Governance Guidelines




The primary objective of Valeant Pharmaceuticals International (the "Company" or Corporation) is to maximize stockholder value over the long term while adhering to the laws of the jurisdictions within which it operates and observing the highest ethical standards.

Selection and Composition of the Board

I. Corporate Governance/Nominating Committee

As a permanent part of the structure of the Board of Directors ("Board") there will be a standing Corporate Governance/Nominating Committee responsible for identifying individuals qualified to become Board members, consistent with criteria approved by the Board, and selecting or recommending that the Board select, the Director nominees for the next annual meeting of shareholders, as well as developing and recommending to the Board a set of corporate governance guidelines applicable to the Corporation and overseeing the evaluation of the Board. The Committee shall review the composition of the Board for the appropriate skills and characteristics required of members of the Board in the context of the then current make-up of the Board. This assessment should include consideration of issues of judgment, integrity, diversity, experience and skills  - all in the context of an assessment of the perceived needs of the Board at that point in time. The Committee is open to consider recommendations from all interested parties.

II. Compensation Committee

As a permanent part of the structure of the Board there will be a standing Compensation Committee responsible for reviewing and approving corporate goals and objectives relevant to Chief Executive Officer ("CEO") compensation, evaluating the CEO's performance in light of those goals and objectives, and, either as a committee or together with the other independent Directors (as directed by the Board), determining and approving the CEO's compensation level based on this evaluation. The Committee shall also make recommendations to the Board with respect to non-CEO executive officer compensation, and incentive compensation and equity-based plans that are subject to Board approval. Additionally, the Committee is responsible for producing a Compensation Committee report on executive officer compensation as required by the Securities and Exchange Commission ("SEC") to be included in the Company's annual proxy statement or annual report on Form 10-K filed with the SEC.

III. Finance & Audit Committee

As a permanent part of the structure of the Board there will be a standing Finance & Audit Committee responsible for, at least annually, obtaining and reviewing a report by the independent auditor describing the firm's internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the auditor's independence) all relationships between the independent auditor and the Company. In addition, the Committee must meet the requirements set out in Rule 10-A-3(b)(2), (3), (4) and (5) of the Exchange Act.

IV. Selection and Orientation of New Directors

The Board shall be responsible for selecting its own members and in recommending them for presentation to the stockholders for election. The Board delegates the screening process involved to the Corporate Governance Nominating Committee. The Corporate Governance Nominating Committee will recommend to the Board the names of prospective Board members. The Board will review and act on these recommendations, forwarding them to the shareholders where appropriate. The Board and the Company have a complete orientation process for new Directors that includes background material and meetings with senior management.

V. Director Education

A Director must attend at least one accredited Director Education session every three years following their election, which session shall be pre-approved by the Chairman. In addition, all Directors are strongly encouraged to participate in at least one accredited, Chairman-approved, Director education session annually.

VI. Corporate Governance/Nominating Committee Review of Board

The Corporate Governance/Nominating Committee, after consultation with the Chairman and Chief Executive Officer, will formally review each Director's continuation on the Board every three years, preceding renomination.

In order for any incumbent Director to become a nominee of the Board for further service on the Board, such person must tender an irrevocable resignation, contingent on (i) that person not receiving a majority of the votes cast, and (ii) acceptance of the resignation by the Board.

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Board Leadership

VII. Chairman, Chief Executive Officer and Lead Director

Whenever the Chairman and Chief Executive Officer roles are combined, the Board shall appoint an independent Lead Director, as defined in section X below, to preside over the non-management sessions of the Board.

VIII. Executive Sessions of Non-Management Directors

The Chairman, if not a member of management, a Lead Director, if the Chairman is a member of management, will call for and preside over meetings of the non-management Directors at each regularly scheduled Board meeting.

IX. Mix of Management and Independent Directors

The Board believes that, as a matter of policy, there should be a substantial majority of Independent Directors on the Board.  The Lead Director shall be independent.

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Board Composition And Performance

X. Board Definition of What Constitutes Independence for Directors

The definition of :Independent Director" will be in accordance with the guidelines of the New York Stock Exchange (the "NYSE"). No Director will be deemed independent unless the Board affirmatively determines that the Director has no material relationship with the Company. To assist in meeting this objective, the Board has adopted certain specific categorical standards to ascertain whether a Director has a material relationship with the Company, either directly or as a partner, shareholder or officer of an organization, its parent or a consolidated subsidiary that has a relationship with the Company.

