares” means the Company’s ordinary shares, par value NIS 0.10 per share.
(hh) “Parent Company” has the meaning set forth inSection 2(i)(iii) hereof.
(ii) “Participant” means an Eligible Person who has been granted an Award under the Plan or, if applicable, such other person or entity who holds an Award.
(jj) “Participant Agreement” means an employment or other services agreement between a Participant and the Employer that describes the terms and conditions of such Participant’s employment or service with the Employer and is effective as of the date of determination.
(kk) “Performance Award” means an Award granted to a Participant underSection 7 hereof, which Award is subject to the achievement of Performance Objectives during a Performance Period. A Performance Award shall be designated as a Performance Share or Performance Unit at the time of grant.
(ll) “Performance Objectives” means the performance objectives established by the Committee for Participants who have received Awards based on performance. A Performance Objective may consist of a single performance goal or may consist of a requirement to achieve a certain level of performance within a performance category.
(mm) “Performance Period” means the period designated for the ADSsachievement of Performance Objectives. A performance period may expire on a predefined date or upon the achievement of the Performance Objectives.
(nn) “Performance Share” means a Performance Award representing one Share which may be earned based upon the achievement of Performance Objectives during a Performance Period.
(oo) “Performance Unit” means a Performance Award representing the right to receive one Share (or the averagecash value of one Share, if so determined by the Committee) which may be earned based upon the achievement of Performance Objectives during a Performance Period.
(pp) “Plan” means this Teva Pharmaceutical Industries Limited 2020 Long-Term Equity-Based Incentive Plan. The Plan shall be deemed to include any Subplans, supplements to or amendments, restatements or alternative versions of the closing bidPlan or any Subplan approved by the Board which, in the aggregate, shall constitute one Plan governed by the terms set forth herein.
(qq) “Qualified Member” means a member of the Committee who is a“Non-Employee Director” within the meaning of Rule16b-3 of the Exchange Act.
(rr) “Qualifying Committee” has the meaning set forth inSection 3(c) hereof.
(ss) “Qualifying Retirement” means the Termination of a Participant which meets guidelines for Qualifying Retirement under the Plan approved by the Board or the Committee.
(tt) “Reorganization” has the meaning set forth inSection 2(i)(iii) hereof.
(uu) “Restricted Share” means a Share granted to a Participant underSection 5 hereof that is subject to certain restrictions and asked prices,to a risk of forfeiture. For the avoidance of doubt, any performance-based Restricted Share shall not be deemed granted underSection 5 hereof and shall be deemed a Performance Share granted underSection 7 hereof.
(vv) “Restricted Share Unit” means a notional unit, granted to a Participant underSection 6 hereof, representing the right to receive one Share (or the cash value of one Share, if so determined by the Committee) on a specified settlement date. For the avoidance of doubt, any performance-based Restricted Share Unit shall not be deemed granted underSection 6 hereof and shall be deemed a Performance Unit granted underSection 7 hereof.
(ww) “SAR Expiration Date” has the meaning set forth inSection 9(b) hereof.
(xx) “Securities Act” means the United States Securities Act of 1933, as amended from time to time, including rules and regulations thereunder and successor provisions and rules thereto.
(yy) “Share” means an Ordinary Share and/or an ADS, as the context may require, and such other securities as may be substituted for such Share pursuant toSection 11 hereof.
(zz) “Share Appreciation Right” means a conditional right, granted to a Participant underSection 9 hereof, to receive an amount of Shares (or the cash value of such Shares, if so determined by the Committee) equal to the increase in the Fair Market Value of one Share over a specified period.
(aaa) “Subplan” has the meaning set forth inSection 3(a) hereof.
(bbb) “Surviving Company” has the meaning set forth inSection 2(i)(iii) hereof.
(ccc) “Termination” means the termination of a Participant’s employment or service, as applicable, with the Employer;provided,however, that (i) the transfer of employment or service, as applicable, to another Employer, (ii) the change of a Participant’s status in relation to the Employer from an employee to a Consultant or vice versa and (iii) such other change of a Participant’s status in relation to the Employer if so determined by the Committee at the time of such change in status, will not be deemed to be a Termination hereunder. Unless otherwise determined by the Committee in the event that any Employer ceases to be an Affiliate of the Company (by reason of sale, divesture,spin-off or other similar transaction), unless a Participant’s employment or service with such Employer is transferred to another entity that would constitute an Employer immediately following such transaction, such Participant shall be deemed to have suffered a Termination hereunder as of the date of the consummation of such transaction. Notwithstanding anything herein to the contrary, a Participant’s change in status in relation to the Employer (for example, a change from employee to consultant) shall not be deemed a Termination hereunder with respect to any Awards constituting nonqualified deferred compensation subject to Section 409A of the Code that are payable upon a Termination unless such change in status constitutes a “separation from service” within the meaning of Section 409A of the Code.
| 3. | Administration. |
(a) Authority of the Board. The Board has the exclusive authority to approve one or more subplans that will be established, within the parameters and according to the overall terms and provisions of the Plan, to facilitate local administration of the Plan in any jurisdiction in which the Company or its Affiliates operate and to conform the Plan to the legal requirements of any such jurisdiction or to allow for favorable tax treatment under any applicable provision of tax law (each, a “Subplan”).
(b) Authority of the Committee. Except as otherwise provided herein or required under applicable law, the Plan shall be administered by the Committee. Subject to applicable law, the Committee shall have full and final authority, in its sole and absolute discretion, in each case subject to and consistent with the provisions of the Plan, to (i) allocate from within the aggregate number of Shares covered by the Plan, a portion thereof to be specifically utilized in connection with each of the Subplans, and determine the types of Awards available for grant under each Subplan; (ii) establish, as permitted by law, policies, guidelines or parameters applicable to Awards granted under the Subplans; (iii) select Eligible Persons to become Participants; (iv) grant Awards; (v) determine the type, number of Shares subject to, and other terms and conditions of, and all other matters relating to, Awards; (vi) prescribe Award Agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan and each of the Subplans; (vii) construe and interpret the Plan, any Subplan and any Award Agreement and correct defects, supply omissions, or reconcile inconsistencies therein; (viii) suspend the right to exercise Awards during any period that the Committee deems appropriate to comply with applicable securities laws, and thereafter extend the exercise period of an Award by an equivalent period of time; and (ix) make any and all decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan and each Subplan. Any action of the Committee shall not be subject to review by any person and shall be final, conclusive, and binding on all persons, including, without limitation, the Company, its Affiliates, Eligible Persons, Participants, and beneficiaries of Participants.
(c) Manner of Exercise of Committee Authority. At any time that a member of the Committee is not a Qualified Member, subject to applicable law, any action relating to an Award granted or to be granted to a Participant who is then subject to Section 16 of the Exchange Act in respect of the Company may be taken by a subcommittee, designated by the Committee or the Board, composed solely of two or more Qualified Members (a “Qualifying Committee”), or by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself from such action;provided that, upon such abstention or recusal, the Committee remains composed of two or more Qualified Members. Any action authorized by such a Qualifying Committee or by the Committee upon the abstention or recusal of suchnon-Qualified Member(s) shall be deemed to be the action of the Committee for purposes of the Plan. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee.
(d) Delegation. To the extent permitted by applicable law, the Committee may delegate to officers or employees of the Company or any of its Affiliates, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including, but not limited to, administrative functions, as the Committee may determine appropriate. The Committee may appoint agents to assist it in administering the Plan. Notwithstanding the foregoing or any other provision of the Plan to the contrary, any Award granted under the Plan to any person or entity who is not an employee of the Company or any of its Affiliates (including anynon-employee director of the Company or any Affiliate) or to any person who is subject to Section 16 of the Exchange Act shall be expressly approved by the Committee or Qualifying Committee in accordance withSection 3(b) hereof. To the extent necessary to comply with applicable law, the Board retains the authority to concurrently administer the Plan with the Committee, in which case the Board shall be deemed to be the Committee for purposes of the Plan and all references in the Plan to the Committee shall be deemed references to the Board.
| 4. | Shares Available under the Plan. |
(a) Number of Shares Available for Delivery. Subject to adjustment as provided inSection 11hereof, the maximum number of Shares reserved and available for delivery in connection with Awards under the Plan shall be 68,000,000 Shares. For the avoidance of doubt and without derogating from Section 4(b)(iii) hereof, all Shares that remain available for issuance as awards under the 2015 Plan will expire on the Effective Date and will no saleslonger be available to grant awards thereunder. Shares delivered under the Plan shall consist of authorized and unissued Shares or previously issued Shares reacquired by the Company or its Affiliates on the open market or by private purchase. In no event shall fractional shares be issued under the Plan upon the exercise or settlement of any Award.
(b) Share Counting Rules. The Committee may adopt reasonable counting procedures to ensure appropriate counting and avoid double counting (as, for example, in the case of tandem or substitute Awards) and may make adjustments if the number of Shares actually delivered differs from the number of Shares previously counted in connection with an Award.
(i) The maximum number of available Shares will be reduced by one Share for every Share subject to any Award.
(ii) To the extent that an Award expires or is canceled, forfeited, settled in cash, or otherwise terminated without a delivery to the Participant of the full number of Shares to which the Award related, the number of Shares that were reported)reduced pursuant toSection 4(b)(i) hereof from the total number of available Shares on account of such undelivered Shares will again be available for grant. The number of Shares that were reduced pursuant toSection 4(b)(i) hereof from the total number of available Shares on account of Shares withheld in payment of the exercise price or base price or taxes relating to an Award shall constitute Shares delivered to the Participant and shall not be deemed to again be available for Awards under the Plan. Notwithstanding anything herein to the contrary, the following Shares shall not be added to the total number of available Shares pursuant toSection 4(a)hereof and shall not be available for grants of Awards: (i) Shares subject to a Share Appreciation Right that are not issued in connection with the stock settlement of the Share Appreciation Right upon exercise thereof; and (ii) Shares purchased on the open market by the Company or its Affiliates with the cash proceeds received from the exercise of Options.
