PROXY PAPER
TEVA PHARMACEUTICAL INDUSTRIES LTD.
Tel-Aviv Stock Exchange: TEVA
ISIN: IL0006290147
MEETING DATE:
30 JULY 2014
INDEX MEMBERSHIP:
TA-100; TA-25
RECORD DATE:
23 JUNE 2014
SECTOR:
HEALTHCARE
PUBLISH DATE:
16 JULY 2014
INDUSTRY:
COMPANY DESCRIPTION
COUNTRY OF TRADE:
ISRAEL
COUNTRY OF INCORPORATION:
ISRAEL
Teva Pharmaceutical Industries Limited, together with
its subsidiaries, develops, manufactures, sells, and
distributes pharmaceutical products worldwide.
VOTING IMPEDIMENT:
DISCLOSURES:
OWNERSHIP
COMPANY PROFILE
PHARMACEUTICALS
REMUNERATION
NONE
REFER TO APPENDIX REGARDING
EXPLANATION FOR REPUBLICATION
PREVIOUS BOARD
VOTE RESULTS
APPENDIX
2014 ANNUAL MEETING
PROPOSAL
1.00
ISSUE
Election of Directors
BOARD
GLASS LEWIS
FOR
SPLIT
1.01
Elect Dan Propper
FOR
FOR
1.02
Elect Ory Slonim
FOR
AGAINST
FOR
SPLIT
2.00
Election of External Directors
2.01
Elect Joseph Nitzani
FOR
AGAINST
2.02
Elect Jean-Michel Halfon
FOR
FOR
CONCERNS
Performance/Experience
concerns
Performance/Experience
concerns
3.01
Bonus Incentives of President and CEO
FOR
FOR
3.02
Equity Grants of President and CEO
FOR
AGAINST
Not sufficiently linked to
performance
4.00
Liability Insurance of Directors & Officers
FOR
AGAINST
Poor disclosure
Not in shareholders'
interest
5.00
Appointment of Auditor
FOR
FOR
6.00
Declaration of Material Interest
UNDETERMINED UNDETERMINED
SHARE OWNERSHIP PROFILE
SHARE BREAKDOWN
1
SHARE CLASS
Ordinary Shares
SHARES OUTSTANDING
851.0 M
VOTES PER SHARE
1
INSIDE OWNERSHIP
1.67%
STRATEGIC OWNERS**
1.67%
FREE FLOAT
97.45%
SOURCE CAPITAL IQ AND GLASS LEWIS. AS OF 02-JUL-2014
TOP 20 SHAREHOLDERS
HOLDER
OWNED* COUNTRY
INVESTOR TYPE
1.
Capital Research and Management Company
11.39% United States
Traditional Investment Manager
2.
Wellington Management Company, LLP
10.63% United States
Traditional Investment Manager
3.
Franklin Resources Inc.
5.79% United States
Traditional Investment Manager
4.
Fidelity Investments
3.09% United States
Traditional Investment Manager
5.
Mondrian Investment Partners Limited
2.07% United Kingdom Traditional Investment Manager
6.
Norges Bank Investment Management
2.06% Norway
Traditional Investment Manager
7.
Invesco Ltd.
1.73% United States
Traditional Investment Manager
8.
Frost, Phillip
1.67% N/A
Individuals/Insiders
9.
Allianz Global Investors AG
1.60% Germany
Traditional Investment Manager
10.
Barrow, Hanley, Mewhinney & Strauss, Inc.
1.57% United States
Traditional Investment Manager
11.
PointState Capital LP
1.50% United States
Hedge Fund Manager
12.
Delaware Management Business Trust
1.30% United States
Traditional Investment Manager
13.
Soros Fund Management LLC
1.21% United States
Hedge Fund Manager
14.
The Vanguard Group, Inc.
1.16% United States
Traditional Investment Manager
15.
BlackRock, Inc.
0.82% United States
Traditional Investment Manager
16.
NWQ Investment Management Company, LLC
0.74% United States
Traditional Investment Manager
17.
Waddell & Reed Investment Management Co.
0.71% United States
Traditional Investment Manager
18.
Highfields Capital Management, LP
0.71% United States
Hedge Fund Manager
19.
BNY Mellon Asset Management
0.66% United States
Traditional Investment Manager
20.