The following will be cause for disqualifications of independence:

(a) A  Director who is an employee, or whose immediate family member is an executive officer, of the Company, its parent or a consolidated subsidiary (other than employment as interim Chairman or CEO), until three years after the end of such employment relationship;

(b) A Director who receives, or whose immediate family member receives, more than $100,000 per year in direct compensation from the Company, its parent or a consolidated subsidiary, other than Director and Committee fees and pension or other forms of deferred compensation for prior services (provided such compensation is not contingent in any way on continued service) (and other than compensation for service as interim Chairman or CEO or received by an immediate family member for service as a non-executive employee), until three years after he or she ceases to receive more than $100,000 per year in such compensation;

(c) A Director who is affiliated with or employed, or whose immediate family member is affiliated with or employed in a professional capacity, by a present or former internal or external auditor of the Company, its parent or a consolidated subsidiary, until three years after the end of the affiliation or the employment or auditing relationship;

(d) A Director who is an executive officer, or whose immediate family member is an executive officer, of another company whose compensation committee's membership includes an executive officer of the Company, its parent or a consolidated subsidiary is not independent until three years after the end of such service or the employment relationship;

(e) A Director who is an executive officer or employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for the greater of $1 million, or 2% of such other company's consolidated gross revenues, is not independent until three years after falling below such threshold.

The following will not be considered a material relationship:

(a) If a Director, within the preceding three years, serves as an officer, director or trustee of a charitable organization, and the Company's discretionary charitable contributions to the organization have not exceeded the greater of $1 million or 2% of such charitable organization's consolidated gross revenues.

For relationships not covered by the aforementioned categorical standards, the determination of the existence of a material relationship shall be made by those Board members who satisfy the independence guidelines as defined above.

XI. Director Responsibilities

The Board represents and oversees the interests of shareholders of the Company. Director responsibilities include:

  • review, approval and monitoring of critical business, financial strategy and corporate objectives;
  • assess major risks facing the Company and providing strategies to ameliorate those risks;
  • oversee processes designed to ensure Company compliance with applicable laws, regulations and Corporate policies;
  • adopt policies of ethical conduct and monitor compliance with those policies;
  • monitor the effectiveness of the Company's internal controls;
  • review, approval and monitoring of major Corporate actions;
  • oversee processes designed to ensure the accuracy and completeness of the company's financial reporting;
  • oversee succession planning for the chief executive officer;
  • oversee the compensation of the Company's principal officers elected by the Board;
  • provide counsel and assistance to the Company's leadership.

XII. Stock Ownership Requirement for Directors

Effective January 1, 2004, each Director must own at least three times their annual retainer within four years. This amount includes values attributable to options and restricted stock units. New Board members must meet this requirement within four years of their initial service date.

XIII. Director Job Status Change

If the occupation, career, or principal business activity of a Director materially changes such that the Director's occupation, career or principal business activity is significantly different from, or operates at a significantly reduced level from, the roles and responsibilities described in the proxy for the year in which the Director was last elected as a Board member, the Director shall offer to resign from the Board. The Board shall determine whether to accept the resignation or ask that the Director continue to serve on the Board.

XIV. Chief Executive Officer Outside Board Membership

The CEO shall obtain Board approval prior to accepting a nomination to the board of directors of any publicly-traded company. Additionally, the CEO shall not serve as a member of the board of directors of more than one publicly-traded company other than the Company.

XV. Director Membership on Additional Boards

It is the policy of the Company that Company Directors do not serve on the board of directors of more than five public companies in addition to the Company. The Corporate Governance/Nominating Committee may recommend an exception to this policy to the Board upon application of a Director, which application must be submitted to the Corporate Governance/Nominating Committee. The Corporate Governance/Nominating Committee shall review the matter and make a recommendation to the Board, which shall grant or deny the exception, in its discretion.

XVI. Term Limits

No Director shall be nominated to serve for more than five three-year terms.

XVII. Board Compensation

It is appropriate for the staff of the Company to report periodically to the Compensation Committee on the status of Board compensation in relation to other companies. As part of a Director's total compensation and to create a direct linkage with corporate performance, the Board believes that a meaningful portion of a Director's compensation should be held in restricted stock units ("RSUs") or shares of the Company. Changes in Board compensation, if any, should come at the suggestion of the Compensation Committee, but with concurrence by the Board.

XVIII. Board's Interaction with Investors, Media and the Public

The Chairman of the Board and Chief Executive Officer and/or their designees are authorized to speak on behalf of the Company. The individual Board members may, from time to time, be asked by the Chairman of the Board or Chief Executive Officer to speak on behalf of the Company with various constituencies.