(iii) To the extent that any outstanding grant prior to the Effective Date under the 2015 Plan or the 2010 Plan expires or is canceled, forfeited, settled in cash, or otherwise terminated without a delivery to the holder of the full number of Shares to which the grant related, the number of Shares that were reduced from the total number of available Shares under the 2015 Plan or 2010 Plan pursuant to Section 4 of the 2015 Plan or 2010 Plan, as applicable, on account of such undelivered shares will increase the maximum number of Shares available for grant under the Plan.
(iv) Notwithstanding anything herein to the contrary, equity-based awards assumed or substituted by the Company or its Affiliates as part of a corporate transaction (including, without limitation, from an entity merged into or with the Company or any of its Affiliates, acquired by the Company or any of its Affiliates, or otherwise involved in a similar corporate transaction) shall not count against the number of Shares reserved and available for issuance pursuant to the Plan.
(c) Shares Available Under Acquired Plans. Additionally, to the extent permitted by New York Stock Exchange Listed Company Manual Section 303A.08 or other applicable stock exchange rules, subject to applicable law, in the event that a company acquired by the Company or with which the Company combines has Shares available under apre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the Shares available for grant pursuant to the terms of suchpre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration
payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the number of Shares authorized for grant under the Plan;provided that Awards using such available Shares shall not be made after the date awards could have been made under the terms of suchpre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by the Company or any subsidiary of the Company immediately prior to such acquisition or combination.
(d) Minimum Vesting Condition. No Award granted to any Participant shall vest prior to the first anniversary of the Grant Date (or, if earlier, the next annual meeting of shareholders that occurs fifty weeks or more after the Grant Date in connection with awards tonon-employee directors of the Company), unless the Committee determines to accelerate vesting upon the occurrence of a specific event, such as quoteda termination of a Participant’s employment or service or Corporate Event or other corporate transaction, and this provision may not be waived or superseded by any Award Agreement or Participant Agreement;provided that (i) up to five percent (5%) of the maximum number of Shares available for issuance under the Plan may be granted without being subject to the foregoing restrictions and (ii) any dividends or dividend equivalents issued in connection with any Award granted at any time under the Plan shall not be subject to or counted for either such restrictions or such five percent (5%) share issuance limit. The foregoing five percent (5%) share issuance limit shall be subject to adjustment consistent with the adjustment provisions ofSection 11 hereof and the share counting rules ofSection 4(b) hereof.
| 5. | Restricted Shares. |
(a) General. Restricted Shares may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The terms and conditions of each Restricted Shares award shall be evidenced by an Award Agreement, which agreements need not be identical. Subject to the restrictions set forth inSection 5(b) hereof, except as otherwise set forth in a Subplan or an Award Agreement, the Participant shall generally have the rights and privileges of a shareholder as to such Restricted Shares, including the right to vote such Restricted Shares. Dividends, if any, with respect to the Restricted Shares shall be withheld by the Company for the Participant’s account, and shall be subject to vesting and forfeiture to the same degree as the Restricted Shares to which such dividends relate. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any dividends withheld, and if the Committee determines to accrue interest on the amount of dividends withheld, no interest will be paid before the applicable vesting date.
(b) Restrictions on Transfer/Vesting. In addition to any other restrictions set forth in the Plan, a Subplan or in a Participant’s Award Agreement, until such time that the Restricted Shares have vested pursuant to the terms of the Award Agreement, the Participant shall not be permitted to sell, transfer, pledge, or otherwise encumber the Restricted Shares. Restricted Shares shall vest in such manner, on such exchange (ordate or dates, in each case, as may be determined by the exchangeCommittee and set forth in the Award Agreement. Except as otherwise specifically determined by the Committee or provided in the Plan, the vesting of a Restricted Share shall occur only while the Participant is employed or rendering services to the Employer or during any period of paid leave, and all vesting shall cease upon a Participant’s Termination for any reason. To the extent permitted by applicable law, vesting may be suspended at the Committee any time during the period of any unpaid leave and shall resume upon the Participant’s return to employment.
(c) Termination of Employment or Service. Except as otherwise provided in a Subplan or an Award Agreement or determined by the Committee (including in the case of a Qualifying Retirement in accordance withSection 21(j) hereof):
(i) Regular Termination; Forfeiture. In the greatest volumeevent of trading in ADSs)a Participant’s Termination prior to a vesting date for any reason other than (A) the Participant’s death or system onDisability or (B) by the Employer for Cause, (1) all vesting with respect to such Participant’s Restricted Shares shall cease and (2) all of such Participant’s unvested Restricted Shares shall immediately be forfeited for no consideration as of the date of such determination, if such date is a Trading Day, or if such date is not a Trading Day, then on the Trading Day immediately preceding such date, as reported in The Wall Street Journal or such other source as the Company Board deems reliable; orTermination.
(ii) Death or Disability; Acceleration. In the event of a Participant’s Termination prior to a vesting date by reason of such Participant’s death or Disability, all of such Participant’s Restricted Shares shall immediately become vested as of the date of such Termination.
(iii) Cause; Immediate Forfeiture. In the event of a Participant’s Termination for Cause prior to a vesting date, all of such Participant’s unvested Restricted Shares shall immediately be forfeited for no consideration as of the date of such Termination.
| 6. | Restricted Share Units. |
(a) General. Restricted Share Units may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The terms and conditions of each Restricted Share Units award shall be evidenced by an Award Agreement, which agreements need not be identical. No dividend equivalents shall be paid on Restricted Share Units. If so determined in a Subplan or an Award Agreement, dividend equivalents may accrue on Restricted Share Units, and such accrued dividend equivalents, if any, shall be withheld by the ADSs are quotedCompany for the Participant’s account, and shall be subject to vesting and forfeiture to the same degree as the Restricted Share Units to which such dividend equivalents relate. Except as otherwise determined by the Committee, no interest will accrue or be paid on the NYSEamount of any dividend equivalents withheld, and if the Committee determines to accrue interest on the amount of dividends withheld, no interest will be paid before the applicable vesting date.
(b) Vesting. Restricted Share Units shall vest in such manner, on such date or dates, in each case, as may be determined by the Committee and set forth in the Award Agreement. Except as otherwise specifically determined by the Committee or provided in the Plan, the vesting of a Restricted Share Unit shall occur only while the Participant is employed or rendering services to the Employer or during any period of paid leave, and all vesting shall cease upon a Participant’s Termination for any reason. To the extent permitted by applicable law, vesting may be suspended by the Committee any time during the period of any unpaid leave and shall resume upon the Participant’s return to employment.
(c) Settlement of Restricted Share Units. As soon as practicable following the vesting date, or at such other time specified in an Award Agreement, unless earlier forfeited, subject to the terms of any Subplan, the Company shall settle each Restricted Share Unit by delivering one Share (or the cash value of one Share, if so determined by the Committee).
(d) Termination of Employment or Service. Except as otherwise provided in a Subplan or an Award Agreement or determined by the Committee (including in the case of a Qualifying Retirement in accordance with Section 21(j) hereof):
(i) Regular Termination; Forfeiture. In the event of a Participant’s Termination prior to a vesting date for any reason other than (A) the Participant’s death or Disability or (B) by the Employer for Cause, (1) all vesting with respect to such Participant’s Restricted Share Units shall cease, (2) all of such Participant’s unvested Restricted Share Units shall immediately be forfeited for no consideration as of the date of such Termination and (3) to the extent not already settled, all of such Participant’s vested Restricted Share Units shall be settled in accordance with the settlement schedule set forth in the applicable Award Agreement.
(ii) Death or Disability; Acceleration. In the event of a Participant’s Termination prior to a vesting date by reason of such Participant’s death or Disability, all of such Participant’s Restricted Share Units shall immediately become vested as of the date of such Termination and shall be settled promptly following the date of such Termination.
(iii) Cause; Immediate Forfeiture. In the event of a Participant’s Termination for Cause prior to settlement, all of such Participant’s Restricted Share Units shall immediately be forfeited for no consideration as of the date of such Termination.
| 7. | Performance Awards. |
(a) General. Performance Awards may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The terms and conditions of each Performance Award, including the determination of the Committee with respect to the form of payout of the Performance Award, shall be evidenced by an Award Agreements, which agreements need not be identical. No dividends or dividend equivalents shall be paid on Performance Awards. If so determined in a Subplan or an Award Agreement, dividends or dividend equivalents may accrue on Performance Awards, and such accrued dividends or dividend equivalents, if any, shall be withheld by the Company for the Participant’s account and shall become payable if and to the extent the underlying Performance Awards are regularly quotedearned and vested. Except as otherwise determined by a recognized securities dealer but selling prices are not reported,the Committee, no interest will accrue or be paid on the amount of any dividends or dividend equivalents withheld, and if the Committee determines to accrue interest on the amount of dividends withheld, no interest will be paid before the applicable vesting date.
(b) Value of Performance Awards. Each Performance Award shall have an initial value equal to the Fair Market Value per Share on the Grant Date unless a different initial value is established by the Committee at the time of grant. In addition to any othernon-performance terms included in the Award Agreement, the Committee shall set the applicable Performance Objectives and Performance Period, which objectives, depending on the extent to which they are met, will determine the value and/or number of Performance Units or Performance Shares, as the case may be, that will be paid or settled in respect of a Performance Award.
(c) Earning of Performance Units and Performance Shares. Except as otherwise provided in a Subplan or an Award Agreement, upon the expiration of the applicable Performance Period or othernon-performance-based vesting period, if longer, the holder of Performance Units or Performance Shares, as the case may be, shall be entitled to receive payout on the averagevalue and/or number of the closing bidapplicable Performance Units or Performance Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Objectives have been achieved and asked prices forany othernon-performance-based terms met, all as determined by the ADSs on the dateCommittee. The Committee may specify a minimum acceptable level of such determination, if such date is a Trading Day,achievement below which no Performance Units or if such date is not a Trading Day, then on the Trading Day immediately preceding such date, as reported in The Wall Street Journal or such other source as the Company Board deems reliable; or
(iii) In the absence of an established market for the ADSs, the Fair Market Value thereofPerformance Shares shall be earned and may set forth a formula for determining the amount of Performance Units or Performance Shares earned if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Objectives. Except as otherwise specifically determined in good faith by the Company Board.