Millennium Management LLC
0.65% United States
Hedge Fund Manager
*COMMON STOCK EQUIVALENTS (AGGREGATE ECONOMIC INTEREST) SOURCE: CAPITAL IQ. AS OF 02-JUL-2014
**CAPITAL IQ DEFINES STRATEGIC SHAREHOLDER AS A PUBLIC OR PRIVATE CORPORATION, INDIVIDUAL/INSIDER, COMPANY CONTROLLED FOUNDATION,
ESOP OR STATE OWNED SHARES OR ANY HEDGE FUND MANAGERS, VC/PE FIRMS OR SOVEREIGN WEALTH FUNDS WITH A STAKE GREATER THAN 5%.
SHAREHOLDER RIGHTS
VOTING POWER REQUIRED TO CALL A
SPECIAL MEETING
VOTING POWER REQUIRED TO ADD
AGENDA ITEM
MARKET THRESHOLD
COMPANY THRESHOLD1
5% of issued shared capital and 1% of voting
rights or 5% of voting rights
5% of issued shared capital and 1% of voting rights
or 5% of voting rights
1.0%
1.0%
1N/A INDICATES THAT THE COMPANY DOES NOT PROVIDE THE CORRESPONDING SHAREHOLDER RIGHT.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
1.00:
ELECTION OF DIRECTORS
PROPOSAL REQUEST:
Election of four directors
RECOMMENDATIONS & CONCERNS:
PRIOR YEAR VOTE RESULT: N/A
ELECTION METHOD:
AGAINST- Nitzani J.
Slonim O.
Performance/Experience concerns
Performance/Experience concerns
FOR-
Halfon J.
Propper D.
NOT UP-
Abravanel R.
Belldegrun A.
Elstein A.
Frost P.
Serves on too many boards
Lerner R.
Many M.
Maor G.
Peterburg Y.
Schwartz D.
Vigodman E.
Majority
PROPOSAL SUMMARY
Two candidates, Dan Propper and Ory Slonim, are up for election as directors to serve a three-year term each. If elected,
their terms will expire at the Company's 2017 annual meeting of shareholders.
In addition, under Proposals 2.01 and 2.02, two candidates, Joseph Nitzani and Jean-Michel Halfon, up for election as
external directors. Terms of external directors are three years by law. Mr. Nitzani's third and final term would commence
on September 25, 2014, while Mr. Halfon's first term would commence at the end of the meeting. The Company's other
external director Dafna Schwartz will leave the board at the end of her term on December 7, 2014.
The terms of two directors, Chaim Hurvitz and Dan Suesskind, will end following the meeting, and neither director is
seeking reelection.
BOARD OF DIRECTORS
NAME
Erez Vigodman*
UP AGE
GLASS LEWIS
COMPANY
OWNERSHIP**
CLASSIFICATION CLASSIFICATION
COMMITTEES
TERM TERM YEARS
START END
ON
AUDIT COMP NOM/GOV
BOARD
54
Insider 1
Insider
No
2009 2015
5
77
Affiliated 2
Not Independent
Yes
2006 2015
8
Yitzhak Peterburg
63
Affiliated 3
Not Independent
No
2012 2016
2
Roger Abravanel
67
Independent
Independent
No
2007 2015
7
Arie S. Belldegrun*
64
Independent
Independent
No
2013 2016
1
Amir Elstein
58
Independent
Independent
No
2009 2016
5
Jean-Michel Halfon
63
Outsider
No
Richard A. Lerner
75
Independent
Independent
No
Moshe Many
85
Independent
Independent
No
Galia Maor
71
Independent
Independent
No
Joseph Nitzani
67
Outsider
No
Dan Propper
73
Independent
No
Dafna Schwartz
63
Outsider
No
Ory Slonim
71
Independent
No
·CEO
Phillip Frost*
·Chairman
TEVA July 30, 2014 Annual Meeting
Independent
Independent
4
5
Independent
Independent
6
Independent
3
C
C
C
-
-
2012 2015
2
1987 2016
27
2012 2015
2
2008 2014
6
2012 2014
2
2011 2014
3
2008 2014
6
Glass, Lewis & Co., LLC
C = Chair, * = Public Company Executive,
= Withhold or Against Recommendation
1. President and CEO
2. Director and shareholder of CoCrystal Pharmaceuticals, Inc, whose research and development the Company agreed to fund by investing up to
two tranches of $7.5 million each per target in a 2011 agreement. The Company leases 13,500 square feet of office space located in Miami,
Florida from an entity controlled by him.
