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endo | 100 Endo Boulevard | Chadds Ford, Pennsylvania 19317 33
twenty-four (24) months after the date on which the termination is effective. Each named executive officer’s employ-
ment agreement contains a non-compete provision.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code precludes a public corporation from taking a tax deduction for certain com-
pensation in excess of $1 million in any one year paid to its Chief Executive Officer or any of its three other highest-paid ex-
ecutive officers (not including the Company’s Chief Financial Officer), unless certain specific and detailed criteria are satis-
fied. However, certain qualifying “performance-based” compensation (i.e., compensation paid under a plan administered
by a committee of outside directors, based on achieving objective performance goals, the material terms of which were
approved by shareholders, such as our 2010 Stock Incentive Plan) is not subject to the $1 million deduction limit. A portion
of the compensation established by the Compensation Committee for 2011 for the President and Chief Executive Officer
exceeded the $1 million deduction limit established in Section 162(m) of the Internal Revenue Code and is therefore not
deductible. Compensation established by the Compensation Committee for 2011 for the three other highest-paid executive
officers (not including the Company’s Executive Vice President & Chief Financial Officer) was also designed to comply with
the requirements of Section 162(m). While the Compensation Committee considers the applicable rules regarding deduct-
ibility when making awards, it reserves the right to make nondeductible payments when it deems appropriate.
Company Policy on Parachute Payments
On May 5, 2009, the Company’s Board of Directors adopted a policy that provides that the Company will not enter into any
future employment agreements that include excise tax gross-ups with respect to payments contingent upon a change in
control. Accordingly, the employment agreement of each of Mr. Holveck, Mr. Levin, Ms. McHugh and Dr. Gergel does not
include excise tax gross-ups with respect to payments contingent upon a change in control. Ms. Manogue’s employment
agreement currently provide that, if any of the payments or benefits received or to be received by the executive (including
any payment or benefits received in connection with a change of control or the executive’s termination of employment)
will be subject to the excise tax under Section 4999 of the Internal Revenue Code for excess parachute payments, then the
Company will pay to the executive an additional amount (an excise tax gross-up) such that the net amount retained by the
executive, after deduction of any excise tax on and any federal, state and local income and employment taxes and after tak-
ing into account the phase out of itemized deductions and personal exemptions attributable to this payment, shall be equal
to the total payments the executive would have otherwise received. An excess parachute payment is generally a change in
control payment in excess of one times the average of the officer’s taxable W-2 income for the five years prior to the change
in control (base amount), and generally only results if the change in control payment exceeds 2.99 times the base amount.
Excess parachute payments, including any excise tax gross-up payments, are non-deductible to the Company under Sec-
tion 280G of the Internal Revenue Code.
Recovery of Compensation
In 2009, the Compensation Committee adopted a compensation recovery policy relating to repayment of cash incentive
awards by an executive in the event of a restatement of the Company’s financial results.
Specifically, if the Company issues a restatement of its reported financial results, or if it is determined that there was ex-
ecutive misconduct in a prior period that impacted the financial results for that period, the Compensation Committee will
determine whether the restatement was material, and if so, to what extent “covered payments” should be returned to the
Company to the extent that such payments were overstated as a result of the change in financial condition. Restatements
of financial results that are the direct result of changes in accounting standards will not result in recovery of covered pay-
ments.
“Covered payments” are those payments that are eligible to be recovered by the Company and include cash incentives
paid to the NEOs for performance during the restated fiscal year(s). In addition, the Compensation Committee reserves the
discretion to recover covered payments from other Company senior management employees, including all vice presidents
and above, if the Compensation Committee deems it appropriate.