(m) “Issuer” shall mean Teva Pharmaceutical Industries Limited.
(n) “Issuer Board” shall mean the Board of Directors of the Issuer.
(o) “Offering Period” shall mean, subject to the second sentence of Section 4 hereof, each quarter commencing on the first Trading Day onCommittee or after January 1, April 1, July 1, and October 1 ending on or prior to the following March 31, June 30, September 30, and December 31, respectively.
(p) “Ordinary Shares” shall mean the ordinary shares of the Issuer, NIS 0.1 par value per share.
(q) “Parent” shall mean a corporation which is a “parent corporation” of the Issuer within the meaning of section 424(e) of the Code.
(r) “Plan” shall mean this Teva Pharmaceutical Industries Limited 2008 Employee Stock Purchase Plan for U.S. Employees, as amended.
(s) “Purchase Price” shall mean an amount equal to 85% of the Fair Market Value of an ADS on the Exercise Date, provided that, effective with the first Offering Period commencing on January 1, 2016 the Purchase Price shall be 95% of the Fair Market Value of an ADS on the Exercise Date.
(t) “Reserves” shall mean the number of ADSs covered by each option underin the Plan, which have not yet been exercised and the number of ADSs which have been authorized for issuance under the Plan but not yet placed under option.
(u) “Subsidiary” shall mean a corporation which is a “subsidiary corporation” of the Issuer within the meaning of section 424(f) of the Code.
(v) “Trading Day” shall mean a day on which national stock exchanges and NYSE (as defined above) are open for trading.
3. Eligibility.
(a) Each person who is an Employee, on a given Enrollment Date,Participant shall be eligible to participateearn a Performance Award only while the Participant is employed or rendering services to the Employer or during any period of paid leave. To the extent permitted by applicable law, in the Plan.event that a Participant takes unpaid leave prior to a Performance Award becoming earned and vested, (i) vesting may be suspended by the Committee at any time during the period of such unpaid leave and shall resume upon such Participant’s return to employment or (ii) the Performance Award may be forfeited for no consideration by the Committee at any time during the period of such unpaid leave.
(b) Any provisions(d) Form and Timing of Settlement of Performance Units and Performance Shares. Subject to the terms of the Plan and any Subplan, the Committee may pay earned Performance Units and Performance Shares in the form of cash, Shares, or other Awards (or in a combination thereof) equal to the contrary notwithstanding, no Employee shallvalue of the earned Performance Units or Performance Shares, as the case may be, granted an option underat the Plan (i) if, immediatelyclose of the applicable Performance Period, or as soon as practicable after the grant, such Employee would own the ADSs (together with stock owned by any other person or entity that would be attributed to such Employee pursuant to section 424(d)end of the Code) of the Issuer (including, for this purpose, all shares of stockPerformance Period, or at such other time specified in an Award Agreement. Any cash, Shares, or other Awards issued in connection with a Performance Award may be issued subject to any outstanding options to purchase such stock, whether or not currently exercisable and irrespective of whether such options are subject torestrictions deemed appropriate by the favorable tax treatment of section 421(a) of the Code) possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Issuer or of any Parent or Subsidiary, or (ii) which permits his or her rights to purchase stock under all employee stock purchase plans (within the meaning of section 423 of the Code) of the Issuer and its Parents and Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of the ADSsCommittee.
((e) Termination of Employment or Service. Except as otherwise provided in a Subplan or an Award Agreement or determined by the Committee (including in the case of a Qualifying Retirement in accordance with Section 21(j) hereof):
(i) Regular Termination; Forfeiture. In the event of a Participant’s Termination for any reason other than (A) the Participant’s death or Disability or (B) by the Employer for Cause, in each case, prior to a Performance Award becoming earned and vested, such Performance Award shall immediately be forfeited for no consideration as of the date of such Termination.
(ii) Death or Disability; Acceleration. In the event of a Participant’s Termination by reason of such Participant’s death or Disability prior to a Performance Award becoming earned and vested, such Performance Award shall immediately become vested based on target level of performance as of the date of such Termination and be paid or settled promptly following the date of such Termination.
(iii) Cause; Immediate Forfeiture. In the event of a Participant’s Termination for Cause prior to payment or settlement of a Performance Award, such Performance Award shall immediately be forfeited for no consideration as of the date of such Termination.
(f) Performance Objectives. Each Performance Award shall specify the Performance Objectives that must be achieved before such Award shall become earned.
(g) Adjustments. At any time following the grant of the Performance Award and prior to the payout of the Performance Award, the Committee may (A) designate additional business criteria on which the Performance Objectives may be based or (B) provide for adjustments, modifications or amendments to any of the Performance Objectives, including, without limitation, adjustments, modifications or amendments for one or more of the following items of gain, loss, profit or expense: (1) determined to be extraordinary, unusual ornon-recurring in nature; (2) related to changes in accounting principles under GAAP or tax laws; (3) related to currency fluctuations; (4) related to financing activities (e.g., effect on earnings per share of issuing convertible debt securities); (5) related to restructuring, divestitures, productivity initiatives or new business initiatives; (6) related to discontinued operations that do not qualify as a segment of business under GAAP; (7) attributable to the business operations of any entity acquired by the Company during the fiscal year;(8) non-operating items; and (9) acquisition expenses.
(h) Negative Discretion. Notwithstanding satisfaction of any completion of any Performance Objectives, the number of Shares, cash or other benefits granted, issued, retainable and/or vested under a Performance Award on account of satisfaction of such Performance Objectives may be reduced by the Committee on the basis of such further considerations as the Committee will determine.
| 8. | Options. |
(a) General. Options may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The terms and conditions of each Options award shall be evidenced by an Award Agreement, which agreements need not be identical. No dividends or dividend equivalents shall accrue or be paid on Options.
(b) Term. The term of each Option shall expire on the date set by the Committee in an Award Agreement at the time of grant (the “Option Expiration Date”), subject to earlier expiration upon the conditions set forth in the Plan or the applicable Award Agreement;provided,however, that no Option granted hereunder shall be exercisable after the tenth (10th) anniversary of the Grant Date (or, if such anniversary is not a business day in the United States, the next succeeding United States business day).
(c) Exercise Price. The exercise price per Share for each Option shall be set by the Committee and shall not be less than the Fair Market Value of the ADSs at the time such option is granted) for each calendar year in which such option is outstanding at any time. The limitation described in clause (ii) of the preceding sentence shall be applied in a manner consistent with Section 423(b)(8) of the Code.
4. Offering Periods. The Plan shall be implemented by consecutive Offering Periods continuing from the first Offering Period until terminated in accordance with Section 18 hereof. The Company Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least twenty-five (25) days prior to the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An Employee may become a participant in the Plan for an Offering Period by completing a subscription agreement authorizing payroll deductions in and submitting it to the Committee (or such person as may be designated by the Committee from time to time) no later than the 20th day of the month immediately prior to the applicable Enrollment Date, unless a later time for submitting the subscription agreement is set by the Company Board for all Employees with respect to a given Offering Period. An Employee may complete and submit a subscription agreement in any manner, including electronically, as the Committee may prescribe from time to time. By submitting a subscription agreement, the Employee agrees to be bound by the terms of the Plan.
(b) Payroll deductions for a participant shall commenceunderlying Shares on the first payroll date on or following the Enrollment Date and shall end on the last payroll date in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof.Grant Date.
6. Payroll Deductions.
(a) At the time a participant submits his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount (expressed as a whole number percentage) not exceeding ten percent (10%) of the Compensation which he or she receives on each pay day during the Offering Period; provided, however, that the maximum number of ADSs which may be purchased by any participant during any Offering Period is the number of ADSs equal to (i) $25,000 minus the Fair Market Value of the number of ADSs previously purchased during such calendar year, such Fair Market Value determined as of each such prior Enrollment Date during the calendar year with respect to which the ADSs were previously purchased, divided by (ii) the Fair Market Value of the ADSs on the Enrollment Date for the current Offering Period.
(b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and will be withheld in whole percentages only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan, as provided in Section 10 hereof, at any time during the Offering Period prior to the Exercise Date. Once an Offering Period has commenced, a participant may not increase or decrease the rate of his or her payroll deductions for that Offering Period, but may, during that Offering Period, increase or decrease the rate of his or her payroll deductions for the next succeeding Offering Period, by completing or submitting with the Committee (or such person as may be designated by the Committee from time to time) a new subscription agreement, no later than the 20th day of the month immediately prior to the end of that Offering Period, authorizing a change in payroll deduction rate. A participant’s subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, a participant’s payroll deductions may be decreased by the Committee to 0% (i) at any time, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b)
hereof, and (ii)(d) Payment for each Offering Period, at such time during such Offering Period that the aggregate Fair Market ValueShares. Payment of the ADSs (measured as of the date of each respective Enrollment Date) previously purchased when addedexercise price for Shares acquired pursuant to the Fair Market Value of the ADSs toOptions granted hereunder shall be purchased with respect to such then current Offering Period equals or would exceed $25,000made in such calendar year. Subject to the preceding sentence, payroll deductions shall recommence at the rate provided in such participant’s subscription agreement at the beginning of the next succeeding Offering Period, unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the time some or all of the ADSs issued under the Plan are disposed of, the participant must make adequate provisions for the Designated Employer’s federal, state, or other tax withholding obligations, if any, which arisefull, upon the exercise of the optionOptions (i) in immediately available funds, or the disposition of the ADSs. At any time, the Designated Employer may, but will not be obligated to, withhold from the participant’s compensation the amount necessary for the Designated Employer to meet applicable withholding obligations, including any withholding required to make availableby certified or bank cashier’s check payable to the Designated Employer any tax deductions or benefits attributableCompany, (ii) solely to sale or early disposition of the ADSsextent permitted by applicable law and authorized by the Employee.
