Employment Agreement (2018)Full Document 

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EXECUTION VERSION

EMPLOYMENT AGREEMENT

This Employment Agreement (this "Agreement") is entered on this 7th day of September 2017, and is made by and between TEVA PHARMACEUTICAL INDUSTRIES LTD., an Israeli corporation located at 5 Basel Street, Petach Tikwa, Israel, Company No. 52-001395-4 (the "Company"), and Kåre Schultz ("Executive").

WHEREAS, the Company wishes to employ Executive as its President and Chief Executive Officer ("President and CEO"), and Executive wishes to be so employed; and

WHEREAS, the parties have agreed on the terms pursuant to which Executive shall serve as President and CEO, and wish to set forth such terms in this Agreement.

NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS:

1. Term; Positions and Duties; Location

1.1 The Company agrees to employ Executive, and Executive agrees to serve the Company and its affiliates, subject to the terms and conditions of this Agreement, for the period commencing on a date to be mutually agreed between the Company and Executive but in no event later than 1 October 2018 (the date Executive’s service to the Company commences, "Effective Date") and ending on the fifth (5th) anniversary of the Effective Date (the "Term"). Executive shall use his best endeavors to obtain an early release from the notice period/restrictive covenant from his employer on the date of this Agreement in order to commence employment with the Company as soon as possible following the date of this Agreement. Thereafter, unless previously terminated, the Term shall be automatically extended for consecutive periods of one (1) year unless either party provides written notice to the other party of non-renewal in accordance with Section 26 not less than one (1) year prior to the end of the Term as then in effect. Notwithstanding the foregoing, (a) upon a "Change in Control" (as defined in the Company’s 2015 Long-Term Equity-Based Incentive Plan (the "2015 Plan")), the Term shall automatically be extended until the second (2nd) anniversary of the date such Change in Control is consummated (unless the Term would otherwise expire after such date); and (b) the Term shall immediately terminate upon any termination of Executive’s employment with the Company and its subsidiaries pursuant to Section 9. Further, either party may terminate Executive’s employment in accordance with Section 9.

1.2

Executive shall report directly to the Board of Directors of the Company (the "Board"). All executive officers of the Company shall report directly to Executive (unless otherwise determined by Executive, or as required by Law (as defined below) or the principles of good corporate governance). In addition, Executive shall serve as President and CEO and have all of the duties, authorities and responsibilities customarily exercised by an individual serving as the president and chief executive officer of a


company the size and nature of the Company, and such other duties, authorities and responsibilities, consistent with the foregoing, as may reasonably be assigned to him from time to time by the Board.

1.3 During the Term, Executive shall devote his full business time, energy, business judgment, knowledge and skill to the performance of his duties with the Company; provided that the foregoing shall not prevent Executive from (a) reasonably participating in charitable, civic, educational, professional, community or industry affairs, and (b) managing his own personal investments, in each case, so long as such activities in the aggregate do not interfere or conflict with Executive’s duties hereunder or create a potential business or fiduciary conflict. Executive shall not serve on the board of directors or similar body of a for-profit entity without the express written consent of the Chairman of the Board.

1.4 During the Term, Executive may be required to serve as a director, officer or committee member of the Company and/or another entity of any type in which the Company holds, directly or indirectly, at least 25% of the "means of control" (as such term is defined in the Securities Law, 1968) (collectively, the "Company Group"), and the fulfillment of such position shall not constitute an employer-employee relationship between Executive and any such entity (other than the Company), and notwithstanding any such position, Executive shall only be considered to be an employee of the Company and shall not receive any additional compensation for serving in such additional position other than those amounts expressly set forth herein; provided that the Company’s D&O insurance shall cover Executive and the Indemnification and Release Agreement attached hereto as Exhibit D shall fully cover Executive in all such positions. Executive’s principal place of employment during the Term shall be at the Company’s principal offices in Israel. However, Executive acknowledges and agrees that he shall be required to travel abroad extensively on Company business.

1.5 Executive acknowledges and agrees that no collective and/or special bargaining agreement that might apply to the Company’s employees shall apply to Executive in his capacity as an employee of the Company, unless required by applicable Law.

1.6 This Agreement and all compensation and benefits payable hereunder are subject to the Company’s compensation policies applicable to senior officers in effect on the Effective Date and the terms and conditions of this Agreement, including the Company’s Compensation Policy for Executive Officers and Directors adopted by the shareholders at the 2016 annual general meeting of shareholders, held on April 18, 2016 (collectively, the "Compensation Policy"). The Company acknowledges and agrees that the terms of this Agreement are consistent with the Compensation Policy.

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2. Base Salary

2.1 During the Term, Executive’s gross annual base salary shall be not less than $2,000,000 (Two Million United States Dollars) (the "Annual Salary"). The Annual Salary shall be divided by 12, and each such 1/12 shall constitute Executive’s monthly salary (the "Monthly Salary") payable in arrears in monthly installments. The Annual Salary shall be subject to review, at least annually, by the Human Resources & Compensation Committee of the Board (the "Compensation Committee") of the Board for possible increase, subject to the requirements of applicable Law including any requirement of shareholder approval.

2.2 Executive hereby acknowledges and agrees that in light of his position and areas of responsibility, which require a special degree of trust, and since he is part of the Company’s senior management, the provisions of the Hours of Work and Rest Law, 1951, shall not apply to his employment.