3. Group vice president—global branded products from October 2010 until October 2011
4. Nominates as an external director
5. External director
6. External director
**Direct, indirect or representational ownership of voting rights. Below 5% displays as "Yes".
NAME
ATTENDED AT
LEAST 75%
OF
MEETINGS
ADDITIONAL PUBLIC COMPANY DIRECTORSHIPS
Erez Vigodman
Yes
None
Phillip Frost
Yes
(4) Opko Health, Inc.; Castle Brands, Inc.; Ladenburg Thalmann Financial Services Inc.;
Cocrystal Pharma, Inc.
Yitzhak Peterburg
Yes
(1) Rosetta Genomics Ltd.
Roger Abravanel
Yes
None
Arie S. Belldegrun
Yes
(2) Arno Therapeutics Inc.; Kite Pharma Inc
Amir Elstein
Yes
(1) Tower Semiconductor Ltd.
Jean-Michel Halfon
Yes
None
Richard A. Lerner
Yes
(2) Opko Health, Inc.; Sequenom, Inc.
Moshe Many
Yes
(1) BiondVax Pharmaceuticals Ltd.
Galia Maor
Yes
(2) Equity One, Inc.; Strauss Group Ltd.
Joseph Nitzani
Yes
None
Dan Propper
Yes
(2) Osem Investments Ltd; Check Point Software Technologies Ltd.
Dafna Schwartz
Yes
(2) Strauss Group Ltd.; Bank Hapoalim
Ory Slonim
Yes
None
MARKET PRACTICE
INDEPENDENCE AND COMPOSITION
TEVA*
REQUIREMENT
BEST PRACTICE
Independent Chairman
No
Not Required1
N/A
Board Independence
79%
At least two external directors1
Majority; 1/3 for controlled
companies 2
100%; Independent Chair
Majority; all external directors
must serve on this committee;
chairman cannot be board
chairman and must be
independent, external director1
N/A
Compensation Committee Independence
100%; Independent Chair
All external directors must serve
on this committee; external
directors should comprise
majority; chairman must be
independent, external director1
N/A
Nominating Committee Independence
N/A
N/A
N/A
Percentage of women on board
14%
If all directors unaffiliated with
controlling shareholder(s) are
same gender, external director
must be of opposite gender1
N/A
Directors' biographies
Notice of meeting (6-K), pp. 4-10
Audit Committee Independence
* Based on Glass Lewis Classification
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
1. Israeli Companies Law
2. Recommendations of the Israeli
Companies Law
Israeli companies are governed by a one-tier structure, with a board of directors which appoints the Company's general
manager. The number of directors is determined by a company's articles of association; however, the Israeli Companies
Law states that listed companies are required to have at least two independent "external" or "outside" directors. The law
states that external directors must be independent of the Company's controlling shareholders for the last two years, or in
the absence of a controlling shareholder, may not have a business relationship with the Company's chairman, CEO,
significant shareholder, or senior financial officers. Two external directors may not serve on each others' boards and at
least one of the two external directors must be a financial/accounting expert. The law also states that external directors
may serve a maximum of three, three-year terms.
Best practice for boards in Israel is established by the Companies Law's First Addendum: Recommended Corporate
Governance Directives, which includes recommendations regarding director independence. In particular, it recommends
that at least a majority of directors sitting on the board of a non-controlled company should be independent. In the case of
a controlled company, at least one-third of the directors should be independent. We note that under Israeli law, the
controlling shareholder designation may be applied to a significant shareholder that holds less than a majority of a
company's shares.
Requirements regarding audit and compensation committee composition are detailed above in the board independence
and composition table. However, we note that Israeli companies also often have a separate financial statements review
committee, which is primarily tasked with the following: (i) evaluating the financial statements, including aspects such as
disclosure, accounting policies, and valuations; and (ii) conducting internal audits related to financial reporting. By law, this
committee must consist of a majority of independent directors who can understand financial statements and its chairman
must be an external director. The board chairman or anyone affiliated with the controlling shareholder may not serve on
this committee.