7. GrantCommittee, by delivery of Option. On the Enrollment Date of each Offering Period, each Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date of such Offering Period (at the applicable Purchase Price) up to a number of ADSs determined by dividing such Employee’s payroll deductions accumulated prior to such Exercise Date and retained in the participant’s account as of the Exercise Date by the applicable Purchase Price; provided, however, that the maximum number of ADSs which may be purchased by any participant during any Offering Period is the number of ADSs equal to (i) $25,000 minus the Fair Market Value of the number of ADSs previously purchased during such calendar year, such Fair Market Value determined as of each such prior Enrollment Date during the calendar year with respect to which such shares were previously purchased, divided by (ii) the Fair Market Value of the ADSs on the Enrollment Date for the current Offering Period, and provided, further, that such purchase shall be subjectShares to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10 hereof, hisCompany (either by actual delivery or her option for the purchase of ADSs will be exercised automatically on the Exercise Date, and, subject to the limitations set forth in Sections 3(b), 7 and 12 hereof, the maximum number of full and fractional ADSs subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. During a participant’s lifetime, a participant’s option to purchase ADSs hereunder is exercisable only with respect to such participant.
9. Crediting of ADSs and Delivery or Sale of ADSs. As promptly as practicable after each Exercise Date on which a purchase of ADSs occurs, the Company (or the applicable Designated Employer) shall arrange for the full and fractional portion of the ADSs to be deposited in the brokerage account of each participant at a brokerage house designated by the Committee. The ADSs shall be held in such brokerage account until such time as the participant, or his or her designated beneficiary or estate in the event of a participant’s death, requests delivery of a certificate representing any of the ADSs or requests that any ADSs be sold and the proceeds therefrom be distributed to such participant; provided, however, that, for the avoidance of doubt, no ADSs were withdrawn or sold prior to such time as the Plan was initially approved by the shareholders of the Issuer holding a majority of its outstanding ADSs and Ordinary Shares. Upon the request of a participant, or his or her designated beneficiary or estate in the event of a participant’s death, any fractional ADSs will be distributed in cash in the form of a checkattestation) having a value equal to the valueexercise price, (iii) solely to the extent permitted by applicable law and authorized by the Committee, by a broker-assisted cashless exercise in accordance with procedures approved by the Committee under Regulation T as promulgated by the Federal Reserve Board, whereby payment of the Option exercise price (and, if applicable, tax withholding obligations) may be satisfied, in whole or in part, with Shares subject to the Option by delivery of an irrevocable direction to a securities broker (on a form prescribed by the Committee) to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate exercise price (and, if applicable, the amount necessary to satisfy the Company’s withholding obligations prior to the issuance of the Shares subject to the Option), (iv) solely to the extent permitted by applicable law and authorized by the Committee, by delivery of a notice of “net exercise” to the Company, pursuant to which the Company will reduce the number of Shares issuable upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price),provided,however, that the Company will accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole Shares to be issued, or (v) by any other means approved by the Committee and specified in the Award Agreement. Anything herein to the contrary notwithstanding, if the Committee determines that any form of payment available hereunder would be in violation of Section 402 of the Sarbanes-Oxley Act of 2002, such form of payment shall not be available.
(e) Vesting. Options shall vest and become exercisable in such manner, on such date or dates, or upon the achievement of any Performance Objectives, in each case, as may be determined by the Committee and set forth in the Award Agreement. Except as otherwise specifically determined by the Committee or provided in the Plan, the vesting of an Option shall occur only while the Participant is employed or rendering services to the Employer or during any period of paid leave, and all vesting shall cease upon a Participant’s Termination for any reason. To the extent permitted by applicable law, vesting may be suspended by the Committee at any time during the period of any unpaid leave and shall resume upon the Participant’s return to employment.
(f) Termination of Employment or Service. Except as otherwise provided in a Subplan or an Award Agreement or determined by the Committee (including in the case of a Qualifying Retirement in accordance withSection 21(j) hereof):
(i) Regular Termination; Forfeiture. In the event of a Participant’s Termination prior to the applicable Option Expiration Date for any reason other than (A) the Participant’s death or Disability or (B) by the Employer for Cause, (1) all vesting with respect to such Participant’s Options shall cease, (2) all of such fractional ADSs.Participant’s unvested Options shall immediately expire and be forfeited for no consideration as of the date of such Termination, and (3) all of such Participant’s vested Options shall remain exercisable until the earlier of the applicable Option Expiration Date and the date that is ninety days after the date of such Termination. Notwithstanding the foregoing, if the date that is ninety days after the date of such Termination occurs when trading in the Shares is prohibited by law or the Company’s insider trading policy, then the exercise period of such Option shall expire on the earlier of (x) the thirtieth (30th) day after the expiration of such prohibition and (y) the applicable Option Expiration Date.
(ii) Death or Disability; Acceleration. In the event of a Participant’s Termination prior to the applicable Option Expiration Date by reason of such Participant’s death or Disability, all of such Participant’s Options shall immediately become vested (with any performance-based Options vesting based on target level of performance) as of the date of such Termination and shall remain exercisable until the applicable Option Expiration Date. In the event of a Participant’s death, such Participant’s
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than allOptions shall be exercisable by the payroll deductions creditedperson or persons to his or her account and not yet used to exercise his or her optionwhom a Participant’s rights under the Plan at any timeOptions pass by the applicable laws of descent and distribution, in each case as determined by a probate court of competent jurisdiction, until the applicable Option Expiration Date.
(g) Cause; Immediate Forfeiture. In the event of a Participant’s Termination prior to the Exerciseapplicable Option Expiration Date by the Employer for Cause, all of an Offering Period by giving written noticesuch Participant’s Options (whether or not vested) shall immediately expire and be forfeited for no consideration as of the date of such Termination.
| 9. | Share Appreciation Rights. |
(a) General. Share Appreciation Rights may be granted to Eligible Persons in such form and having such terms and conditions as the Committee (or such person as mayshall deem appropriate. The terms and conditions of each Share Appreciation Rights award shall be designatedevidenced by an Award Agreement, which agreements need not be identical. No dividends or dividend equivalents shall accrue or be paid on Share Appreciation Rights.
(b) Term. The term of each Share Appreciation Right shall expire on the date set by the Committee fromin an Award Agreement at the time of grant (the “SAR Expiration Date”), subject to time)earlier expiration upon the conditions set forth in the manner asPlan, Subplan or the Committee may prescribe from time to time. Allapplicable Award Agreement;provided,however, that no Share Appreciation Right granted hereunder shall be exercisable after the tenth (10th) anniversary of the participant’s payroll deductions credited to his or her account will be paid toGrant Date (or, if such participant promptly after receipt of notice of withdrawal and such participant’s option foranniversary is not a business day in the Offering Period will be automatically terminated, and no further payroll deductions for the purchase of ADSs will be made during the Offering Period. If a participant withdraws from the Plan during an Offering Period, he or she may not resume participation untilUnited States, the next Offering Period. He or she may resume participationsucceeding United States business day).
(c) Base Price. The base price per Share for any other Offering Period by delivering to the Committee (or such person as mayeach Share Appreciation Right shall be designatedset by the Committee fromat the time to time) a new subscription agreement no laterof grant and shall not be less than the 20th dayFair Market Value of the month immediately prior tounderlying Shares on the Enrollment Date forGrant Date.
(d) Vesting. Share Appreciation Rights shall vest and become exercisable in such Offering Period.
(b) Upon a participant’s ceasing tomanner, on such date or dates, or upon the achievement of any Performance Objectives, in each case as may be an Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant’s account during the Offering Period but not yet used to exercise the option will be distributed to such participant or, in the case of his or her death, to his or her estate, and such participant’s option will be automatically terminated. Unless otherwise determined by the Committee any full or fractional ADSs heldand set forth in the brokerage accountAward Agreement. Except as otherwise specifically determined by the Committee or provided in the Plan, the vesting of a Share Appreciation Right shall occur only while the Participant is employed or rendering services to the Employer or during any period of paid leave, and all vesting shall cease upon a Participant’s Termination for any reason. To the extent permitted by applicable law, vesting may be suspended by the Committee at any time during the period of any unpaid leave and shall resume upon the Participant’s return to employment.
(e) Payment upon Exercise. Subject to the terms of any Subplan, payment upon exercise of a Share Appreciation Right may be made in cash, Shares, or property as specified in the Award Agreement or determined by the Committee, in each case having a value in respect of each Share underlying the portion of the Share Appreciation Right so exercised, equal to the difference between the base price of such participant shall remain in such account until such participant or, in the case of his or her death, his or her estate, requests that a certificate representing the full ADSs be distributed or that such ADSs be soldShare Appreciation Right and the proceeds fromFair Market Value of one Share on the sale distributedexercise date. For purposes of clarity, each Share to the participant, or such other person. Upon a participant’s request, any fractional ADSs will be distributedissued in cash in the formsettlement of a check havingShare Appreciation Right is deemed to have a value equal to the valueFair Market Value of such fractional ADSs;one Share on the exercise date.
(f) Termination of Employment or Service. Except as otherwise provided however, that,in a Subplan or an Award Agreement or determined by the Committee (including in the discretioncase of a Qualifying Retirement in accordance withSection 21(j) hereof):
(i) Regular Termination; Forfeiture. In the Committee, the participant may be responsibleevent of a Participant’s Termination for any fees associated withreason prior to the maintenance of hisapplicable SAR Expiration Date other than (A) the Participant’s death or her account following such termination of employment.
(c) A participant’s withdrawal from an Offering Period will not have any effect upon hisDisability or her eligibility to participate in any similar plan which may hereafter be adopted(B) by the Issuer, the Company or any other Designated Employer.