XIX. Annual Meeting Participation

The Board considers it important for Board members to be present and available to shareholders at the Company's Annual Meeting. Directors are expected to attend the Company's Annual Meeting.

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Board Relationship To Senior Management

XX. Regular Attendance of Non-Directors at Board Meetings

The Board welcomes the regular attendance at each Board meeting of non-Board members who are in the most senior management positions of the Company.

XXI. Board Access to Senior Management

Board members will have complete access to the Company's management. It is assumed that Board members will use proper judgment to be sure that this contact is not distracting to the business operation of the Company. Accordingly, the Board is encouraged to coordinate these communications with the CEO. The attendance at Board meetings of non-members of the Board will be at the discretion of the Board. In the normal course of business, the Chairman of the Board and CEO will invite appropriate management and non-directors to the meetings.

XXII. Selection of Agenda Items for Board Meetings

The Chairman, in consultation with the Lead Director (if one is appointed), will establish the agenda for each Board meeting. Each Board member is free to suggest to the Chairman the inclusion of items on the agenda.

XXIII. Board Materials Distributed in Advance

Information and data that is important to the Board's understanding of the business to be addressed at the meeting will be distributed in writing to the Board before the Board meets. Management will make every attempt to see that this material is as complete and brief as possible while still providing the desired information. The material should be available 5 days in advance of the proposed or scheduled date of the meeting.

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Committee Matters

XXIV. Number, Structure and Independence of Committees

From time to time, the Board may want to form a new committee or disband a current committee depending upon the circumstances. Each committee will have a charter approved by the Board of Directors. The current standing committees are Corporate Governance/Nominating, Compensation, and Finance and Audit. Membership in the Corporate Governance/Nominating, Compensation and Finance and Audit Committees will consist only of Independent Directors.

XXV. Assignment and Rotation of Committee Members

The Board believes that the corporate governance process is facilitated by an active and involved committee structure. The Board believes that the periodic rotation of committee chairmanships and memberships is in the best interests of the Company and its stockholders. The Chairman of the Board, after consultation with other members of the Board, will consider the assignment of committee memberships and chairmanships and submit his/her nominees to the full Board for approval. All Board members, to the extent consistent with NYSE rules, will participate in the Committee structure of the Board.

XXVI. Committee Agendas

The chairman of a committee, in consultation with the appropriate members of the committee and management, will develop the committee agendas.

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Leadership Development

XXVII. Formal Evaluation of the Chairman and Chief Executive Officer

The Chairman of the Board, or the Lead Director if the Chairman is the CEO, with input from all Board members, will manage the performance evaluation of the CEO at least annually and communicate his/her recommendations in writing to the Compensation Committee. The Compensation Committee will prepare a written compensation recommendation for action by the full Board.

XXVIII. Board Evaluation

The Corporate Governance/Nominating Committee will be responsible for the coordination of an annual self-evaluation of the Board's performance and procedures to determine whether it and its committees are functioning effectively, and will report the results of the evaluation to the Board.

XXIX. Succession Planning

Succession planning will include policies and principles for CEO selection and performance review, as well as policies regarding interim succession by a Director in the event of an emergency or the retirement of the CEO. Succession planning should also be considered on a continuing basis for all senior managers in the event he/she may be unexpectedly unable to serve or found unqualified for promotion. The Board, through the Governance/Nominating Committee, will review the succession plans on an annual basis relating to Director and senior management qualifications respectively.

XXX. Independent Advice

The Board or, a committee may seek legal or other expert advice from a source independent of management. Generally, this engagement would be with the knowledge of the CEO.

XXXI. Corporate Reporting and Communications Helpline

Any shareholder or interested party wishing to communicate with the Board or with a specific Director, may do so by accessing the Company's helpline in the United States and Canada by calling (800) 461-9330, or internationally by dialing collect to (720) 514-4400. The information will be relayed to the Company's Chief Governance Officer & Corporate Secretary for coordination of delivery to the Board or specific Director.

The Company has established an anonymous reporting process via the Corporate helpline at (800) 461-9330 in the United States and Canada, or a collect call can be placed internationally at (720) 514-4400 for reporting by any employee or shareholder of concerns relative to unethical or inappropriate behavior on the part of a Company employee or matters regarding suspected unethical financial practices.

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These guidelines may be altered from time to time by recommendation of the Governance/Nominating Committee and the approval of the full Board.

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