SHAREHOLDER OPPOSITION
We believe shareholders should be mindful of the following:
DISSIDENT SHAREHOLDERS
On June 30, 2014, shareholders Benny Landa and Ruth Cheshin encouraged via a "position paper" that shareholders
vote against the reelection of Ory Slonim and against the authorization to purchase director and officer liability insurance
in Proposal 4.00. (Please see analysis under Proposal 4.00 for details on opposition related to that proposal.) These
shareholders argued that at least one of the two regular director nominees should have had global pharma experience
and, therefore, recommended voting for Mr. Propper, who offers international industrial experience, and against the more
entrenched Mr. Slonim.
Mr. Landa and Ms. Cheshin have expressed continued dissatisfaction with several aspects of the Company's governance
practices over the past several months. On January 20, 2014, Mr. Landa wrote a letter to the Company requesting that
several changes to the Company's governance practices be put before shareholders at the upcoming annual
meeting. The requested changes included:
(i) Reducing the size of the board;
(ii) Increasing the amount of global-pharma experience amongst board members;
(iii) Removal of the Company's staggered board structure in favor of one-year terms for all directors other than external
directors; and
(iv) Amending the Company's articles of association to lower the percentage of shareholders required to approve various
matters to two-thirds for some matters and a simple majority for others.
BOARD RESPONSE
On July 3, 2014, the Company responded to the position paper, declining to make any changes to the agenda of the
annual meeting. After pointing to the Company's total shareholder return since the start of the year, the Company noted
that it has addressed the need to bring in more global pharma experience by nominating Mr. Halfon and by
appointing Sigurdur Olafsson as president and CEO of the Company's newly formed global generic medicines group as of
July 1st, 2014. The Company also noted the reduction in board size to 13 by the end of the year.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
Previously, on January 22, 2014, Dr. Frost had written a letter to shareholders pledging to reduce the size of the board
and to add directors with global healthcare experience.
On June 18, 2014, on the day the annual meeting was announced, Dr. Frost sent another letter informing shareholders of
changes to its governance structure, including:
(i) Jean-Michel Halfon would be nominated at the Company's annual meeting to address the need for more global pharma
experience on the board;
(ii) The board of directors would be reduced from 15 to 13 members by the end of 2014; and
(iii) Dr. Frost would resign from his position as board chairman around the end of the year.
GLASS LEWIS ANALYSIS
While we welcome the efforts the Company has made to address some of the shareholder concerns expressed above,
the Company has not as yet addressed the following issues raised in the position paper:
Staggered board structure: We believe staggered boards are less accountable to shareholders than boards that are
elected annually. Furthermore, we feel the annual election of directors encourages board members to focus on
shareholder interests. Moreover, empirical studies have shown: (i) companies with staggered boards reduce a
firm’s value; and (ii) in the context of hostile takeovers, staggered boards operate as a takeover defense, which
entrenches management, discourages potential acquirers and delivers a lower return to target shareholders. In
light of the empirical evidence suggesting staggered boards reduce a company’s value and the increasing
shareholder opposition to such a structure, Glass Lewis supports the declassification of boards and the annual
election of directors.
Supermajority voting requirements: Several of the Company's articles require 85% shareholder approval, higher
than the minimum legal threshold, to amend. These articles include maintaining the Company's center of
management in Israel and holding all shareholder meetings in Israel; requiring that the majority of the board must
reside in Israel; maintaining a staggered board with three-year terms for directors; requiring that a majority of
in-person board meetings be held in Israel; and providing that the CEO must live in Israel throughout his or her
tenure. Glass Lewis believes that provisions that are intended to prevent or thwart a potential takeover of a
company are not conducive to good corporate governance and can reduce management accountability by
substantially limiting opportunities for shareholders.
We believe shareholders should be concerned by the absence of any formal response from the board explicitly
addressing these issues. While chairman Frost's letter dated January 22, 2014, stated that "corporate governance is a
priority of this board" and implied further changes or assessments to come, no mention was made of the staggered board
or supermajority requirements in Mr. Frost's June letter or the materials presented to the annual meeting. In fact, the
Company's response to the position paper fails to even commit to an evaluation of these concerns in the future.
Finally, we note that Mr. Landa has made a compelling case, detailed on his personal website, as to why he, together with
other significant shareholders with more than the 1% collective ownership required to add items to the agenda, may not
have been able to place shareholder proposals on the agenda of the annual meeting in order for shareholders to address
these issues separately. In accordance with Article 37(b) of the articles of association, the Company's restrictive policy
requires that shareholder proposals be requested during a short window of 14 days following the publication of the annual
results prior to the date of a meeting. In this case, the results were published in February 2014, when Mr. Landa was
continuing to engage with the board on these issues. Further, the Company moved the annual meeting forward to July
from its usual September date. In so doing, the board convened the meeting on June 18, 2014, before a national law
came into effect on July 2, 2014, requiring that companies accept shareholder proposals submitted within seven days of
the publication of the notice of meeting.