11. Interest. No interest or other increment shall accrue or be payableEmployer for Cause, (1) all vesting with respect to anysuch Participant’s Share Appreciation Rights shall cease, (2) all of such Participant’s unvested Share Appreciation Rights shall immediately expire and be forfeited for no consideration as of the payroll deductionsdate of a participant insuch Termination, and (3) all of such Participant’s vested Share Appreciation Rights shall remain exercisable until the Plan.
12. Stock.
(a) The maximum number of ADSs which shall be made available for sale under the Plan shall be 8,500,000, subject to adjustment upon changes in capitalizationearlier of the Issuer as provided in Section 17 hereof. The ADSs granted pursuant toapplicable SAR Expiration Date and the Plan may be (i) authorized but unissued ADSs, (ii) authorized and issued ADSs held bydate that is ninety days after the Issuer, the Company or any other of the Issuer’s subsidiaries, or (iii) acquired by the Issuer, the Company or any other of the Issuer’s subsidiaries for the purposes of the Plan. If on a given Exercise Date the number of ADSs with respect to which options are to be exercised exceeds the number of ADSs then available under the Plan, the Committee shall make a pro rata allocation of the ADSs remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable.
(b) No participant will have an interest or voting right in ADSs covered by his option until such option has been exercised. All ADSs held in a participant’s brokerage account on behalf of a participant shall be voted by such participant. Dividends accruing on the ADSs, if any, held in a participant’s brokerage account shall be reinvested in ADSs at the full market valuedate of such ADSs atTermination. Notwithstanding the time of purchase and deposited in such brokerage account until such time as the participant requests delivery or sale of the ADSs as set forth in Section 9 herein.
(c) ADSs to be deposited into a participant’s brokerage account underforegoing, if the Plan will be registereddate that is ninety days after the date of such Termination occurs when trading in the name of the participant.
13. Administration. The Plan shall be administered by the Committee. The Committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. The Committee shall also have authority to develop, amend and terminate rules governing the operation of the Plan in conformity with the terms of the Plan. Every finding, decision and determination made by the Committee shall, to the full extent permittedShares is prohibited by law be final and binding upon all parties.
14. Transferability. Neither payroll deductions credited to a participant’s account nor any rights with regard toor the Company’s insider trading policy, then the exercise of an option or to receive ADSs under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Committee may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
15. Use of Funds. All payroll deductions received or held by any Designated Employer under the Plan may be used by such Designated Employer for any corporate purpose, and the Designated Employer shall not be obligated to segregate such payroll deductions.
16. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, within such time as the Committee may reasonably determine, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of full and fractional ADSs purchased and held in the participant’s brokerage account.
17. Adjustments Upon Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required action by the shareholders of the Issuer, the Reserves as well as the price per ADS covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued ADSs resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the ADSs, or any other increase or decrease in the number of ADSs or Ordinary Shares effected without receipt of consideration by the Issuer; provided, however, that conversion of any convertible securities of the Issuer shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Issuer Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Issuer of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of ADSs subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of a Designated Employer or the Issuer, the Offering Period will terminate immediately prior to the consummationperiod of such proposed action, unless otherwise provided byShare Appreciation Right shall expire on the Issuer Board.earlier of (x) the thirtieth (30th) day after the expiration of such prohibition and (y) the applicable SAR Expiration Date.
(c) Merger(ii) Death or Asset Sale.Disability; Acceleration. In the event of a proposed saleParticipant’s Termination prior to the applicable SAR Expiration Date by reason of allsuch Participant’s death or substantiallyDisability, all of the assetssuch Participant’s Share Appreciation Rights shall immediately become vested (with any performance-based Share Appreciation Rights vesting based on target level of performance) as of the Issuer,date of such Termination and shall remain exercisable until the applicable SAR Expiration Date. In the event of a Participant’s death, such Participant’s Share Appreciation Rights shall be exercisable by the person or persons to whom a Participant’s rights under the mergerShare Appreciation Rights pass by the applicable laws of descent and distribution, in each case as determined by a probate court of competent jurisdiction, until the applicable SAR Expiration Date.
(iii) Cause; Immediate Forfeiture. In the event of a Participant’s Termination prior to the applicable SAR Expiration Date by the Employer for Cause, all of such Participant’s Share Appreciation Rights (whether or not vested) shall immediately expire and be forfeited for no consideration as of the Issuerdate of such Termination.
| 10. | Other Share-Based Awards. |
The Committee is authorized, subject to limitations under applicable law, to grant to Eligible Persons such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares, as deemed by the Committee to be consistent with the purposes of the Plan. The Committee may also grant Shares as a bonus, or into another corporation, each optionmay grant other Awards in lieu of obligations of the Company or an Affiliate to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements, subject to the terms of any Subplan and such terms as shall be assumeddetermined by the Committee. The terms and conditions applicable to each such Award shall be determined by the Committee and evidenced by an Award Agreement. No dividends or dividend equivalents shall be paid on such Awards. If so determined in a Subplan or an equivalent optionAward Agreement, dividends or dividend equivalents may accrue on such Awards, and such accrued dividends or dividend equivalents, if any, shall be withheld by the Company for the Participant’s account and shall become payable if and to the extent the underlying Awards are earned and vested. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any dividends or dividend equivalents withheld, and if the Committee determines to accrue interest on the amount of dividends withheld, no interest will be paid before the applicable vesting date.
| 11. | Adjustment for Recapitalization, Merger, etc. |
(a) Capitalization Adjustments. The aggregate number of Shares that may be granted or purchased pursuant to Awards (as set forth inSection 4 hereof), the number of Shares covered by each outstanding Award, and the price per Share thereof in each such Award shall be equitably and proportionally adjusted or substituted, as determined by the Committee as to the number, price, or kind of a Share or other consideration subject to such successor corporation or a parent or subsidiary of such successor corporation, unless the Issuer Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Exercise Date (the “New Exercise Date”). If the Issuer Board shortens the Offering Period then in progress in lieu of assumption or substitutionAwards (i) in the event of a mergerchanges in the outstanding Shares or salein the capital structure of assets, the Issuer Board shall notify each participantCompany by reason of share dividends, share splits, reverse share splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in writing, at least ten (10) business days priorcapitalization occurring after the approval by the Committee of any such Award (including any Corporate Event); (ii) in connection with any extraordinary dividend declared and paid in respect of Shares, whether payable in the form of cash, Shares, or any other form of consideration; or (iii) in the event of any change in applicable laws or any other change in circumstances that results in or could result in any substantial dilution or enlargement of the rights granted to, or available for, Participants under the New Exercise Date, that the Exercise Date for his or her option has been changed to the new Exercise Date and that his or her option will be exercised automatically on the new Exercise Date, unless prior to such date he or she has withdrawn fromPlan.
(b) Change in Control. Notwithstanding the Offering Periodforegoing, except as otherwise provided in a Subplan, an Award Agreement, in guidelines under the Plan, or as approved by the Committee, in connection with a Change in Control, (i) all outstanding Awards will be assumed or substituted in connection with such Change in Control, with any outstanding Performance Objectives deemed achieved at the greater of target and actual performance (as such Performance Objectives are determined by the Committee immediately prior to such Change in Control), (ii) Awards shall be subject to the adjustment set forth inSection 1011(a)hereof, and (iii) the vesting, payment, purchase or distribution of an Award may not be accelerated by reason of a Change in Control for any Participant except in the case of a Double Trigger Termination.
(c) Corporate Events. The Committee may provide, in connection with a Corporate Event that is not a Change in Control for any one or more of the following, including, without limitation, that (i) all outstanding Awards will be assumed or substituted in connection with such Corporate Event and that (ii) such Awards assumed or substituted in connection with such Corporate Event shall be subject to the adjustment set forth inSection 11(a) hereof.
(d) Awards Not Assumed. With respect to any Award that is not assumed or substituted in connection with a Corporate Event, the Committee may provide for any one or more of the following:
(i) that the vesting of any Awards shall be accelerated, subject to the consummation of such Corporate Event;
(ii) that any or all vested and/or unvested Awards be cancelled as of the consummation of such Corporate Event, and that Participants holding Awards so cancelled will receive a payment in respect of cancellation of their Awards based on the amount of theper-Share consideration being paid for the Shares in connection with such Corporate Event, less, in the case of Options, Share Appreciation Rights, and other Awards subject to exercise, the applicable exercise price or base price;provided,however, that holders of Options, Share Appreciation Rights, and other Awards subject to exercise shall only be entitled to consideration in respect of cancellation of such Awards if theper-Share consideration less the applicable exercise price or base price is greater than zero (and to the extent theper-Share consideration is less than or equal to the applicable exercise price or base price, such Awards shall be cancelled for no consideration); and
(iii) to the extent permissible under applicable law, that Awards be replaced with a cash incentive program that preserves the value of the Awards so replaced (determined as of the consummation of the Corporate Event), with subsequent payment of cash incentives subject to the same vesting conditions as applicable to the Awards so replaced, and payment to be made within thirty days of the applicable vesting date.
(e) Payment Procedures. Payments to holders pursuant toSection 11(d)(ii) hereof shall be made in cash or in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of Shares covered by the Award at such time (less any applicable exercise price or base price). In addition, in connection with any Corporate Event, prior to any payment or adjustment contemplated underSection 11(b) orSection 11(d) hereof, the Committee may require a Participant to (i) represent and warrant as to the unencumbered title to his Awards, (ii) bear such Participant’s pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Shares, and (iii) deliver customary transfer documentation as reasonably determined by the Committee. The Committee need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Committee may take different actions with respect to the vested and unvested portions of an Award.