2.3 It is hereby agreed that only the Monthly Salary payable to Executive pursuant to Section 2.1 shall constitute the basis for the calculation of all social benefits granted to Executive pursuant to this Agreement (including contributions and deductions related to the Severance Contribution and Pension Contribution) and for any other purpose or benefit plan for which deductions are calculated based on a percentage of Executive’s salary.

2.4 The parties hereby acknowledge and agree that the compensation terms set forth in this Agreement constitute fair consideration to Executive, given, inter alia, his managerial responsibilities and obligations towards the Company.

3. Cash Awards

3.1 Sign-on Cash Award. Executive shall be granted a cash award of $20,000,000 (Twenty Million United States Dollars) (the "Sign-on Cash Award"), which shall vest and be paid (a) in two equal installments, (i) with the first installment to be paid on the first business day falling three (3) months after the Effective Date and (ii) the second installment to be paid on the first business day falling six (6) months after the Effective Date, in each case, subject to Executive’s continued employment with the Company through the applicable vesting date identified in clauses (i) and (ii) above or (b) upon such earlier vesting date as may be provided for, if at all, under Section 9.

3.2

Annual Bonus. During the Term, for each fiscal year of the Company commencing with the fiscal year in which the Effective Date occurs, Executive shall be considered for an annual bonus (the "Annual Bonus") pursuant to the terms set forth on Exhibit A. Executive shall have a target Annual Bonus opportunity of 140% of Annual Salary and a maximum Annual Bonus opportunity of 200% of Annual Salary, the actual amount

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of which shall be determined by the Compensation Committee and the Board, based on their determination of the attainment of performance measures established by the Compensation Committee and the Board, as follows:

3.2.1 Threshold. No Annual Bonus shall be payable if performance goals are achieved at less than 90%.

3.2.2 Target. The Annual Bonus shall be payable at the target level if performance goals are achieved at 100%.

3.2.3 Maximum. The maximum Annual Bonus shall be payable if performance goals are achieved at 120% or greater.

Straight line interpolation shall be applied to performance between such levels.

The Annual Bonus shall be paid in a lump sum in cash not later than March 15th of the year immediately following the year to which such Annual Bonus relates. The Annual Bonus shall not be prorated in respect of the fiscal year in which the Effective Date occurs, and Executive shall be eligible for a full year’s Annual Bonus in respect of such fiscal year.

4. Equity Awards

4.1 Sign-on Awards. On the Effective Date (or, if the Company is subject to a blackout on the Effective Date, the first day of trading after the blackout period ends), Executive shall be granted awards (the "Sign-on Awards") in respect of ordinary shares of the Company ("Shares") pursuant to the Company’s 2015 Plan and award agreements thereunder, which shall be allocated, and have terms and conditions, as follows:

4.1.1 Sign-on RSU Award. Executive shall be granted a restricted share unit award (the "Sign-on RSU Award"), the number of Shares subject to which shall be determined assuming the Sign-on RSU 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 had a grant date fair value of $5,000,000 (Five Million United States Dollars). The Sign-on RSU Award shall vest and settle in equal installments on the third (3rd), fourth (4th) and fifth (5th) anniversaries of the Effective Date, subject, except as provided in Section 9, to Executive’s continued employment with the Company through the applicable vesting date. The Sign-on RSU Award shall include other terms and conditions described in this Agreement and other terms and conditions consistent with restricted share unit ("RSU") awards granted by the Company generally.

4.1.2

Sign-on PSU Award. Executive shall be granted two performance share unit ("PSU") awards (each, a "Sign-on PSU Award"), the

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target number of Shares subject to each of which shall be determined assuming each Sign-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). Each Sign-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 first Sign-on PSU Award (the "Three-Year PSU Award"), the third (3rd) anniversary of the Effective Date or (b) in the case of the second Sign-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," and the period from the Effective Date through the third (3rd) anniversary or fifth (5th) anniversary, as applicable, of the Effective Date, the "Performance Period"), as follows:

a. Three-Year PSU Award.

i. Threshold. PSUs with respect to 50% of the target number of Shares shall vest if the End Price is 16% higher than the Beginning Price.

ii. Target. PSUs with respect to 100% of the target number of Shares shall vest if the End Price is 29% higher than the Beginning Price.

iii. Outperform. PSUs with respect to 150% of the target number of Shares shall vest if the End Price is 42% higher than the Beginning Price.

iv. Superperform. PSUs with respect to 200% of the target number of Shares shall vest if the End Price is 94% higher than the Beginning Price.

v. Maximum. PSUs with respect to 300% of the target number of Shares shall vest if the End Price is at least 158% higher than the Beginning Price.

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b. Five-Year PSU Award.

i. Threshold. PSUs with respect to 50% of the target number of Shares shall vest if the End Price is 28% higher than the Beginning Price.

ii. Target. PSUs with respect to 100% of the target number of Shares shall vest if the End Price is 53% higher than the Beginning Price.

iii. Outperform. PSUs with respect to 150% of the target number of Shares shall vest if the End Price is 79% higher than the Beginning Price.

iv. Superperform. PSUs with respect to 200% of the target number of Shares shall vest if the End Price is 202% higher than the Beginning Price.

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