In our view, the failure to address antitakeover provisions raised by a shareholder in a public forum, coupled with the
restrictive measures preventing shareholder proposals to address these issues, constitute a failure of the governance
committee to fulfill its duty to shareholders.
OVERBOARDING
Chairman Frost serves on a total of five boards of public companies, including three chairmanships, while serving as CEO
of one public company. We believe that the time commitment required by this number of board memberships may
preclude Dr. Frost from fulfilling his responsibilities to this Company's shareholders. While we would normally recommend
voting against Dr. Frost, he is not up for election at this time. As mentioned above, on June 18, 2014, Dr. Frost announced
in a letter to shareholders that he plans to retire towards the end of the year. We will monitor this issue going forward.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
in a letter to shareholders that he plans to retire towards the end of the year. We will monitor this issue going forward.
RECOMMENDATIONS
We recommend voting against the following nominees based on the following issues:
Nominees SLONIM and NITZANI are members of the Company's governance committee. We believe this committee has
allowed anti-takeover devices to persist despite shareholder concern and has not provided a sufficient response to these
concerns, which have been known to the board since at least January 2014. Given the Company's restrictive proxy
access rules that prevented dissident shareholders from being able to directly address their concerns by adding proposals
to the agenda, as discussed above, we believe shareholders can most appropriately voice their concerns regarding these
issues through the election of the governance committee members.
Accordingly, we recommend that shareholders vote:
AGAINST: Nitzani; Slonim
FOR: Halfon; Propper
The Company discloses the following biographical information for director Jean-Michel Halfon, who joined the board during the past year:
Jean-Michel Halfon currently serves as an independent consultant, providing consulting services to pharmaceutical, distribution, healthcare IT and
R&D companies. From 2008 until 2010, Mr. Halfon served as president and general manager of emerging markets at Pfizer Inc., after having served in
various senior management positions since 1989. From 1987 until 1989, Mr. Halfon served as director of marketing in France for Merck & Co., Inc.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
2.00:
ELECTION OF EXTERNAL DIRECTORS
Please see analysis under Proposal 1.00.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
3.01:
BONUS INCENTIVES OF PRESIDENT AND CEO
PROPOSAL REQUEST:
Approve incentive structure of the CEO's annual bonuses RECOMMENDATIONS & CONCERNS:
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
FOR- NO CONCERNS
PROPOSAL SUMMARY
Shareholders are asked to approve the annual bonus incentive structure of the CEO Erez Vigodman for 2014 onward.
On January 9, 2014, the Company announced that Erez Vigodman had been appointed as president and CEO, effective
February 11, 2014. Shareholders approved Mr. Vigodman's employment terms, which include a base salary equivalent to
$1.35 million, as well as benefits, an annual bonus, and equity awards, at a special meeting on February 24, 2014.
According to these terms, 85% of his bonus each year would depend on achievement of Company goals set each year by
the compensation committee and the board of directors following the approval of the Company’s annual operating plan
and long range plan; and 15% would be based on the discretionary evaluation of the compensation committee and the
board.
If approved, the incentive structure of the CEO's annual bonus will consist of the following:
Percent of Annual Bonus Performance Measures
At least three out of the following financial measures:
Non-GAAP operating profit
Revenues
Non-GAAP cash flow from operations
Non-GAAP earnings per share
Up to two other financial measures chosen by the compensation committee and
the board.
At least 51%
(60% of the 85% attributed
to Company performance)
Each measure would be weighted between 8% and 44%;
At least one operational measure, which may include:
Quality measures
Compliance measures
Customer service
Milestones for product pipelines
Personnel survey score.
No more than 34%
(40% of the 85% attributed
to Company performance)
Each measure would be weighted between 8% and 32%.
Based on an evaluation of his overall performance by the compensation committee and the
board, based on quantitative and qualitative criteria, such as establishing and implementing
the Company's strategy, leadership and team collaboration.