(f) Assumption Requirements. For the purposes of this paragraph,Plan, an option granted under the PlanAward shall be deemed to beconsidered assumed or substituted for if following the sale of assets or merger,applicable Corporate Event the optionAward confers the right to purchase or receive, for each ADSShare subject to the optionAward immediately prior to the sale of assets or merger,applicable Corporate Event, on substantially the same vesting and other terms and conditions as were applicable to the Award immediately prior to the applicable Corporate Event, the consideration (whether stock, cash or other securities or property) received in the sale of assets or mergerapplicable Corporate Event by holders of the ADSsShares for each ADSShare held on the effective date of the transactionsuch Corporate Event (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding ADSs and Ordinary Shares);provided,however, that if such consideration received in the sale of assets or merger wasapplicable Corporate Event is not solely common stock of the successor corporationcompany or its parent (as defined in Section 424(e) ofor subsidiary, the Code), the Issuer BoardCommittee may, with the consent of the successor corporation and the participant,company or its parent or subsidiary, provide forthat the consideration to be received upon the exercise or vesting of the option toan Award, for each Share subject thereto, will be solely common stock of the successor corporationcompany or its parent or subsidiary substantially equal in Fair Market Valuefair market value to the per shareper-Share consideration received by holders of Shares in the ADSs inapplicable Corporate Event. The determination of such substantial equality of value of consideration shall be made by the Committee and its determination shall be conclusive and binding.
(g) Fractional Shares. Any adjustment provided under thisSection 11 may provide for the elimination of any fractional share that might otherwise become subject to an Award. No cash payments shall be made with respect to fractional shares so eliminated.
| 12. | Use of Proceeds. |
The proceeds received from the sale of assets or merger.Shares pursuant to the Plan shall be used for general corporate purposes.
The Issuer Board may, if it so determines
| 13. | Rights and Privileges as a Shareholder. |
Except as otherwise specifically provided in the Plan, no person shall be entitled to the rights and privileges of share ownership in respect of Shares that are subject to Awards hereunder until such Shares have been issued to that person.
| 14. | No Other Entitlements. |
(a) No individual shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award.
(b) Neither the Plan nor any action taken hereunder shall be construed as giving any individual any right to be retained in the employ or service of the Company or an Affiliate of the Company.
(c) Except as otherwise specifically stated in any other employee benefit plan, policy or program, neither any Award under the Plan nor any amount realized from any such Award shall be treated as compensation for the purpose of calculating an employee’s benefit under any benefit plan, policy or program.
| 15. | Compliance with Laws. |
The obligation of the Company to deliver Shares or other equivalents under the Plan upon vesting and/or exercise of its sole discretion, also make provisionany Award shall be subject to all applicable laws, rules and regulations, and to such approvals by governmental agencies (including, without limitation, tax authorities) as may be required. The Company shall be under no obligation to register for adjustingsale or resale under any applicable laws, rules and regulations any of the Reserves,Shares to be offered or sold under the Plan or any Shares issued upon exercise or settlement of Awards. If the Shares offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such Shares and may legend the Share certificates representing such Shares in such manner as it deems advisable to ensure the availability of any such exemption.
| 16. | Withholding Obligations. |
As a condition to any transaction in an Award or in any rights associated therewith, including but not limited to the grant, vesting, exercise, sale and/or transfer of any Award and/or of Shares resulting from the vesting or the settlement of any Award and/or of any dividends or dividend equivalents accrued or paid on any Award and/or on any such Shares, the Committee may require that a Participant satisfy, through deduction or withholding from any payment of any kind otherwise due to the Participant, or through such other arrangements as are satisfactory to the Committee, the amount of all federal, state, and local income and other taxes or other mandatory payments of any kind required or permitted to be withheld in connection with such transaction, as well as amounts payable to any third party for escrow services and escrow fees, bank fees, exercise fees, account fees and other related fees and expenses. The Committee may permit Shares to be used to satisfy such withholding requirements and fee payments, and such Shares shall be valued at their Fair Market Value as of the price per ADS covereddate they are so used; provided, however, that depending on the withholding method, the Company may withhold by each outstanding option,considering the applicable minimum statutorily required withholding rates or other applicable withholding rates in the eventapplicable Participant’s jurisdiction, including maximum applicable rates that may be utilized without creating adverse accounting treatment under Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto).
| 17. | Transferability. |
Each Award granted under the Issuer effects onePlan will not be transferable or more reorganizations, recapitalizations, rights offeringsassignable by the recipient, and may not be made subject to execution, attachment or similar procedures, other increasesthan by will or reductionsthe laws of its outstanding ADSsdescent and distribution, in each case as determined by a probate court of competent jurisdiction, or Ordinary Shares, andas determined by the Committee pursuant to the terms of any Award Agreement in the event of the Issuer being consolidatedaccordance with or merged into any other corporation.applicable law, rule or regulation.
18. Amendment or Termination.
| 18. | Amendment of the Plan or Awards. |
(a) Amendment of Plan. The Issuer Board may at any time, and for any reason terminate orfrom time to time, may amend the Plan. Except as Plan;provided,however, that the Board shall not, without shareholder approval, make any amendment to the Plan that requires shareholder approval pursuant to applicable law or the applicable rules of the national securities exchange on which the Shares are principally listed.
(b) Amendment of Awards. The Committee, at any time, and from time to time, may amend the terms of any one or more Awards, prospectively or retroactively;provided,however, that the rights under any Award shall not be impaired by any such amendment unless the Participant consents in Section 17 hereof,writing (it being understood that no such termination may adversely affect options previously granted; provided, that an Offering Period may be terminatedaction taken by the Issuer Board onor by the Committee that is expressly permitted under the Plan, including, without limitation, any Exercise Dateactions described inSection 11 hereof, shall constitute an amendment of an Award for such purpose). Notwithstanding the foregoing, subject to the limitations of applicable law, if any, and without an affected Participant’s consent, the Issuer Board determines thatCommittee may amend the terminationterms of any one or more Awards if necessary to bring the Award into compliance with any applicable tax legislation, rule, regulation or guidance (even if issued or amended after the Effective Date), including, without limitation, Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder.
(c) No Repricing of Awards without Shareholder Approval. NotwithstandingSection 18(a) or18(b) hereof, or any other provision of the Plan, is in the best interestsrepricing of the Issuer and its shareholders. Except as provided in Section 17 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Issuer shall obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any participant rights may be considered to have been “adversely affected,” the Company Board (or the Committee) shall be entitled to change the Offering Periods, limit the frequency or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in a Designated Employer’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods or accounting and crediting procedures to ensure that amounts applied toward the purchase of the ADSs for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Company Board (or the Committee) finds, in its sole discretion, advisable and consistent with the Plan.
19. Notices. All notices or other communications by a participant to the Company or the Committee under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company or the Committee at the location, or by the person, designated by the Company or the Committee for the receipt thereof.
20. Conditions Upon Sale of ADSs. ADSsAwards shall not be sold with respectpermitted without shareholder approval. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of an Award to an option unlesslower its exercise price or base price (other than on account of capital adjustments resulting from share splits, etc., as described inSection 11(a) hereof); (ii) any other action that is treated as “repricing” under GAAP or for purposes of the exercise of such option and the sale of such ADSs or the underlying Ordinary Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the United States Securities Act of 1933, as amended, the Exchange Act, theshareholder approval rules and regulations promulgated thereunder and the requirements of any stocksecurities exchange uponor inter-dealer quotation system on which the ADSs or Ordinary Shares may then be listed, and shall be further subject tosecurities of the approval of counsel for the Company or the Issuer with respect to such compliance.
21. RepresentationsCompany are listed or quoted; and Warranties. As(iii) repurchasing for cash or canceling an Award in exchange for another Award at a condition to thetime when its exercise of an option, the Committee may require the person exercising such option to represent and warrant at the time of any such exercise that the ADSs are being purchased only for investment and without any present intention to sellprice or distribute such ADSs if, in the opinion of counsel for the Company or the Issuer, such a representationbase price is required by any of the aforementioned applicable provisions of law.
22. Term of Plan. The Plan was initially adopted by the Issuer Board on May 5, 2008, and approved by the shareholders of the Issuer on June 29, 2008, and was subsequently amended by the Issuer Board on February 4, 2016 to increase the Purchase Price from 85% to 95% ofgreater than the Fair Market Value of the underlying Shares, unless the cancellation and exchange occurs in connection with an ADSevent set forth inSection 11(b) hereof.
| 19. | Termination or Suspension of the Plan. |
The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall automatically terminate on the applicable Exercise Date effective withday before the first Offering Period commencing on January 1, 2016. The Plan was subsequently amended and restated bytenth (10th) anniversary of the Issuer Board on September 7, 2017 (the “September 2017 Amendment”) to (a) increase the maximum number of ADSs authorized for issuanceEffective Date. No Awards may be granted under the Plan by an additional 5,000,000 ADSs, (b) extendwhile the termPlan is suspended or after it is terminated.
| 20. | Effective Date of the Plan. |
The Plan is effective as of the Effective Date.
| 21. | Miscellaneous. |
(a) Blue Pencil. If any provision of the Plan or Subplan is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or Subplan, it shall be stricken and the remainder of the Plan or Subplan shall remain in full force and effect.
(b) Limitation on Awards to Office Holders. Notwithstanding anything herein to the contrary, any Award granted under the Plan to an Office Holder shall be subject to the Compensation Policy, unless otherwise determined by the Committee and approved in accordance with the Companies Law.
(c) Exemptions from Section 16(b) Liability. It is the intent of the Company that the grant of any Awards to or other transaction by a Participant who is subject to Section 16(b) of the Exchange Act shall be exempt from Section 16 of the Exchange Act pursuant to an applicable exemption (except for transactions acknowledged in writing to benon-exempt by such Participant). In addition, the Company intends any transaction by which a termParticipant sells Shares issued in respect of ten yearsthe vesting or exercise of any Award granted hereunder for the purpose of settling any withholding tax liability of such Participant (commonly referred to as a “net settlement,” “net exercise,” “sell to cover” or “broker-assisted cashless exercise” transaction) that would otherwise be subject to Section 16(b) of the Exchange Act shall be exempt from Section 16 of the Exchange Act pursuant to an applicable exemption. Accordingly, if any provision of this Plan, Subplan or any Award Agreement does not comply with the requirements of Rule16b-3 then applicable to any such transaction, such provision shall be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule16b-3 so that such Participant shall avoid liability under Section 16(b) of the Exchange Act.