15%
The amount of bonus the CEO would receive would be functionally related to the degree to which he/the Company
achieves the above targets, as follows:
TEVA July 30, 2014 Annual Meeting
Level of
Achievement
of Targets
CEO Annual Bonus (as a percentage of his annual
salary)
Less than 85%
No annual bonus
85%
8.75%
100%
140%
125%
200%
9
Glass, Lewis & Co., LLC
No additional payout would be made for performance in excess of 125% achievement of the performance criteria.
Performance between threshold and target and between target and maximum are determined linearly based on straight
line interpolation.
GLASS LEWIS ANALYSIS
We believe that decisions regarding the compensation of a company's executives are generally best left up to the board of
directors and/or the compensation committee. In this case, we note that a substantial portion of the bonus is based on
quantitative metrics and that the maximum payouts do not appear to be excessive. As a result, we do not believe that the
design of the bonus plan warrants serious shareholder concern.
Accordingly, we recommend that shareholders vote FOR this proposal.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
3.02:
EQUITY GRANTS OF PRESIDENT AND CEO
PROPOSAL REQUEST:
Approve annual equity grants of the CEO
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
RECOMMENDATIONS & CONCERNS:
AGAINST- Not sufficiently linked to performance
PROPOSAL SUMMARY
If approved, the Company will grant equity worth up to $3.5 million at the time of the grant to the CEO each year of his
employment under the terms below, beginning in 2015:
Types of Equity Grants
At least two of the following: options to purchase Company shares, performance share units (PSUs),
and restricted share units (RSUs). The compensation committee and the board may add up to one
equity-based vehicle to the above list at their sole discretion. Options and/or PSUs would make up
at least 50% of each award.
Options and RSUs, if granted, would vest in three equal installments, on the second, third and fourth
anniversaries of the grant date.
Vesting Period
PSUs, if granted, would vest on the third anniversary of the grant date, subject to Mr. Vigodman’s
continued employment as president and CEO, and subject to his meeting performance objectives to
be determined by the compensation committee and the board.
The compensation committee and the board may, however, determine different vesting periods,
subject to the limitations of the Company's compensation policy the relevant equity plan. As per p.
A-7 of the Company's compensation policy, the minimum vesting period of all equity-based awards,
other than PSUs istwo years from the date of grant, while the minimum vesting period of PSUs is
three years from the date of grant.
Performance Conditions
Performance criteria may include financial parameters and/or stock performance parameters, which
may be determined as an absolute parameter (e.g., earnings per share, total shareholder return
(TSR), stock price) and/or as a parameter that is relative to a peer group (e.g., ratio of TSR to peer
group TSR) (p. A-7 of the Company's compensation policy).
Expiration
N/D (maximum of ten years under the option plan)
Exercise Price
The closing price of the Company's shares reported on the principal United States national securities
exchange on which such shares are listed and traded on the grant date.
Repricing Provisions
Repricing not allowed without shareholder approval
Accelerated Vesting
Provisions
The Company may in its discretion allow accelerated vesting of awards in the event of a change in
control
We note that on February 24, 2014, when shareholders approved the CEO's employment terms, $3 million worth of
equity, in the form of 280,702 options and 15,660 RSUs also were approved.
GLASS LEWIS ANALYSIS
In general, we believe that equity-based compensation is an effective way to attract, retain and motivate directors and
executive officers. When used appropriately, it can provide a vehicle for linking director pay to a company's performance,
thereby aligning the interests of directors with those of shareholders. Tying a portion of an executive's compensation to
the performance of the Company provides an incentive to maximize share value by those in the best position to realize
that value.
In this case, however, we note that, under this proposal, the Company would be authorized to grant the CEO up to $3.5
million of equity per year without necessarily attaching any performance conditions. We believe that an award of this
magnitude granted solely based on the CEO's continued employment as CEO may not best encourage and measure
long-term results. Furthermore, the committee may deviate from the regular vesting terms disclosed above and provide
for awards that vest over the minimum period specified by the Compensation Policy. We consider the minimum two-year
period for time-vesting awards to be somewhat short.
While we believe that the terms of the Compensation Policy as they relate to equity awards are reasonable, we believe
that shareholders should be concerned by these aspects of the application of the Policy to Mr. Vigodman. In the absence
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
that shareholders should be concerned by these aspects of the application of the Policy to Mr. Vigodman. In the absence
of any indication that the Company intends to grant performance-vesting awards, and given the ability to reduce the
vesting period of time-vesting awards, we do not believe shareholders should support this proposal at this time.