(d) Certificates. Shares acquired pursuant to Awards granted under the Plan may be evidenced in such a manner as the Committee shall determine. If certificates representing Shares are registered in the name of the Participant, the Committee may require that such certificates bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Shares, that the Company retain physical possession of the certificates, and that the Participant deliver a stock power to the Company, endorsed in blank, relating to the Shares. Notwithstanding the foregoing, the Committee may determine that the Shares shall be held in book entry form rather than delivered to the Participant pending the release of any applicable restrictions.
(e) Delay in Delivery.
(i) The Company is relieved from any liability for the nonissuance or nontransfer, or for any delay in the issuance or transfer of any Shares subject to Awards, resulting from the effectiveinability of the Company to obtain, or from any delay in obtaining, from any regulatory body having jurisdiction or authority, any requisite approval to issue or transfer any such Shares, if counsel for the Company deems such approval necessary for the lawful issuance or transfer thereof.
(ii) Without limiting the generality of the foregoing, the Company shall not have any obligation or liability as a result of any delay in issuing any certificate evidencing Shares or in the delivery thereof to Participants, or any act or omission of any Company-designated brokerage firm in relation to Shares.
(f) Corporate Action Constituting Grant of Awards. Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of the September 2017 Amendment and (c) make certain other ministerial changes to the Plan. The Plan shall continue through September 7, 2027 if the September 2017 Amendment is approvedsuch corporate action, unless otherwise determined by the shareholdersCommittee, regardless of when the Issuer and shall continue in effect through May 5, 2018 ifinstrument, certificate, or letter evidencing the September 2017 AmendmentAward is not approvedcommunicated to, or actually received or accepted by, the shareholders of the Issuer, in each case, unless sooner terminated under Section 18 hereof.
23. Shareholder Approval.Participant. In the event that the September 2017 Amendment is not approvedcorporate records (e.g., Committee consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price or base price, vesting schedule or number of shares) that are inconsistent with those in the Award Agreement as a result of a clerical error in the papering of the Award Agreement, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement.
(g) Escrow Agreement. The Committee may require a Participant who receives an Award to enter into an escrow or trustee agreement providing that such Award, or Shares distributed in connection with the vesting, settlement or exercise thereof, will remain in the physical custody of an escrow holder or trustee, as necessary to satisfy applicable local law or otherwise determined to be in the best interests of the Company by the shareholdersCommittee.
(h) Clawback/Recoupment Policy. Notwithstanding anything herein to the contrary, all Awards granted under the Plan shall be and remain subject to any incentive compensation clawback or recoupment policy currently in effect or as may be adopted by the Committee or the Board, and in each case, as may be amended from time to time, including, but not limited to, any clawback provision in the Compensation Policy. Any such policy adoption or amendment shall in no event require the prior consent of any Participant. In the event that an Award is subject to more than one such policy, the policy with the most restrictive clawback or recoupment provisions shall govern such Award, subject to applicable law.
(i) Provision for Foreign Participants. Awards may be granted to Participants who are foreign nationals or employed outside Israel, or both, on such terms and conditions different from those applicable to Awards to Participants employed in Israel as may be necessary or desirable in order to recognize differences in local law or tax policy. The Committee may also impose conditions on the exercise or vesting of Awards in order to minimize the Company’s obligation with respect to tax equalization for Participants on assignments outside their home countries.
(j) Treatment of Awards Upon a Qualifying Retirement. Upon a Participant’s Qualifying Retirement, and as determined in a Subplan or otherwise by the Committee, Awards (or any part thereof) granted to such Participant may accelerate, continue to vest, provide for an extended period of time in which to exercise an Award upon Termination or contain any other terms and conditions as the Committee deems appropriate.
(k) Data Privacy. As a condition of receipt of any Award, each Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in thisSection 21(k) by and among, as applicable, the Company and its Affiliates for the exclusive
purpose of implementing, administering, and managing the Plan and Awards and the Participant’s participation in the Plan. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about a Participant, including, but not limited to, the Participant’s name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Issuer holding a majorityCompany or any of its outstanding ADSsAffiliates, and Ordinary Shares within twelve monthsdetails of all Awards (the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of the September 2017 Amendment,Plan and Awards and the September 2017 AmendmentParticipant’s participation in the Plan, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country and any given recipient’s country may have different data privacy laws and protections. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as is necessary to implement, administer, and manage the Plan and Awards and the Participant’s participation in the Plan. A Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting his local human resources representative. The Company may cancel the Participant’s eligibility to participate in the Plan, and the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents described herein. For more information on the consequences of refusal to consent or withdrawal of consent, Participants may contact their local human resources representative.
(l) No Liability of Committee Members. Subject to applicable law, neither any member of the Committee nor any of the Committee’s permitted delegates shall automatically be nullliable personally by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Committee or for any mistake of judgment made in good faith, and void,the Company shall indemnify and (a)hold harmless each member of the termCommittee and each other employee, officer, or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against all costs and expenses (including counsel fees) and liabilities (including sums paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan, unless arising out of such person’s own fraud or willful misconduct;provided,however, that approval of the Committee shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s articles of association, as may be amended from time to time, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
(m) Payments Following Accidents or Illness. Subject to applicable law, if the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(n) Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware without reference to the principles of conflicts of laws thereof.
(o) Compliance with Section 409A of the Code. To the extent that the Committee determines that any Award granted hereunder is subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code. To the extent applicable, the Plan, Subplan and/or Award Agreements shall be interpreted in accordance with Section 409A of the Code. Notwithstanding anything to the contrary in the Plan (and unless the Subplan and/or Award Agreement specifically provides otherwise), if the Shares are publicly traded and if a Participant holding an Award that constitutes “deferred compensation” under Section 409A of the Code is a “specified employee” for purposes of Section 409A of the Code, no distribution or payment of any amount that is due because of a “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) will be settled or paid before the date that is six months following the date of such Participant’s “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) or, if earlier, the date of the Participant’s death, unless such distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be settled or paid in a lump sum on the day after suchsix-month period elapses, with the balance settled or paid thereafter on the original schedule.
(p) Funding. No provision of the Plan shall expire as set forth in Section 22 above, (b)require the maximum numberCompany, for the purpose of ADSs authorized for issuancesatisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall revertthe Company be required to 3,500,000 and (c) allmaintain separate bank accounts, books, records, or other evidence of the ADSs purchased in excessexistence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the 3,500,000 ADS maximumCompany, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees and service providers under general law.
(q) Restrictions. The Committee shall have the power to impose such other restrictions on Awards as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for favorable tax treatment under Section 102 of the Israeli Tax Ordinance or any other applicable tax law provision.
(r) Tax Treatment. The Company makes no representations that any Awards or payments or benefits provided under the Plan or any Subplan will qualify for any specific treatment under the applicable tax laws of any jurisdiction in which the Company or its Affiliates operate and in no event shall the Company, its Affiliates or any of their respective directors, officers, employees or advisers be held liable for all or any portion of any taxes, interest, penalties or other monetary amounts owed by a Participant (or any other individual claiming a benefit through a Participant) as a result of the Plan or Subplan.
(s) No Limitation on Compensation. Nothing in the Plan shall be soldconstrued to limit the right of the Company to establish other plans or to pay compensation to its employees, officers or directors in cash or property, in a manner that is not expressly authorized under the Plan.
(t) No Constraint on Corporate Action. Nothing in the open market and all payroll deductions for Plan participants in respect of such excess ADSs shall be returnedconstrued (i) to them, subjectlimit, impair or otherwise affect the Company’s right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell or transfer all or any appropriate withholding.part of its business or assets, or (ii) except as provided inSection 18 or19 hereof, to limit the right or power of the Company or its Affiliates to take any action that such entity deems to be necessary or appropriate.
(u) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted, or failed to
act in good faith, upon any report made by the independent public accountant of the Company and its Affiliates and upon any other information furnished in connection with the Plan by any person or persons other than such member.
(v) Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
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AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (this “Amendment”) to the Employment Agreement (as defined below) is entered into as of [•], 2020, by and between Teva Pharmaceutical Industries, Ltd., (the “Company”) and Kåre Schultz (“Executive”).
WHEREAS, the Company and the Executive are parties to that certain Employment Agreement, dated September 7, 2017 (the “Employment Agreement”), which details the terms of the Executive’s employment with the Company; and
WHEREAS, the Company and the Executive now wish to amend certain provisions of the Agreement and desire to memorialize such amendment to the Employment Agreement in this Amendment;
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Capitalized Terms. Capitalized terms that are not defined in this Amendment shall have the meanings ascribed thereto in the Employment Agreement.