Accordingly, we recommend that shareholders vote AGAINST this proposal.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
4.00:
LIABILITY INSURANCE OF DIRECTORS & OFFICERS
PROPOSAL REQUEST:
Approve D&O liability insurance
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
RECOMMENDATIONS & CONCERNS:
AGAINST- Insufficient overall disclosure
Plan is not in best interests of shareholders
PROPOSAL SUMMARY
Shareholders are asked to approve the purchase of liability insurance coverage for each of the directors and executive
officers of the Company, as of June 1, 2014. The Company also would be authorized to renew the coverage periodically.
The policy or policies would provide coverage to the maximum extent permitted by law, with annual coverage of up to
$600 million.
Under Israel's Companies Law, shareholder approval is required for the employment terms of the CEO (Article 272C1(1))
and of a director (Article 273), including the terms of their indemnification and liability insurance.
MARKET PRACTICE
By Israeli law (Companies Law: Article 261), a company may provide indemnification and/or purchase liability insurance
for its directors and officers, if the company's articles of association includes a relevant provision. The law allows the
following acts to be covered:
(i) breach of duty of care towards the company or towards any other person;
(ii) breach of fiduciary duty towards the company, provided that the office holder acted in good faith and had reasonable
foundation for presuming that the act would not harm the good of the company;
(iii) a financial liability imposed upon him/her for the benefit of another person, as well as reasonable legal expenses
incurred.
A company may not, however, insure directors and officers for the following acts (Companies Law: Article 263):
(iv) breach of fiduciary duty, other than as provided in (ii) above;
(v) breach of duty of care committed intentionally or recklessly;
(vi) an act done with intent to make unlawful personal profit;
(vii) fines, civil fines, monetary sanctions or penalties imposed upon such office holder.
Note that (iii) includes a payment to a party damaged as a result of a violation of Israeli securities law committed by the
director or officer (The Securities Law: Article 56H(b)(1)). The list of violations imposed by an Israeli Securities Authority
panel for which the resulting payment may be indemnified or insured is extensive and includes (The Securities Law:
Seventh Schedule):
(i) the inclusion or omission of an item in the publication of a notice or in any other report that would mislead a reasonable
investor;
(ii) sharing insider information with a person whom the director or officer should have known would make use of insider
information received; and
(iii) offering securities to the public in a manner not authorized by the Israeli Securities Authority.
Note the panel may impose such payments without demonstrating criminal intent (ibid: 52BB).
Although we note that the insurance or indemnification of such payments is permitted by Israeli law when included in the
Company’s articles of association, companies are not required to indemnify or insure directors or officers for these
payments. We do not believe a company should utilize its profits to indemnify or insure directors and officers for payments
made related to such violations of securities law.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
GLASS LEWIS ANALYSIS
While we strongly believe that directors and officers should be held to the highest standard when carrying out their duties
to shareholders, some protection from liability is reasonable to protect them against certain suits. As such, we find it
reasonable for a company to enroll in liability insurance to cover its directors and officers so long as the terms of such
agreements are reasonable.
As noted above, this policy would insure the Company's directors and officers to the fullest extent allowable by law and
thus would appear to include payments related to violations of securities law discussed above. We do not believe
providing such insurance is in shareholders' best interest.
In addition, shareholders Benny Landa and Ruth Cheshin correctly note in their position paper dated June 30, 2014, that
the Company has gone against market practice by failing to provide information related to the annual premium and the
number of years of coverage, and thus shareholders are left unaware of the costs involved. To the best of our knowledge,
the board has not provided any cogent response to this concern.
We note that even without the opposition expressed by Mr. Landa and Ms. Cheshin, we would recommend voting against
this proposal based on the extent of the liability coverage. As a result, we do not believe approval of this proposal serves
shareholders' interests.
Accordingly, we recommend that shareholders vote AGAINST this proposal.
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Glass, Lewis & Co., LLC
5.00:
APPOINTMENT OF AUDITOR
PROPOSAL REQUEST:
Ratification of Kesselman & Kesselman
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
AUDITOR OPINION:
Unqualified
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
AUDITOR FEES
2013
2012
2011
$11,946,000
$11,949,000
$12,981,000
$917,000
$1,125,000
$2,122,000
Tax Fees:
$6,703,000
$7,700,000
$7,504,000
All Other Fees:
$1,256,000
$1,342,000
$1,357,000
Total Fees:
$20,822,000
$22,116,000
$23,964,000
Auditor:
Kesselman &
Kesselman
Kesselman &
Kesselman
Kesselman &
Kesselman
Audit Fees:
Audit-Related
Fees:
Years Serving Company:
N/D
Restatement in Past 12 Months:
No
GLASS LEWIS ANALYSIS
We believe that the fees paid for non-audit-related services are reasonable and that the Company has a track record of
disclosing the appropriate information about these services in its filings.
Accordingly, we recommend that shareholders vote FOR this proposal.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
6.00:
DECLARATION OF MATERIAL INTEREST
SUMMARY
Voters must disclose whether they have a personal interest in the approval of Proposal 2.01 or 2.02 as a result of a
relationship with a controlling shareholder.
Voters are required to inform the Company, either way, whether they or their agent voting on their behalf have a personal
interest either of these items. In the event that a voter does not indicate one way or the other, his or her votes on
the relevant item will not be counted.
In addition, voters or their agents who have a personal interest must include an explanation of the nature of the interest.
“Personal Interest” is defined as: (1) a shareholder’s personal interest in the approval of an act or a transaction of the
Company, including (i) the personal interest of his or her relative (which includes for these purposes any members of
his/her (or his/her spouse's) immediate family or the spouses of any such members of his or her (or his/her spouse's)
immediate family); and (ii) a personal interest of a corporate body in which a shareholder or any of his/her aforementioned
relatives serves as a director or the chief executive officer, owns at least 5% of its issued share capital or its voting rights
or has the right to appoint a director or chief executive officer and exclusive of a personal interest that stems from the fact
of holding shares in the company, including the personal interest of a person who votes by virtue of a power of attorney
given him by another person, even if the other person does not have a personal interest, and the vote of a person who
was given a power of attorney by a person who has a personal interest shall also be deemed the vote of a person with a
personal interest, irrespective of whether the person who votes has or does not have direction.
In accordance with the provisions of Section 275 of the Companies Law, approval of these matters on the agenda of the
meeting requires a simple majority of the shareholders participating in the vote, either in person or by proxy or through a
voting form, provided that one of the following conditions is satisfied: (a) the count of the votes of the majority at the
general meeting shall include a majority of all the votes of the shareholders who do not have a personal interest in the
approval of the transaction, and who are participating in the vote; the count of all the votes of the said shareholders shall
not take into account the votes of the abstaining shareholders; (b) the total of the votes against, from among the
shareholders as stated in paragraph (a) above, shall not exceed a rate of two percent (2%) of the total voting rights at the
Company.
VOTING INSTRUCTIONS
Shareholders must review the definitions provided by Israeli law and/or the Company and certify whether or not they have
a personal interest in the proposal. While this requirement is not an agenda item, some voters may be asked to vote 'For'
or 'Against.' Please choose 'For' to indicate a personal interest; otherwise, please choose 'Against.' 'Abstain' is not a valid
option.
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
APPENDIX
Questions or comments about this report, GL policies, methodologies or data? Contact your client service representative or go to
www.glasslewis.com/issuer/ for information and contact directions.
NOTE
Revision: July 17, 2014. We have revised our report to reflect that the dissident shareholders, Landa and Cheshin, do not collectively own more than 1%
of the Company's share capital, and are not, therefore, able to add agenda items to the general meeting acting alone, as was previously stated in
Proposal 1.00.
DISCLOSURES
Glass, Lewis & Co., LLC is not a registered investment advisor. As a result, the proxy research and vote recommendations included in this report should
not be construed as investment advice or as any solicitation, offer, or recommendation to buy or sell any of the securities referred to herein. All
information contained in this report is impersonal and is not tailored to the investment strategy of any specific person. Moreover, the content of this report
is based on publicly available information and on sources believed to be accurate and reliable. However, no representations or warranties, expressed or
implied, are made as to the accuracy, completeness, or usefulness of any such content. Glass Lewis is not responsible for any actions taken or not
taken on the basis of this information.
This report may not be reproduced or distributed in any manner without the written permission of Glass Lewis.
For information on Glass Lewis' policies and procedures regarding conflicts of interests, please visit: http://www.glasslewis.com/
LEAD ANALYSTS
Governance & Compensation: Etan Blass
TEVA July 30, 2014 Annual Meeting
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Glass, Lewis & Co., LLC