2. Amendments to the Employment Agreement.
| (a) | Section 1.1 of the Employment Agreement is hereby amended by replacing the phrase “the fifth (5th) anniversary of the Effective Date” with “the sixth (6th) anniversary of the Effective Date.” |
| (b) | Section 4.1.2 of the Employment Agreement is hereby amended by deleting the definition “Performance Period” from the last sentence of the first paragraph. The first paragraph of section 4.1.2 of the Employment Agreement will hereafter read as follows: |
“Sign-on PSU Award. Executive shall be granted two performance share unit (“PSU”) awards (each, a “Sign-on PSU Award”), the target number of Shares subject to each of which shall be determined assuming eachSign-on PSU Award grant were made on the last day prior to the public announcement of Executive’s hire (using the per Share closing price on that date) and each grant had a grant date fair value of $7,500,000 (Seven Million Five Hundred Thousand United States Dollars) (or $15,000,000 (Fifteen Million United States Dollars) in the aggregate). EachSign-on PSU Award shall provide that the number of Shares earned thereunder shall be determined based on the percentage increase in the per Share price, beginning with the average per Share closing price on the Effective Date (or, if the Effective Date occurs on 1 February 2018 or earlier, the per Share closing price on the last day prior to the public announcement of Executive’s hire shall apply instead) (the “Beginning Price”) and ending with the average per Share closing price during the six (6) months ending on (a) in the case of the firstSign-on PSU Award (the “Three-Year PSU Award”), the third (3rd) anniversary of the Effective Date or (b) in the case of the secondSign-on PSU Award (the “Five-Year PSU Award”), the fifth (5th) anniversary of the Effective Date (such applicable average per Share closing price, the “End Price,”), as follows:”
| (c) | Section 4.2 of the Employment Agreement is hereby amended by adding the sentence “The annual equity awards granted for each such fiscal year are collectively referred to as the “Annual Equity Awards” after the end of the first sentence of Section 4.2. The first and second sentence of section 4.2 of the Employment Agreement will hereafter read as follows: |
“For each fiscal year of the Term, Executive shall be granted equity awards with a target grant date fair value of $6,000,000 (Six Million United States Dollars), subject to the terms of the 2015 Plan (or any successor thereto) and Exhibit B. The annual equity awards granted for each such fiscal year are collectively referred to as the “Annual Equity Awards”.
| (d) | Section 4.2 of the Employment Agreement is further hereby amended by adding the following paragraph immediately following the end of Section 4.2: |
“In addition, from the fiscal year 2020 and for each fiscal year of the Term thereafter, Executive shall be granted additional performance-based equity awards with a target grant date fair value equal to $4,000,000 (Four Million United States Dollars), subject to (i) the terms of the 2015 Plan (or any successor thereto), (ii) the terms of Exhibit B as applicable to performance based awards, and (iii) the same performance goals and related vesting criteria as Annual Equity Awards that are performance based granted to Executive, unless other performance measures and/or vesting periods are determined by the Committee and the Board in agreement with Executive (“Additional Annual Award”). For the sake of clarity, the grant date of the Additional Annual Award for the year 2020 shall be the date of 2020 Annual General Meeting of Shareholders and the performance goals and related vesting criteria for such Additional Annual Award shall be identical to those applicable to the PSUs granted to Executive on February 28, 2020.
For the purpose of this Agreement, Performance Period shall be defined as the applicable performance period attached to each performance based award.”
| (e) | Section 9.6 of the Employment Agreement is hereby amended by adding the following paragraph immediately following the end of Section 9.6: |
“In addition, and subject to Executive’s execution andnon-revocation of the Release of Claims in accordance with Section 9.7 and Executive’s continuous compliance with Sections 11, 12, 13 and 14 of the Employment Agreement, in the event that Executive’s employment terminates in connection with thenon-renewal of this Agreement by the Company hereunder or by Executive upon his retirement, Executive shall be entitled to the Equity Benefits.
For purposes of this Section 9.6 the term “retirement” shall mean thenon-renewal by Executive of his employment term hereunder in accordance with Section 1.1 of this Agreement, following which Executive ceases to work as an employee in a full-time managerial capacity for anyfor-profit organization.
In addition, and for the purpose of this Section 9.6 only, the restrictions in Section 12 of this Agreement shall not apply to engagement with a company that isnot either of (x) any company on the list of peer group companies as disclosed in Proposal 4 of the Company’s 2020 Proxy Statement or (y) an entity that is engaged, directly or indirectly, including but not limited through an affiliate, in the development, manufacture of, sale of or trading in (i) generic products or (ii) specialty pharmaceutical products (including but not limited to biopharmaceutical products) that are competitive with a specialty product developed manufactured, sold or otherwise traded in by the Company as of the Date of Termination.”
| (f) | Section 9.9.5 of the Employment Agreement is hereby amended by: |
| i. | Replacing the phrase “means vesting in theSign-on Awards as follows:” with “means vesting in theSign-on Awards, the Annual Equity Awards and the Additional Annual Awards, as follows:”. |
| ii. | Replacing the references in subsection 9.9.5(b)(i) and subsection 9.9.5(b)(ii) of the Employment Agreement to “Sign On PSU Award” with “Sign On PSU Award, Annual Equity Awards and Additional Annual Awards”. |
Subsection 9.9.5 (b)(i) of the Employment Agreement will hereafter read as follows:
“If the Date of Termination is during a Performance Period, then the applicable Sign On PSU Award, Annual Equity Awards and Additional Annual Awards shall be eligible for full vesting and settlement, at the end of the applicable Performance Period based on actual performance through the entire Performance Period”.
Subsection 9.9.5 (b)(ii) of the Employment Agreement will hereafter read as follows:
“If the Date of Termination occurs following the expiration of an applicable Performance Period, then the portion of the applicable Sign On PSU Award, Annual Equity Awards and Additional Annual Awards earned based on actual performance during the Performance Period shall immediately vest and be settled”;
| iii. | Adding the following new subsection 9.9.5(c) immediately following subsection 9.9.5(b) of the Employment Agreement: |
c.Annual Time Based Equity Awards. Any portion of the Annual Equity Award that vests solely based on the continued service of Executive that is unvested as of the Date of Termination shall continue to vest, over the remainder of its original vesting period, on the same terms and to the same extent as if Executive had remained employed by the Company in accordance with the terms and conditions of the 2015 Plan (or any successor thereto) during such period. In addition, the vested portion of any stock option as of the conclusion of the stock option vesting term will be exercisable through the original expiration date of the term of such stock option, following which any portion of such stock option not exercised will automatically expire.
| (g) | The last sentence of Section 12 of the Employment Agreement is hereby amended to read as follows: “For the avoidance of doubt, this Section 12 shall not apply to Executive following a termination of employment that occurs due to thenon-renewal of this Agreement by Executive for reasons other than retirement (as such term is defined in Section 9.6) pursuant to the third sentence of Section 1.1.” |
3. Ratification and Confirmation. Except as specifically amended by this Amendment, the Employment Agreement is hereby ratified and confirmed in all respects and remains valid and in full force and effect. Whenever the Employment Agreement is referred to in this Amendment or in any other agreement, document or instrument, such reference shall be deemed to be to the Employment Agreement, as amended by this Amendment, whether or not specific reference is made to this Amendment.
4. Entire Agreement. The Employment Agreement and this Amendment constitute the entire understanding and agreement of the parties hereto regarding the employment of the Executive and supersede all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter hereof.
5. Governing Law. This Amendment shall be governed by and construed and enforced in accordance with the laws of Israel without giving effect to the choice of law or conflict of laws provisions thereof.
6. Controlling Document. In case of conflict between any of the terms and condition of this Amendment and the Employment Agreement, the terms and conditions of this Amendment shall prevail.
7. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. The execution of this Amendment may be by actual signature or by signature delivered.
* * * * *
EXECUTIVE |
| Name: |
| Dated: |
| ACCEPTED AND AGREED: |
TEVA PHARMACEUTICAL INDUSTRIES LTD. |
| By: |
| Title: |
| By: |
| Title: |
TEVA PHARMACEUTICAL INDUSTRIES LIMITED (“TEVA”)
20182020 ANNUAL GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 5, 20189, 2020
PROXY CARD
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF TEVA
Teva’s Board of Directors recommends that you vote FOR Proposals 1, 2, 4 and 5 and that you vote ONE YEAR with respect to Proposal 3.all proposals. If you execute and return this proxy card without indicating any directions with respect to any matter, this proxy card will be voted FOR Proposals 1, 2, 4 and 5 and ONE YEAR with respect to Proposal 3, as applicable.all proposals.
Information in respect of the undersigned:
Shareholder name: | ||
Number of identity card or passport (country): | ||
Corporation number: | ||
Place of incorporation: | ||
Number of Teva ordinary shares being voted: |
The undersigned hereby constitutes and appoints each of Messrs. SOL BARER, KÅRE SCHULTZDOV BERGWERK, CHEN YEHUDAI, DIKLA TADMOR and DOV BERGWERK,NETANEL DEROVAN, acting individually, the true and lawful attorney, agent and proxy of the undersigned, with full power of substitution, to vote with respect to the number of shares set forth above, standing in the name of the undersigned at the close of trading on the Record Date, at the 20182020 Annual General Meeting of Shareholders, and at any and all adjournments thereof, with all the power that the undersigned would possess if personally present and especially (but without limiting the general authorization and power hereby given) to vote as instructed on the reverse side.
In order to be counted, a duly executed proxy must be received by Teva by 4:30 p.m., Israel time, on June 1, 20185, 2020 (if not revoked prior to such time), unless determined otherwise by the chairman of the meeting, by submitting this proxy card to Teva’s executive offices at 5 Basel Street, Petach Tikva, 4951033 Israel to the attention of the Corporate Secretary.
In order to be counted, in addition to this proxy card,card: (i) shareholders registered in Teva’s shareholder register (Registered Holders) must also provide Teva with a copy of such Registered Holder’s identity card, passport or certificate of incorporation, as the case may be. Abe; and (ii) a shareholder registered pursuant to Section 177(1) of the Israeli Companies Law, 5759-1999, through a nominee company(Non-Registered Holders) must also provide Teva with an ownership certificate confirming suchNon-Registered Holder’s ownership of Teva’s ordinary shares on the Record Date, which certificate must be approved by a member of the Tel Aviv Stock Exchange, as required by the Israeli Companies Regulations (Proof of Share Ownership for Voting at a General Meeting), 5760-2000.Non-Registered Holders may alternatively submit their votes through the electronic voting system of the Israeli Securities Authority athttps//:votes.isa.gov.il.
This proxy card, when properly executed, will be voted in the manner directed herein by the undersigned. Any and all proxies heretofore given are hereby revoked.
(Continued and to be signed on the reverse side)
PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY
Matter on the Agenda:
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| 6. | TO APPOINT KESSELMAN & KESSELMAN, A MEMBER OF PRICEWATERHOUSECOOPERS INTERNATIONAL LTD., AS TEVA’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM UNTIL TEVA’S 2021 ANNUAL MEETING OF SHAREHOLDERS
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